The Financial Markets Authority (FMA) may rein-in the ‘wholesale’ investor definition under a review scheduled within the next 12 months.
In its ‘Annual corporate plan’, published for the first time last week, the FMA says it will investigate “whether categorisation methods for ‘wholesale’ customers are appropriate, with a view to following up with individual firms and producing guidance if required”.
Product providers and financial advisers relying on the ‘wholesale’ investor definition are exempt from much of the disclosure rigmarole now mandatory for retail clients. The Financial Markets Conduct Act (FMC) includes about 10 ways to meet the wholesale investor exemption based on a range of factors such as:
- size of the offer (with a $750,000 minimum);
- net wealth;
- business focus; or,
- whether an individual has elected to be an ‘eligible investor’.
The somewhat different wholesale investor definition under the Financial Advisers Act will be aligned with FMC criteria in the Financial Services Legislation bill currently before Parliament.
As well as addressing any anomalies in the wholesale investor usage, the report says this year the FMA will also continue knowledge-building exercises across the regulatory border as it seeks to understand “wholesale market risks (including wholesale asset management and custody)” – both areas flagged by the recent International Monetary Fund Financial Sector Assessment Program (IMF FSAP) report on NZ.
Over the next 12 months the regulator will conduct “further research and [engage] with institutional market participants”, the FMA report says.
“We also want to understand more about areas of unlicensed activity on our regulatory perimeter,” the FMA says, such as “… where wholesale market risks impact or intersect with retail investors and retail funds.”
The FMA annual action plan also warns the regulator will use its “broad powers” under the FMC ‘fair dealing’ provisions “where we see instances of misconduct in relation to perimeter activities”.
“We will take an enforcement-oriented approach to those who seek to operate under the regulatory radar or to take advantage of New Zealand’s system and reputation,” the report says. “This includes our enforcement activity in relation to the Financial Services Providers’ Register (FSPR).”
Buoyed by its mostly-successful prosecution of former Milford Asset Management portfolio manager, Mark Warminger, on market manipulation charges this year, the FMA says it will continue to scour the industry for similar breaches.
“This year we will continue to focus on market integrity issues such as identification and prosecution of insider trading and market manipulation offences,” the FMA report says. Industry sources suggest at least one investigation is already underway.
In what looks like a busy year for the regulator, the FMA report says it also plans to “carry out thematic work focused on vertically integrated firms and conflicted business models”.
“This will include looking at incentives and sales processes,” the report says. “We will also look at conflict management policies and procedures.”
Fintech (including the proposed robo-advice exemption), the financial adviser law review and the application of technology to regulation are other major items on the FMA to-do list, the report says.
The FMA annual plan shows its headcount is up 20 on last year to hit 186 full-time equivalent employees with an operating budget of $36.3 million to play with (up $5.6 million on the 2016/17 period).
Overall, though, spending priorities remain largely unchanged year-on-year, the FMA report reveals.