Broader remit for FMA would be helpful, IMF says

Tuesday 7th March 2017

New Zealand's Financial Markets Authority got a thumbs-up from the International Monetary Fund, which says it would probably benefit from having a broader remit.

The global agency completed a review of the country's financial sector regulation, which it deemed to be sound while saying extra tools could enhance the framework. Mission chief Alejandro Lopez-Mejia told a briefing in Wellington that legislation overhauling New Zealand's securities law, the Financial Markets Conduct Act, placed the country well in relation to international standards but could be extended to areas not currently covered.

The legislation covers a licensing regime and provides the framework to encourage consumer-centric conduct, with the final leg completed in December last year when fund managers officially came under the watchdog's umbrella. Now that's done, the FMA is reviewing what it's called its perimeter, referring to financial services that don't fall under its regulatory remit but may have an indirect effect on areas that do.

The IMF's Lopez-Mejia said the regulator has done a "very good job" of keeping the industry abreast of the new regime, and that expanding that regime would be beneficial.

"We believe that perhaps more could be done in terms of increasing the perimeter of regulation to custodians, which are basically only supervised by private supervisors," he said. "We think more direct involvement by the FMA would be more appropriate."

The IMF's call echoes a submission to policymakers when the legislation was going through select committee process in 2011. At the time, company supervisor Trustees Executors, lobby group Trustee Corporations Association, law firm Buddle Findlay, state-owned lender Kiwibank and the Public Trust recommended custodians, the institutions which hold assets and securities on investors’ behalf, be licensed by the regulator, which left a gap in the investment chain and was out of step with Australia.

Government officials, in advice to the select committee, disagreed with the submission, saying a policy decision was taken to exclude custodians, and that the law instead chose to make the person appointing the custodian liable while keeping the flexibility to put other market services under the regulator's watch in the future.

Lopez-Mejia also said it would help if the FMA had a better understanding of wholesale asset managers. The watchdog has already started looking at wholesale activity to see how it affects retail investors, and the IMF encouraged it to continue that work.

BusinessDesk.co.nz

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