Financial watchdog appoints academic for second term
25 August 2023
Professor of Macroeconomics Prasanna Gai is bringing more than 25 years of experience in financial market issues to his role on the Financial Markets Authority Board.
Greenwashing, climate-related disclosures, conduct and cybersecurity in the financial sector are just some of the issues the Financial Markets Authority is currently focusing on, says board member Professor Prasanna Gai.
Professor Gai, who was first appointed to the Financial Markets Authority (FMA) Board in 2018, has been reappointed until 2028, underscoring the importance of economic expertise in navigating the challenges of a rapidly changing financial landscape.
A key dimension of the financial watchdog’s evolving journey is its shift from focusing on efficient markets to ensuring the broader financial sector is trusted and fair. This extends to regulating the conduct of banks, insurance companies, and financial advisors.
Gai's expertise as an economist is contributing to developing conduct regulation, which will help ensure consumers are treated equitably, elevating the authority’s role to active participation in shaping market behaviours.
Unlike more straightforward targets like inflation, defining and ensuring ‘good conduct’ presents a nuanced challenge, he says.
"We're looking into framing what we mean by fairness, what we mean by good outcomes for customers, conveying that to the market and developing a set of instruments to ensure these expectations are met. It's not solely a case of prosecution – we're thinking about the best ways to affect good conduct.
“Good conduct is about ensuring positive customer outcomes, that firms are acting in the customers' best interests, and that there's enduring care for the customer over the lifetime of the product provided. Making those expectations clear will be our challenge over the next few years."
Reflecting on international developments, Gai says the Hain Royal Commission in Australia, which unearthed troubling practices within the banking sector, including the sale of insurance to dead people, has driven the FMA and other regulatory bodies to intensify their oversight, further emphasising the need for robust frameworks and guidelines.
The FMA is also extending its purview to monitor climate-related disclosures in the financial sector. Gai stresses the importance of transparency in the sector, ensuring that firms provide accurate information to investors, and preventing greenwashing and other misleading practices.
"When financial firms, banks or asset managers are engaged in ethical and social investing, we have to be very conscious of that. In financial markets, some participants are tempted to engage in greenwashing - essentially, having a portfolio that they assure people is green, but which in fact includes shares in, for example, Saudi oil. The customer doesn't necessarily know and innocently thinks that what they're investing in is ethical. So, monitoring that is a very big mandate for the FMA."
The role of economics has increased as the watchdog's mandate has grown, and for Gai, utilising his academic expertise in this role, alongside his day job as a Professor of Macroeconomics, is rewarding.
"My position on the Board enables me to research ideas very readily and to explore a broad canvas of topics, including how and where markets and firms can fail, the role of transparency, and the design of governance structures. The role is continuing to be an exciting and academically enriching experience."
Sophie Boladeras, media adviser
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