FMA had 'shortcomings' in how it managed potential conflict of interest of former CEO Rob Everett in KiwiSaver default appointments

Former Financial Markets Authority chief executive Rob Everett. Photo / Supplied

The Financial Markets Authority has been pulled up for its poor handling of a potential conflict of interest by its former chief executive Rob Everett in the appointment process for the default KiwiSaver providers.

Everett, who left the regulator in October last year, disclosed that his brother-in-law was the chief financial officer at KiwiSaver provider Booster when he joined the FMA in 2014.

But the FMA did not tell Commerce Minister David Clark of the potential conflict, nor did it have a written management plan for handling it, during the KiwiSaver default appointment process last year in which the regulator was asked to provide limited advice.

Booster was reappointed as a default provider under that process.

A review undertaken by QC Kristy McDonald at the request of Clark and released publicly today found there were shortcomings in the way in which the conflict of interest was managed by the FMA and the former chief executive.

But McDonald said those shortcomings did not have any impact on the FMA's advice to the minister in relation to the appointment process of KiwiSaver default providers in March 2021.

"The FMA's advice in relation to default KiwiSaver providers was limited to advising on whether there were any regulatory compliance issues that may affect the ability of the proposed KiwiSaver fund managers to act as default providers.

"The substantive evaluation of the merits of the applications that were made for appointment as a default provider was carried out independently of the FMA."

Everett was not involved in the provision of advice to the minister.

But McDonald found the FMA fell down in four areas; it failed to disclose the former CEO's conflict of interest to the minister or when engaging with the Ministry of Business, Innovation and Employment about risks relating to the default KiwiSaver provider process.

It also failed to keep formal records of the arrangements made to manage its former CEO's conflict and the conflict of interest was not made known to the chair or board of the FMA as early as it should have been.

McDonald also found the FMA's conflict of interest management policy to be inadequate and not fit for purpose.

"A Crown entity's conflict of interest policy should adequately reflect the unique position of the chief executive. A policy that refers to staff members' conflicts of interest being
disclosed to and managed by their manager, without addressing how conflicts of the chief executive are to be managed, is not fit for purpose.

"The fact that the FMA's policy does not do this might be explained by the fact that guidance on this particular issue is sparse."

McDonald recommended the FMA's conflicts of interest policy should be amended to make clear that notification of decision makers applied in the case of the CEO or board member conflicts and to subsequent decision makers who are external to the FMA [such as ministers].

In a statement the FMA said it welcomed the independent review.

FMA chief executive Samantha Barrass, who has only been in the top job six weeks, said as the primary conduct regulator of the financial sector, the FMA's integrity must be beyond reproach.

"We set high standards for ourselves and are implementing all the recommendations."