A secret-shopping trip could be on the regulatory agenda this year – although Financial Markets Authority (FMA) general counsel, Nick Kynoch, won’t say for sure.
While the FMA would be unlikely to signal the market if a mystery-shopper – also known as shadow-shopper – exercise was underway in the financial services industry, Kynoch said the regulator was stepping up its “monitoring and supervision” of the industry this year.
“We’re considering all forms of information-gathering including mystery-shopping,” Kynoch said.
The FMA has previously dabbled in shadow-shopping but lags considerably behind its trans-Tasman cousin – the Australian Securities and Investments Commission (ASIC) – in use of the furtive market research practice.
Since the early 2000s ASIC has hosted a string of shadow-shopping enterprises that have invariably found the target industry – mostly financial advice – in a sorry state. Last week ASIC deputy chair, Peter Kell, announced a new shadow-shop special investigation into self-managed superannuation fund (SMSF) advisers.
Kell’s announcement coincided with news of a faux ASIC shadow-shopper recruitment campaign the regulator labeled as “a scam”.
Mystery-shop or no, Kynoch said the FMA was on a new drive this year to improve its knowledge of and engagement with the industries under the regulator’s purview.
Last week the FMA highlighted the push to “strengthen and build on our intelligence gathering” as one of its goals for 2018 in the ‘Conduct outcomes report 2017’.
Other FMA focal points for the year ahead include an ongoing tough stance on “non-compliance with licence conditions” and patrolling “issues on our regulatory perimeter”.
Kynoch said the regulatory grey areas include potential abuse of the Financial Services Providers Register (FSPR), crypto-currency and initial coin offers (ICOs), and investment or advice providers masquerading as “educational services”.
He said some so-called financial education firms actually exercised “investment discretion” for clients but “dressed it up as something else”.
The FMA would be closely watching any business that sits “just outside the regulatory regime that could pose a threat to investors or capital markets” inside the fence.
Over the year Kynoch said the FMA would fine-tune its “intelligence-led approach” with more efficient collection and analysis of the ever-increasing piles of data accruing in the regulator’s system.
Despite a shift in tone towards monitoring and knowledge-gathering, the FMA report says “we will continue to use the full range of our enforcement tools – not only court proceedings – to provide faster and more cost-efficient ways of addressing some of the misconduct we see”.
For example, Kynoch said last year’s high-profile successful prosecution of former Milford Asset Management portfolio manager, Mark Warminger, has proven informative for both the FMA and the funds management/broking industries.
“Clearly, we have taken up the opportunity [from the Warminger prosecution] to engage with the sector around the market manipulation issue,” he said. “We hope it’s been useful for both sides.”
Kynoch said the dialogue to date has helped clarify for both the FMA and the industry where “common practices” may have strayed too far beyond the legal definition of market manipulation.
Last week the FMA also opened up the doors for prospective ‘robo-advice’ providers under a newly-authorised exemption process.
As at last Friday no robo-advice applications had been lodged, an FMA spokesperson said.
“The [robo-advice exemption] application guide has an indicative timeframe of one to three months, depending on how well prepared the application is, are all supporting documents provided and whether we need more information,” the spokesperson said.