NEWS

Ratings agency welcomes climate risk reporting

Requiring New Zealand’s financial sector to report on its climate change risk has been welcomed by ratings agencies.

About 200 of the country’s big financial organisations will be required to disclose how exposed they are to climate-related risks.

The rule will apply to any bank, credit union, fund manager, insurer or building society with more than $1 billion in assets.

“What gets measured, gets managed – and if businesses know how climate change will impact them in the future they can change and adopt low carbon strategies. Covid-19 has highlighted how important it is that we plan for and manage systemic economic shocks – and there is no greater risk than climate change,” Minister for Climate Change James Shaw said.

Ratings agency Moody’s said it was a positive move because it would make institutions that were not already doing so assess the impact of climate-related financial risks on their business.

That was likely to increase the visibility of such risks in the government and risk frameworks of the institutions, it said.

It could also provide them with new ways of assessing the risks and having a standard set of reporting would also allow investors to better understand the impact of the risks across different financial institutions.

“Many large businesses in New Zealand do not currently have a good understanding of how climate change will impact on what they do,” Shaw said.

Businesses covered by the requirements will have to make annual disclosures, covering governance arrangements, risk management and strategies for mitigating any climate change impacts. If businesses are unable to disclose, they must explain why.

Other countries are considering requiring climate risk reporting but New Zealand is the first to make it mandatory in the financial system.

Day of reckoning could be messy: Zollner

Low interest rates are compressing pricing of risks and a “day of reckoning” at some point could be messy, ANZ chief economist Sharon Zollner says.

Zollner addressed the Financial Advice NZ conference in September.

She said very low interest rates had forced people to take a “remarkably relaxed attitude to risk”.

“Actual risks are really elevated but priced risks are not.”

Some people were taking on too much risk, she said.

“Are we putting off the day of reckoning by trying to save every investor, every firm?”

Debt was at record highs and “going vertical”, she said. The FMA warned that the clock is ticking for advisers who had not yet gained transitional licences for the new financial advice regime.

The new financial advice regime will come into action on March 15, 2021. That is also the date by which financial advisers will need to have completed the application for their transitional licences.

Speaking at September’s Financial Advice NZ conference, representatives of the FMA said that more than 2,000 advisers were still deciding their

Zollner said the full economic impact of Covid on New Zealand would only be felt over the coming months as support such as the wage subsidy scheme was wound back and the gap left by international tourism became apparent. While the economy had been able to return to something closer to normal the outlook was challenging, with investment and spending weaker.

She said the support seen all over the world in fiscal and monetary policy had been a “huge step away from capitalism”.

It had been estimated that as many as 15% of companies in some countries were only operating because the cost of capital was so low. advisers futures and had yet to begin applying for their transitional licence.

FMA director of market engagement, John Botica, had this advice for advisers. “Be proactive. There isn’t a lot of time to make decisions. It is time to be courageous in new business structures.”

The cut-off date is five months away, but the FMA is recommending that “advisers should have a plan in place by the end of the year”.

Applications are being processed by the FMA over a timeframe of around

Those “zombie companies” were blocking the potential for new firms to come in and take their place, as would normally happen in a recession that caused businesses to fail.

There was no measurement of the impact on the economy that would have, she said.

New Zealand would have to look to improved productivity to drive growth, she said. The only other options were more people – migration has ground to a halt – or faster use of the world’s resources, which was unpalatable from

Time is running out for 2,000 unregistered

an environmental point of view. 10 business days. Over half of the licences so far awarded have been to single adviser businesses.

The application is processed fully online and will be asking advisers to provide details of business governance, client obligations and digital systems. Botica states that “if [advisers] are acting with their clients' best interests then they are already there”.

The FMA has asked anyone with questions to get in contact sooner rather than later. “Now is the time to take control and make decisions with the way you run your business.”

FMA details Covid-19 response

A formal warning given to a financial adviser in May who recommended all clients urgently move their investments to low-risk funds was intended to send a message to the industry about the Financial Markets Authority’s expectations. The FMA has released an information sheet detailing how it has dealt with the Covid-19 crisis so far.

It said the information was designed to help financial services entities understand its approach and consider ways to improve their own response.

“The FMA’s overall objective throughout this period has been to ensure continuity of markets and services in a way that is fair, efficient and maintains confidence in the financial sector. We have worked in conjunction with other regulators to actively engage with market participants across a broad range of sectors.”

The FMA had been making weekly calls to key market participants, it said, including KiwiSaver and fund managers, DIMS providers, advisers, smaller banks and dispute resolution schemes.

It said it had seen most entities handle the shift to remote working during lockdown well although some found their business continuity plans were not fit for purpose because they had not considered a lockdown environment.

Most entities FMA dealt with were dealing with call volumes twice or three times the normal rate during lockdown.

Many insurers dealt with a spike of customers trying to work out what cover they had and how the pandemic would affect it. “This raises the question of how much customers truly understand their policies.”

Financial advisers provided additional client reporting, and increased customer contact, with video calls replacing faceto-face meetings.

There was a surge in KiwiSaver fund switching when markets wobbled in March. The FMA said many were not open to advice. But it said an adviser who sent a bulk email urging clients to switch needed to be acted upon.

“The adviser failed to clarify that the email provided ‘class’ financial advice, had limitations, and may not be appropriate for all clients. The adviser also failed to recommend that clients first discuss their personal circumstances and goals with an adviser before acting on the advice. Our decision to issue a warning recognised the need to urgently deal with the matter and send a message to the industry about our expectations for providing suitable advice in extreme market conditions.”

Non-English speakers had been a target of misconduct during the crisis, the FMA said.

“In April we successfully requested the removal of two advertorials a financial adviser had posted on Chineselanguage social media platform WeChat. These articles cited the cost of Covid-19 hospitalisations in China (in New Zealand dollars) and recommended people living in New Zealand, especially young children and the elderly, get health insurance to avoid the same financial risk. The advertorials failed to mention that in New Zealand, emergency treatment and testing for Covid-19 is free, as it is covered by the public health system. Regardless of the target audience, financial market participants should not be using Covid-19 as a marketing tool.” A