
The Financial Markets Authority (FMA) has earmarked wholesale, crypto, funds administration and custody for closer attention under its re-stated ‘outcomes-focused’ agenda unveiled last week.
Among a brief five pages of generously white-spaced text, the post-consultation FMA outcomes-focused paper highlights the regulatory ‘perimeter’ as a “particular area of focus”.
“This includes wholesale products and services, custody, funds administration and crypto-asset services. These areas account for many of the complaints we receive.”
Custody, for example, has been a long-standing gap in the NZ financial regulatory defences as noted by the International Monetary Fund in its 2017 (and earlier) reviews of the country.
In a letter to the incoming Commerce Minister, Scott Simpson, published this month, the FMA also notes certain “weaknesses” in the custodial regime that came to light after clients lost $18 million in a “Ponzi scheme operated by Dunedin financial adviser Barry Kloogh”.
“As part of the response to the Barry Kloogh case, the FMA identified and referred to [Ministry of Business, Innovation and Employment] MBIE potential law changes to improve consumer outcomes,” the letter says. “The FMA continues to engage with MBIE on this issue.”
Simpson took on the Commerce Minister role in February following the resignation of incumbent, Andrew Bayly, in the wake of a workplace incident.
The letter also touts the new “engagement-led, outcomes-focused” FMA operating model that “received significant and strong feedback from the industry” in a consultation process launched in November 2023.
According to the FMA letter, under the outcomes-focused approach “we look to engage regularly with the senior leadership of firms and consumer representatives to drive good outcomes for consumers and markets, as well as to deter misconduct before it occurs”.
(To showcase the new style, the regulator now publishes an engagement gauge on its website, counting a “grand total” of 148 industry touchpoints over January and February, comprising: financial advice providers (16), financial institutions (62) and 70 miscellaneous others.)
Clare Bolingford, FMA executive director regulatory delivery, said in a release last week that the outcomes-focused update – which is not presented as formal guidance – reframes “the outcomes in response to the feedback we received, to clarify them and to better show how they link to the FMA’s main statutory objective and the purposes of our legislation”.
Many industry submissions accused the regulator of straying off its legal piste in the original outcomes-focused plan that also left many respondents unsure of the pragmatic consequences.
Despite shoring up the legal ground, the regulatory paper is light on practical details for a regime still very much a work-in-progress.
But the outcomes-focused paper says a new flagship ‘Financial Market Conduct’ report (due later this year), ongoing research and ‘thematic’ reviews should “stimulate discussions with and among industry and stakeholders that help them and the FMA to further identify and respond to emerging risks”.
“We want to engage more with industry, dispute resolution schemes, and consumer groups to enhance our understanding of risks. We encourage industry to raise risks and issues with us to support better outcomes.”
The regulator is income-focused, too, after taking on a number of new responsibilities – consumer credit, conduct of financial institutions and climate-reporting, for instance – and upping its legal activity.
“In September 2024, your predecessor told Cabinet that he intended to review the FMA’s funding requirements and levy after the transfer to ensure it is appropriately funded for its expanded remit,” the ministerial letter says.
The government grants the FMA an annual use-it-or-lose $5 million litigation budget that “is now insufficient” to cover the regulator’s legal bills in the 2024/25 reporting year, restricting its ability “to take action as and when needed”, the letter says.
Recent court wins by the regulator have seen the government bank $16.7 million in fines.
Over the current financial year, the government has set aside $71.2 million for the FMA (excluding the litigation grant) that will rise to $74.6 million for the 2025/26 season – plus an unspecified increase as it takes on the consumer credit duties from the Commerce Commission.
Like all government agencies, the financial regulator has been handed cost-cutting requirements but full-time staff numbers have grown from 289 at the end of June 2023 to almost 370 at the latest count.
Industry levies fund 84 per cent of the FMA budget.