The government is expected to push out the start date for the Financial Services Legislation Amendment Act (FSLAA) regime as part of a broad-sweeping regulatory relief program.
Industry sources have flagged a likely delay for the new financial advisory regulatory era, originally due to enter a two-year transitional period on June 29.
While yet-to-be-confirmed, such a move would free up regulatory headspace for an under-the-pump Financial Markets Authority (FMA) as well as handing advisers extra time to prepare for the legislative shake-up.
But financial regulators have already introduced a slew of relief measures over the last week or so as the Reserve Bank of NZ (RBNZ), FMA and the NZX go on the defensive.
Last Thursday the FMA confirmed it would postpone a planned liquidity test of regulated fund managers “to ensure they can continue to focus on the issues at hand”. The liquidity stress-test had been slated by the FMA after the shuttering of funds managed by UK ‘star’ investor, Neil Woodford last year.
Furthermore, the regulator issued a reminder of its KiwiSaver guidance note to clarify when providers can offer advice to members. KiwiSaver schemes have been swamped with members switching from growth-oriented to conservative portfolios as panic sets in.
The FMA and NZX also extended end-of-financial-year reporting duties by up to two months for listed firms and entities governed by the Financial Markets Conduct Act (FMC). Most funds and listed companies must file audited financials within two or three months of reporting dates (typically March 31).
In a release, the FMA says it “was also considering deferral or reduction of other monitoring activity such as audit quality reviews for audit firms, NZX’s Obligations Review and other planned proactive and thematic monitoring activity and information gathering”.
Meanwhile, the NZX has eased capital-raising restrictions that will allow listed companies to raise up to 25 per cent of market capital via placements without shareholder approval until October 31 this year.
Under current settings, NZX firms face a 15 per cent cap for equity placements issued without shareholder consent.
Given the coronavirus-driven market dislocation, the NZX says it “seeks to ensure that Issuers are able to access sufficient equity capital urgently should the need arise, in addition to any existing debt facilities”.
In addition to cutting interest rates to the now near-zero global standard and cueing up ‘unconventional’ monetary weapons, the RBNZ has also stopped most of its regulatory work program for the next six months including the introduction of tough new bank capital standards.
According to a RBNZ release, the NZ central bank has put a hold on the following regulatory initiatives for “an initial period of six months”:
- Review of the bank liquidity thematic review (and subsequent review of the liquidity policy (BS13);
- Review of the Insurance (Prudential Supervision) Act 2010;
- Standard terms for Residential Mortgage Obligations;
- Cyber resilience guidelines for all regulated entities;
- Revisions to banks’ disclosure of regulatory breaches;
- Review of the stress-testing framework and planned bank stress-tests;
- Revising the process for approving banks’ internal capital adequacy models for credit risk; and,
- Future of cash – standards for banknote-processing machines.
Similarly, across the Tasman the Reserve Bank of Australia and fellow financial regulators – the Australian Prudential Regulatory Authority (APRA) and the Australian Securities and Investments Commission (ASIC) – have relaxed certain rules.
The Australian Council of Financial Regulators – a group incorporating the three main agencies plus Treasury – said in a statement that APRA and ASIC would “where warranted, provide relief or waivers from regulatory requirements.
“This includes requirements on listed companies associated with secondary capital raisings, annual general meetings and audits,” the statement says.
In fact, regulators across the world are scrambling to accommodate markets as the health crisis morphs into an economic and financial emergency.
The US Federal Reserve, for instance, has moved to prop up ‘money market funds’ – akin to cash funds in Australasia – with a ‘liquidity facility’ that will accept a range of assets “including unsecured and secured commercial paper, agency securities, and Treasury securities”.
“Money market funds are common investment tools for families, businesses, and a range of companies,” the Fed statement says. “The MMLF will assist money market funds in meeting demands for redemptions by households and other investors, enhancing overall market functioning and credit provision to the broader economy.”
But the country-by-country regulatory approach to crisis management may not be enough, the Institute of International Finance (IIF) warned last week.
“No one country or region can overcome this challenge alone,” the IIF says. “We live in an integrated global system and anything short of a global, integrated approach will prove unsuccessful.”
The IIF, which represents the interest of 450 members (mainly banks) in 70 jurisdictions, says “it is essential that potential decisions regarding interpretation, adjustments, and tailoring of regulations be properly coordinated, leveraging the work of global standard setters such as the Financial Stability Board, the Basel Committee, IOSCO and the IAIS”.
“Such measures refer to essential elements of the global capital and liquidity framework for banks such as capital and liquidity buffers and the treatment of provisions, just to name a few,” the IIF release says. “Coordinated action would ensure not only greater effectiveness of measures that ultimately apply to global markets, but also a level playing field by minimizing competitive distortions.”
Regulators may be listening: for example, late on Friday multiple central banks, including the RBNZ and RBA, signed a US dollar swap agreement with the Fed.
The FMA says it would maintain an “intense focus on its dialogue with regulated firms” as market disruption rolls on.
“… we emphasise that we want to hear from the industry about any challenges they have and about any areas where the FMA can assist them,” Rob Everett, FMA chief, said in the release.
Delaying FSLAA could well be the next move but the long list of impending reforms such as the Financial Markets (Conduct of Institutions) Amendment (COFI) bill, insurance legislation and mooted changes to default KiwiSaver settings may be on the line.
A government spokesperson said “there may have been some discussion at a very preliminary level” on further regulatory postponements.
However, last week the Finance and Expenditure Committee denied a request by a financial adviser lobby group to extend the COFI submission deadline, which ticks over on March 26.