Proposals to arm the Financial Markets Authority (FMA) with sweeping new search powers and the ability to vet merger and acquisition deals have met with almost unanimous opposition in comments on the enabling legislation.
Feedback on the draft Financial Markets Conduct Amendment Bill (FMC) published last month, shows most industry associations and a host of law firms argued provisions allowing the FMA to conduct warrantless searches and pre-approve ‘change of control’ transactions amount to regulatory over-reach.
Legal outfit DLA Piper, for instance, notes in its submission that the requirement for authorities to seek search warrants before entering private properties was a “fundamental constitutional control on the exercise of executive power”.
“There should be compelling and exceptional policy reasons if this fundamental constitutional control is to be done away with. No such compelling and exceptional reasons exist in this case,” the DLA Piper submission says.
“… We also have some concerns that the introduction of such an apparently draconian power would create an adversarial atmosphere between regulated firms and regulators, dissuading collaboration and ultimately undermining the regulatory regime’s ability to respond to problems effectively.”
Other law firms and industry bodies such as the Financial Services Council, Financial Advice NZ and the Boutique Investment Group echoed similar concerns about the proposed boost to FMA search authority as well as the potential requirement for regulatory sign-off on M&A activity across the licensed sector.
For example, Dentons says in its submission that FMA pre-approval of such deals could “significantly delay commercial sales and acquisitions of businesses or books and compromise the confidentiality that is a common commercial requirement of the transactions that will be impacted”.
“The FMA is not a prudential regulator so objective financial measures ought not to be relevant to its considerations, but the FMA could potentially be influenced by competition or other considerations,” Dentons says. “Without clear prescribed criteria, the FMA may well be taking on a moral hazard in effectively approving the conduct status of a restructured licensee.”
But the majority of industry submitters backed other draft FMC amendments that will see 22 fund managers and 66 NZX-listed firms relived of onerous climate-reporting duties that have dogged compliance teams over the last two financial years.
The FMA has provided a ‘no action’ notice that allows most firms subject to the mooted relief to abandon current climate-reporting efforts ahead of the formal passage of the legislation through parliament.
According to a government regulatory impact statement issued along with the proposed FMC amendments, fund climate reports published to date weren’t “particularly useful either for retail investors or the MIS [managed investment scheme] managers themselves”
“Retail investors (the primary readers of MIS managers’ climate statements) are likely to find the disclosures to be too detailed and complex. Retail investors need simpler information than sophisticated wholesale investors,” the statement says. “Instead of CRD [climate-reporting disclosures], these investors are likely to look for other measures that are more tangible such as MIS manager ethics (advertised on their website or social media, for example), or an investment philosophy with an ESG mandate, or what assets they actually hold.”
However, several submitters including the Responsible Investment Association of Australasia (RIAA), the United Nations Principles for Responsible Investment and Pathfinder argue the climate-reporting universe should not shrink.
“Exempting MIS managers – including KiwiSaver and managed funds – would materially weaken market transparency and deprive consumers and asset owners of critical climate data,” the RIAA submission says. “These entities are systemically significant, and their exclusion would undermine the integrity of the disclosure framework.”
The climate-reporting carve-outs are likely to remain but the Finance and Expenditure Committee (FEC) has a long list of other points to consider that attracted more mixed views such as the definition of ‘price’, licence consolidation, complaints processes and ‘fair conduct’ program minimum requirements.
The draft bill attracted 98 submissions in a flattering total given almost half of the responses came from individuals (some in triplicate) with blunt messages such as the following contribution from Troy Wharekura.
“I object to this bill. I want to get rid of it and I want it in the bin.”
The FEC, chaired by National MP Cameron Brewer, is due to report back on the draft legislation by the end of January before a possibly amended law passes through the parliamentary digestive system.