Licensing fund managers would have prevented Milford woes, FMA's Everett says

Friday 26th February 2016

High profile fund manager Milford Asset Management could have avoided cutting a deal with the Financial Markets Authority over alleged market manipulation by one of its portfolio managers had a licensing regime been in place, according to the watchdog's boss Rob Everett.

Funds management is the last and biggest sector to go through the licensing regime set up by the Financial Markets Conduct Act, a piece of legislation designed to instill confidence in the capital markets, and the FMA is putting a major focus on ensuring firms meet the Dec. 1 deadline when it starts formally supervising them.

While New Zealand's funds management sector has avoided some of the more egregious behaviour seen in other nations, the FMA reached a settlement with Milford last year and is pursuing civil action against former portfolio manager Mark Warminger, something Everett says wouldn't have happened if the licensing regime had already been in place.

"It's a classic example where if they had had to go through the licensing process before then, the issues that we saw and talked about in Milford in terms of lack of controls and awareness of what was happening in their own building just wouldn't have happened," he told BusinessDesk. "We never could have given them a license on the basis of the way they were set up at the time the relevant activity was taking place and the whole industry knows it."

The new law staggered the introduction of the licensing regime, which will be fully in effect once fund managers have been included, bringing New Zealand into line with other jurisdictions which already oversee those areas.

"The end result needs to be both protection for and better performance for consumers," Everett said. "We haven't seen horror shows here, but we can't just sit back and assume on that basis everything's fine. We have to put a framework that makes it pretty clear what we expect."

Reserve Bank figures show New Zealand's fund managers oversaw about $91.3 billion of assets as at Sept. 30. Of that about $30.3 billion was in government-sponsored KiwiSaver funds, which is expected to continue growing and become an increasingly important part of households' overall savings and retirement plans.

The FMA's budgeted cost for licensing and compliance monitoring in the year ending June 30 is about $11.2 million and Everett said the regulator should have the capacity to ensure the last hurdle is crossed provided fund managers don't all wait until the last minute to file their applications.

BusinessDesk.co.nz

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