In a regulatory first, the Financial Markets Authority (FMA) has removed the licence of a managed investment scheme (MIS).
The tiny Fund Managers Otago (FMO) was stripped of its MIS licence today following a long investigation by the FMA that found it was “no longer capable of being a fund manager”.
James Grieg, FMA director supervision, said in a release that is was the first time the regulator had cancelled an MIS licence.
“Cancelling a licence is one of the strongest regulatory actions we can take and it’s not a decision we take lightly,” Grieg said. “It effectively stops a business from operating in the retail investment sector.”
FMO – one of the few remaining legal firm-originated mortgage fund managers – lost its licence to operate effective 5pm on July 7, the release says.
Among a string of licence contraventions, the FMA says FMO failed on:
- disclosure: incorrectly calculating and disclosing returns in fund updates;
- related party benefits: entering into prohibited related party transactions;
- compliance with SIPO (Statement of Investment Policy and Objectives): failing to manage certain funds within their SIPO limits for persistent periods of time;
- record keeping: not maintaining appropriate records of key decisions and activities in relation to receiverships; and,
- financial resources: not calculating net tangible assets in accordance with the standard licence conditions.
As reported here, last November the FMA forced FMO to wind up three funds comprising about $20 million, appointing KPMG as interim manager. The regulator made the move after a request from FMO supervisor, Trustees Executors (TE).
Following the regulatory move about 600 underlying investors in the sole open FMO product – the $13 million NZ Mortgage Income Trust (No 2 Fund) – won’t have access to their funds until KPMG tidies up the assets.
Post the latest shock regulatory move, the remaining FMO fund will also be wound-up, the FMA says.
FMO, headed by Peter Hutchison, could face further regulatory punishment, the FMA said at the time. Hutchison was also listed on the Companies Register as a board member of Fund Managers Central, the Midlands licence-holder.
Matthew Band, TE corporate trustee services general manager, said in a statement last Friday: “As the Licensed Supervisor, Trustees Executors’ role was to protect the interests of FMO’s investors. We did this initially by removing FMO as the fund manager, and then recommending the FMA appoint KPMG Restructuring Services NZ Limited as temporary manager, which it did last November.
“The cancellation of FMO’s licence by the FMA due to continued breaches of its licence obligations fully supports the actions Trustees Executors took to protect investors, and is the final chapter in the legal and regulatory process.”
He said TE was working with KPMG to resolve “outstanding issues” on the remaining FMO fund, which affects about 600 underlying investors.