Licensed supervisors are currently facing a statutory review by the regulator. Trustees Executors, corporate trustee services general manager, Matthew Band, explains why the review is more than window-dressing, opening the door to a more risk-based supervisory world where providers must show, not tell…
Last week the Financial Markets Authority (FMA) renewed Trustees Executors’ (TE) supervisor licence through to 2028. Though this was pleasing in itself, the rigorous process and the additional investment that TE and other supervisors will have to make to fulfil their increased obligations, is further evidence that is consistent with the evolving regulatory landscape.
TE fully supports the additional rigour required of the funds management industry and this was underscored through the relicensing process. This is in line with the FMA’s goal to “drive continuous improvement in frontline regulation” as outlined in its 2022-23 annual corporate plan released last week.
The FMA has raised the bar on compliance and oversight standards for the “proactive, risk-based monitoring” it expects from supervisors. This will impact the way in which supervisors monitor and interact with supervised entities such as fund managers, debt issuers and retirement villages.
So, in practical terms, what does the FMA’s increased focus on compliance mean for fund managers and their supervisors?
For a start, supervisors are now required to apply a ‘risk lens’ over all their supervised entities with closer attention to those who are at the higher end of the risk spectrum. The FMA expects supervisors to undertake greater in-depth, evidence based proactive monitoring as part of their supervisory role. This means that monitoring activities now need to be more focused on validating processes and reviewing policies and compliance plans.
This also includes understanding and documenting the control environment at supervised entities by considering the types of controls they have in place to reduce risk.
Meeting the obligations of a supervisor requires a significant increase in the work associated with supervision related activities, and much more involvement and interaction with supervised entities on all issues on the regulatory horizon.
This includes (but is not limited to) considerations such as:
- Value for money assessments
- MIS sector risk assessment
- Climate-related disclosures
- Liquidity risk management for managed funds
- Cyber resilience
- Conduct and culture
- Integrated financial products
- Advertising (fair dealing)
In keeping with the ongoing focus on doing the right thing by investors, the additional oversight and interaction between supervisors and its supervised entities is an important step up for the industry.
This new ‘deep dive’ style of oversight will require supervisors to recruit additional staff with wider skill sets, including a mix of risk, compliance, assurance and auditing experience. TE will add several new roles to our Corporate Trustee Services team to meet these increased obligations. I expect other licensed supervisors to follow suit.
TE fully supports and is investing in the FMA’s “show me, don’t tell me” approach to supervision. In addition to fulfilling our role as supervisor, we are also committed to helping our supervised entities navigate and comply with the added expectations on them.
Matthew Band is General Manager of Corporate Trustee Services at Trustees Executors Limited which is a licensed supervisor overseeing funds under supervision worth more than $125 billion.