The Financial Markets Authority (FMA) contractor budget blew out to more than $13 million over the 2023/24 reporting year amid mounting legal and technology expenses.
Responding to 200 parliamentary questions earlier this month, the regulator revealed an almost 30 per cent year-on-year increase in third-party expertise costs and close to double the annual contractor budget of the three years prior to the 2022/23 period.
The FMA annual accounts for the 12 months to June 30 last year attribute $5.8 million to ‘contract staff’ but the larger external consultancy amount covers a wide range of one-off and ongoing services.
In total, the regulator took on 105 contractors during the 2023/24 financial period compared to the average of about 80 over the four previous years.
“The actual contractor/consultants spends for 2023/2024 ended higher than estimated total cost largely due to increased use of litigation funds and the expert advice on significant legal proceedings and increased investment in IT infrastructure relating to our CRM and HR system,” the FMA told the Economic Development, Science and Innovation parliamentary committee.
Meredith Connell and Simpson Grierson absorbed most of the external legal largesse, booking respective payments of about $1.3 million and $1.1 million to aid the multiple FMA court actions: a KC (Kings Counsel) also billed the regulator almost $475,000 for litigation services.
Aside from a test case on the wholesale ‘eligible investor’ rules due in the High Court this May, the FMA has at least two key, yet-to-be-scheduled, legal battles ahead with Booster and InvestNow.
While the nominal FMA contractor bill hit a high in the last financial year, the regulator told the committee that the cost-to-total-budget during the period – in the order of 19 per cent – “remains in line with historic norms, and below the historic high of 2019/20”.
The FMA received a government appropriation of $71 million for the 2023/24 year, topped up to almost $80.7 million by separate litigation funding ($4.7 million), interest ($1.5 million) and legal winnings of $3.3 million that rescued the regulator from deficit.
But as part of broad-sweeping government cutbacks, the committee heard that the regulator “was required to produce savings of $1.74 million from its Crown appropriation for 24/25”
“The FMA has sought to deliver these through reductions in staff engagement, expert fees, travel and the use of contractors.”
Official contractor numbers at the regulator fell from 35 at September 20, 2023 to just 13 on the same date 12 months later, according to figures supplied to parliament.
The FMA told the committee while it had not sacked any staff following the government “directive to reduce expenditure in the public service as at 20 September 2024”, seven positions “have been cut or made redundant” since near the end of November 2023.
Several roles were “repurposed”, the regulator said, especially in the external communications team while a senior media relations manager was made redundant.
FMA chief, Samantha Barrass, “has not been briefed or received advice on the fiscal implications of redundancies – voluntary or not – because the FMA is meeting its cost-saving target from its operational budgets including travel, workplace improvements, staff engagement, expert fees and contractor expenditure”, the parliamentary committee heard.
In addition to staff restructuring, the FMA also dropped 15 vacant roles between November 27, 2023 and September 20 the following year, representing about 4 per cent of the full-time equivalent workforce.
However, the total full-time FMA headcount surged year-on-year from 289 at the end of June 2023 to 351 on June 30, 2024, as the regulator readied for new climate-reporting, consumer credit and institutional conduct licensing duties.
At the same time, the regulator is due to cede its anti money-laundering police role to the Department of Internal Affairs following a directive from the now ex Commerce Minister, Andrew Bayly.
The FMA told the committee the budget belt-tightening has been targeted to “areas that have the least effect” on its “frontline regulatory function”.
Nonetheless, the FMA said cutbacks on contractors could affect its ability to “deploy timely resources in response to emerging events and issues” while reducing “internal staff engagement activities may weaken organisational culture, potentially affecting morale, collaboration, and staff retention”.
Among other fat-trimming measures, the regulator told the committee that its “annual staff wānanga was converted into a series of shorter internal Quarterly Roadshows rather than a big annual event”, incurring all-in costs of about $32,500.