The Financial Markets Authority (FMA) will take a hard line with investment firms handing in sketchy, last-minute licence applications, according to top regulator, Rob Everett.
Everett said with all managed investment scheme (MIS) entities due to be licensed under the new Financial Markets Conduct Act (FMC) regime by December 1 this year, the application window was rapidly closing.
Just 13 of the estimated 100 firms expected to apply for MIS approval had been granted a licence, as at the end of this January, with another 20 or so in the paperwork pipeline.
Everett said a well-prepared MIS licence application should take about two months for the FMA to process, implying a most-optimistic final deadline of early October.
“There’s no excuse for any investment manager to turn up at the last-minute with a sub-par [MIS] application,” he said. “They will get an unsympathetic hearing from the FMA.”
Everett said to date the MIS application process has gone smoothly enough but with varying quality of responses from managers.
He said some organisations are clearly used to regulation – either through links with offshore parent groups where fund manager licensing already exists or via previous FMA processes (DIMS, for example) – while for others the MIS licence represents their first rigorous interaction with regulators.
“We hope we’re getting some quality control on the way in to [fund manager] licensing – that’s the real gold of regulation,” Everett said. “We’re collecting a lot of data on the sector and individual fund managers. And if we construct the licensing process right, that will also set the monitoring framework.
“Some managers are clearly good operations while others might need a little more attention from us – that will help us develop a risk-based approach to monitoring. We’ll know when a phone call might do the job or where to put the elbow in.”
He said the FMA had also engaged with the industry during the pre-licensing phase with numerous consultation papers delving into the nitty-gritty of regulation.
Mostly, Everett said the industry response to the regulatory detail has been even-handed and constructive “although we’ve been surprised at the push-back in some areas”.
For example, he said some managers have expressed concern at the required level of fee and cost disclosure under the regulations, particularly around underlying funds in multi-manager products.
KiwiSaver providers, too, have to make more of an effort to communicate with members, Everett said.
“Most KiwiSaver schemes are not communicating effectively with their members – they should be,” he said. “We’ve told the industry the FMA will help by being flexible in working with them around that.”
As the fastest-growing funds sector in New Zealand, KiwiSaver is currently the biggest area of focus for the FMA but Everett said the regulator expects the investment industry to develop across the board.
“We see KiwiSaver as a ‘door-opener’,” he said. “Our assumption is that as their balances grow, members will look outside KiwiSaver for funds to invest in. The NZ managed funds industry will become more important.”
MIS licensing is the last major leg of the FMC implementation effort and, as measured by underlying assets (about $100 billion), the biggest sector the regulator has had to bring under its auspices.
Everett said the staggered licensing process, which has seen sectors such as derivative providers and discretionary investment management service (DIMS) firms dealt to, made sense.
“I’m glad we’ve left the biggest sector to last,” he said. “But the market should remember that licensing isn’t done yet. It’s critical that if you haven’t already started the licensing process – or are not sure if you fall under the MIS regime – that you get on with it now.”