The Financial Markets Authority (FMA) is hashing-out a deal with government for a litigation funding boost to fill a budget gap that calls its current legal agenda into question.
According to the latest FMA ‘statement of performance expectations’, a surge in lawyer spending in the 2024/25 financial year saw the regulator dip into savings to plug the hole between the $5 million annual allocation and $6.7 million of actual costs.
“With multiple cases in the pipeline, forecast litigation expenditure for 2025/26 is expected to exceed the annual litigation funding appropriation of $5 million. As the cash reserve is expected to be substantially reduced by the end of 2024/25, no additional funds will be available to cover this shortfall,” the statement says.
“This presents a significant risk. Insufficient funding may limit our ability to progress existing cases or initiate new ones, potentially impacting our regulatory effectiveness in financial markets.”
Among other cases, the FMA has booked medium-term court dates with Booster and InvestNow over alleged private asset governance breaches and anti money-laundering (AML) issues, respectively, that are understood to be chewing through legal resources. The FMA was also in court contesting a claim by investors in the collapsed property business, Du Val, that it breached regulatory duties by failing to issue a warning about the group’s dire financial position: Justice Blanchard has reserved his decision.
But in a tight budget delivered by Finance Minister Nicola Willis this May, the government held the FMA litigation fund level at $5 million, forcing the regulator to pursue “options for addressing this issue” with the Ministry of Business, Innovation and Employment (MBIE).
The MBIE talks may land on “securing additional funding or reprioritising litigation activities within the existing budget”, the FMA statement says.
Despite winning a $6.7 million increase in its total government allocation (more than 80 per cent of which is sourced from industry levies) for the 2025/26 year, the regulator has pencilled-in a deficit of more than $1.7 million for the period.
The FMA recorded a $7.3 million plunge into the red over the 2024/25 fiscal year, completely draining the ‘accumulated funds’ account that had stood at about $5.5 million at the start of year.
Including the almost $78 million government contribution plus the $5 million litigation fund allocation and assorted other income, the regulator has close to $84.6 million (2024/25: $80.7 million) to play with this fiscal year: but even after trimming expenses by about $1.7 million year-on-year – almost entirely due to depreciation changes – the FMA forecasts costs to reach above $86.3 million over 2025/26.
Personnel costs represent the bulk of regulatory layouts, rising about $1 million compared to the previous year to reach about $62.5 million as the FMA takes on new consumer credit responsibilities (expected to take effect by January 2026).
The 2025/26 forecast continues the theme of “increased financial discipline, tighter cost controls, and careful reprioritisation of work across the organisation designed to ensure resources are focused on where they deliver the most value”, the statement of performance expectations says. “Part of this work included changes to our structure including our Transformation and Operational Delivery function. The commitment to managing within our means, while improving efficiency and impact, will remain a central focus in the year ahead.”
Late in June, the regulator also published its inaugural ‘Financial conduct report’, intended to join the pantheon of key FMA documents by offering an annual steer on “where conduct and outcomes have (and have not) improved” and what the organisation will focus on in the year ahead.
Meanwhile, the FMA confirmed last week an investigation into the retirement village finance company, Senior Trust, was “ongoing” more than six months after launching a probe last November. On an FMA prompt, Senior Trust has disclosed to investors the group had been recycling debt to sustain distributions – funneling money through the related Senior Trust Capital (STC) and Senior Trust Income Generator (STIG) vehicles.
STC will embark on “an orderly wind down” after closing its regulated share offer in May.
The scope of the investigation includes considering disclosures made by STC in its previous product disclosure statement (PDS) and associated advertising material and whether those disclosures complied with Parts 2 and 3 of the Financial Markets Conduct Act 2013..