FMA's top risks crop up in 2015 enforcement activity

Friday 28th August 2015

The Financial Markets Authority's top seven strategic priorities were a common theme for the regulator's enforcement activity over the past year, with governance, culture and conflicted conduct the agency's biggest problem.

The regulator's enforcement team was involved in 51 inquiries and investigations and 28 litigation matters in the year ended June 30, it said in its annual investigations and enforcement report. That compares to 76 inquiries and 29 litigation matters in 2014. Under governance and culture issues, the report cites market manipulation, non-filing of financial statements, and insider trading as issues in the spotlight, which typically occurred due to a lack of internal systems and controls, or awareness of the regulatory requirements.

Of the litigation matters, 28 percent related to finance companies, 14 percent to financial advisers and the Financial Service Providers Register, 11 percent to primary markets, including offer disclosure, and 11 percent to secondary markets, including market manipulation, 4 percent to adviser discipline, and 4 percent on behalf of other individuals.

Of the investigations, 39 percent related to primary markets, 24 percent to secondary markets, 15 percent to financial advisers and FSPR, 12 percent to financial reporting by public issuers, 4 percent for potential action on behalf of others, 2 percent for potential Authorised Financial Adviser code breaches, and 2 percent on anti-money laundering/countering financing of terrorism.

Head of enforcement Belinda Moffat, who will leave the watchdog next month, told BusinessDesk the enforcement activities reflected the seven areas outlined as strategic priorities in December. Those priorities were: governance and culture, conflicted conduct, capital market growth and integrity, sales and advice, investor decision making, effective frontline regulators, and FMA effectiveness and efficiency.

"Those drivers of risk continue to be areas we need to be focusing on to drive an efficient, transparent, and fair market," Moffat said. "What we've seen this year with themes running through misconduct cases or allegations would relate to governance, culture, or conflicted culture, so that's sort of the thematic level of what we've seen."

The FMA secured $51.1 million in compensation for investors in the year, largely from the Strategic Finance and Hanover Finance settlements, and a further $1.7 million was awarded in penalties and fines.

Moffat said the regulator is using a wider range of responses to enforce compliance in the last year, rather than simply pursuing court proceedings.

"That to us is probably signalling the nuances of a regulatory approach that's heralded by the new Financial Markets Conduct Act," she said.

The report said the FMA doesn't take the decision to pursue litigation lightly, and carefully assess the interests of the public and investors when choosing to take no action or settle court action.

With the Financial Markets Conduct Act now in force, the FMA's regulatory scope has been extended and it has new tools to operate under the legislation.

"We expect our supervisory team to use an increasing range of regulatory responses as we work with those we regulate to address issues and harms as they arise," the report said. "However, our enforcement mandate remains and, as the past year has illustrated, in appropriate cases we will use our stronger intervention powers where warranted."

BusinessDesk.co.nz

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