The Financial Markets Authority (FMA) has once again called for more legal funding in an ongoing beef with government over its $5 million litigation budget.
In a just-published ‘briefing’ to new Commerce Minister Cameron Brewer, the FMA notes “that while the litigation portfolio is actively managed, the current level of funding is being tested by the cases that are currently in progress, when taken together with new cases that are likely to arise, particularly given the recent expansions in the FMA’s remit”.
“FMA action has led to more than $60 million in penalty payments being returned to the Crown over the past four years,” the Brewer briefing says.
The regulator has long been lobbying for a litigation fund boost, hitting up the Ministry of Business, Innovation and Employment (MBIE) last year to lift its annual allowance of $5 million earmarked for legal pursuits.
Under current arrangements, the government allocates $5 million each year above the general budget (now hovering close to $80 million) on a use-it-or-lose-it basis for the FMA to bankroll court actions with the money typically flowing to big-name external legal firms.
Over the 2024/25 financial year, the regulator blew through the litigation cap with a lawyer-spend of $5.8 million.
The FMA plea for a litigation budget bump lodged in April came as the regulator was immersed in its own bruising legal process that culminated last week in the resignation of chair, Craig Stobo.
King’s Counsel Wendy Aldred cleared Stobo of many of the allegations but her report, almost six months in the making, highlights angst among the upper echelons of the FMA executive and board.
Kyla Bottriell, the former FMA staffer at the centre of one of the debunked allegations, told Aldred “she had raised concerns with the FMA and MBIE about the FMA’s internal culture, rumour-spreading, lack of accountability, and leaking of internal matters and expressed the view that the situation that had arisen with Mr Stobo would have been avoidable with proper internal management”.
In a statement hinting at further legal action, Bottriell said the Aldred report quashed certain rumours but failed to answer “wider questions about how a conduct regulator allowed misinformation to escalate causing lasting damage to my reputation”.
Regardless of any ongoing legal spin-offs from the Stobo finding, the regulator has pencilled-in plenty of court action ahead.
In answers to parliamentary select committee questions last year, the FMA noted its “litigation funding has not increased to reflect the significant increase in its remit to include major banks, insurers, non-bank deposit takers, issuers of climate related disclosures and financial advice providers”.
The regulator is also poised to receive new powers via in-progress legislation to pre-approve any merger/acquisition activity in the financial sector and make warrantless raids on market participants.
Despite strong industry opposition, the Financial Markets Conduct Amendment Bill – currently, half-way through a second-reading – passed the two clauses through the select committee phase virtually unchanged.
In fact, the committee recommended extending the on-site search powers beyond the licensed community to “wholesale offeror[s] of financial products”.
The FMA also flags further moves this year on perennial bugbears including potential new regulatory settings for custody (report slated by June 30) and wholesale investments (more consultation) in the ministerial briefing.
After taking on the Commerce Minister job this April, Brewer also put the regulator on notice of closer government monitoring in a ‘Letter of expectations’ addressed to interim FMA chair, Steven Bardy.
Brewer says in the letter that in “addition to accountability documents, I expect to receive more frequent updates on the FMA’s delivery progress and key risks”.
The FMA has been tasked with lodging the report to the Minister one month after the end of each three-month period in a process due to kick-off for the June quarter this year.
And in line with the standard government ‘no surprises’ policy, Brewer reminds the regulator its duty to “inform me in a timely manner” of relevant matters including “issues that may be controversial, have reputational implications, or are likely to attract public or media interest”.