Financial Markets Authority (FMA) chief, Samantha Barrass, has knocked back industry fears that current fund liquidity guidelines serve as a barrier to government plans to increase investments in private assets.
In a letter sent to licensed fund managers last week, Barrass says the regulator had received feedback that the liquidity guide, as updated this April, is “preventing or disincentivising investment in private assets”.
She says the FMA has been engaging with fund managers on the issue in line with proposals by Commerce Minister Andrew Bayly to drive more capital – especially KiwiSaver money – to local privately owned companies.
Bayly campaigned last year on allowing KiwiSaver members to belong to multiple schemes, partly as a way to enable holdings of more illiquid assets.
Barrass says the FMA “as an independent regulator”, along with the Ministry of Business, Innovation and Employment (MBIE), has been consulting on how to “support this objective”.
Industry concerns that the liquidity risk management (LRM) guidelines effectively stymie allocations to private assets for regulated fund managers are unfounded, she says.
“In conversations with the sector, we have not heard of any specific aspects of the LRM guide that are problematic. Concerns expressed relate either to legislative settings (such as the KiwiSaver scheme rules) or to the fact of the existence of the LRM guide itself and the view from some that a strict interpretation of the LRM guide needs to be derived to reduce regulatory risk,” the letter says.
“We do not share this view. The LRM guide is not prescriptive and is applicable to a wide range of business models in the MIS sector. It particularly supports investment in less liquid assets by fund managers, including KiwiSaver providers by supporting investor confidence that liquidity risk will be properly managed in those funds.”
The FMA chief cites the UK Woodford fund blow-up as an example why regulators must stay ahead of liquidity risks.
“Sitting back and waiting for harm to occur is not the FMA’s preferred approach and the sector has repeatedly said in response to consultations that it does not want this type of regulator,” Barrass says.
In a busy correspondence week for the regulator, FMA executive director regulatory delivery, Clare Bolingford, has also written to chief executives of entities that fall under the Conduct of Financial Institutions (COFI) legislation to prompt licence applications.
The government has flagged further amendments to COFI that, however, won’t be introduced until after the original regime comes into force early next year.
Bolingford says while some COFI licences have already been granted, for “those institutions yet to apply, we strongly encourage you to do so as soon as possible to allow sufficient time for assessment, including providing any additional information that we may request during the assessment process”.
“Institutions must be licensed by 31 March 2025 to continue providing relevant services to consumers,” say says.
The COFI licensing process can take up to 60 days, the letter says.