The Financial Markets Authority (FMA) could see its territory – and budget – expand significantly under a slew of reforms currently worming through the system.
Rob Everett, FMA chief, told media last week that the Labour-led government appeared to be “up for” making changes that reflected a significant shift in community expectations of how financial services firms should behave.
“There’s major shifts in the regulatory framework that may affect what we do,” Everett said.
He said as well as already in-train legislation – such as the financial advice law reform – the government was forging ahead with multiple reviews across areas including insurance, consumer credit, ponzi schemes and insolvency.
The FMA, too, was scoping out potential new regulatory terrain via its Australian Royal Commission-inspired ‘conduct and culture’ investigation of the NZ banking and insurance industries. Following International Monetary Fund (IMF) recommendations last year, the FMA has also launched reviews of the wholesale investment and custody sectors that could further widen the regulatory ambit.
In the latest FMA ‘Annual corporate plan’ released last week, Everett says: “We are conscious that our remit has built up over time… How these reviews land…will no doubt further impact our overall remit and resource allocation.”
The FMA has held back some planned operations to cope with the demands of the insurance/banking conduct review – a co-production with the Reserve Bank of NZ (RBNZ).
However, Everett said the joint FMA/RBNZ probe was in line with the regulator’s mandate to lift behaviour standards across the financial services industry.
Launched in May, the hastily-assembled regulatory investigation is scouring NZ’s banks and insurers for any sign of practices unearthed in the financial services Royal Commission (RC) across the Tasman. According to Everett, both the FMA and RBNZ had used the opportunity to scratch the corporate veneer.
He said the ‘culture and conduct’ investigation was “incredibly helpful” in developing a better understanding of what lies beneath the increasingly “homogenous” finance institution compliance statements.
To date, Everett said the results of the review had been “patchy”.
In a statement he said: “We have become increasingly impatient with the lack of attention to better customer outcomes and strong conduct frameworks from parts of the industry.
“In the year ahead, the FMA expects firms to be able to provide concrete evidence of progress they’ve made in putting good conduct outcomes at the heart of their business.”
The banking and insurance conduct review should be published in October.
Meanwhile, the wholesale funds management and custody report was slated for publication later this year or early next year. The FMA says both activities, which currently lie outside the “regulatory perimeter”, could present risks to the broader NZ financial system – a point noted by the IMF last year.
Overall, the FMA plans to amp up monitoring of the regulatory grey area, the report says.
“Based on the behaviour we have seen on the perimeter, we have made this a priority in its own right,” the FMA corporate plan says. “Perimeter risks can manifest themselves in a number of ways.”
It’s unclear yet what – if any – extra powers the FMA may gain over wholesale fund managers and custodians. However, the regulator is about to face down its biggest licensing project ever as the Financial Services Legislation Amendment Bill (FSLAB) slips into place later this year.
But Liam Mason, FMA director of regulation, said the exact scale of the adviser licensing job ahead was difficult to predict.
“In the current situation we don’t have a good picture of what the [licensed adviser] population will be,” Mason said. “We hope we will have a slightly better idea of the numbers when the transitional licensing begins.”
Under the FSLAB legislation – which is close to a second reading in parliament – all financial advisers would have to be licensed under an entity. FMA figures show there are now about 1,800 individually-licensed authorised financial advisers (AFAs), 7,000 registered financial advisers and about 20,000 individuals operating under 53 qualifying financial entities.
Mason said FSLAB could well prompt some older advisers to retire while both AFAs and RFAs might seek their own licences or coalesce into larger groups.
For now, he said the FMA was working to rough estimates while preparing to build a “scalable licensing” solution for the FSLAB era financial advisory market.
He said the regulator was also implementing a new data analytics service, partly to help manage the increased licensing and monitoring workload under FSLAB. Late in July the FMA appointed Wellington-based firm The Knowledge Warehouse to run the data show.
The FMA was allocated a core budget of $36 million in the May 2018 budget plus a further $2 million capital investment top-up. According to the latest published accounts, the FMA ran an almost $3.5 million deficit over the 2016/17 year on a government grant of $26.2 million and industry-generated fees of more than $1.5 million.
FSLAB adviser-entity licensing fees will be set in regulation by the Ministry of Business, Innovation and Employment.