Advisory businesses are in the sights of the Financial Markets Authority (FMA) in the lead-up to a regime change next year with target practices spotlighted in a new report published last week.
James Grieg, FMA head of supervision, said the regulator was seeking to raise awareness of consistent authorised financial adviser (AFA) and qualifying financial entity (QFE) industry failings in its new report.
Although the ‘Supervision insights’ covered other sectors the FMA polices (such as derivatives providers), Grieg said the heavy weighting to AFA/QFEs reflected the looming Financial Services Legislation Amendment Act (FSLAA) transition – due next March – and the regulator’s monitoring focus over the 18 months to June 30 this year.
“We have highlighted the areas where we have done the most work over the period and pointed out some of the trouble spots,” he said. “We saw the same things over and over and want to tell the market that if we come to your business and see those behaviours you can’t give the excuse that you didn’t understand your obligations.”
In particular, the FMA slams the AFA/QFE community for a raft of governance, compliance and client care breaches in an advice regime that has been in place for 12 years.
Rob Everett, FMA chief, said in a release: “We are at a point now where the volume of FMA guidance, level of engagement and maturity of the regulatory regime mean there are no excuses for conduct that presents the risk of harm to investors, customers and the integrity of the markets.”
According to Grieg, the regulator would maintain its strong “consultative” approach with the advice sector ahead of the FSLAA transition, granting some leeway as firms shift to the new rules.
“There is a [FSLAA] grace period in some ways,” he said. “But it’s not a free pass. Where there is misconduct or deficiencies in practice we will act. And many aspects – such as customer care and good governance cut across both regimes.”
During the 18-month period covered in the report, the FMA carried out extensive monitoring of the AFA/QFE world resulting in dozens of warnings and formal punishments – most notably, the outing of Barry Kloogh as a ponzi scheme operator, which ultimately landed the Dunedin-based financial adviser in jail.
Grieg said there was “quite a pipeline” of other possible sanctions including court actions, public reprimands and other “behind the scenes” private warnings from the FMA.
While advisory businesses have attracted much of the regulator’s attention of late, he said the FMA continued to monitor all sectors under its auspices – and beyond.
“A lot of the lessons in the [recent FMA report] apply across the entire industry – including the MIS [managed investment schemes] sector,” Grieg said. “But we can’t focus on all of them at once.”
He said the FMA also conducts ‘thematic’ reviews (such as last year’s custody investigation) and other monitoring projects as part of ongoing market supervision. For example, MIS managers are currently busy answering a complex FMA survey of fund liquidity settings.
And the regulator was, too, keeping a close eye on the “perimeter” where wholesale providers and technology opportunists are on the prowl. The recent Penrich wholesale investment scheme collapse, which might be the latest addition to the Kiwi ponzi parade, comes to mind.
“We are doing work to understand what’s happening on the perimeter,” Grieg said. “It can be quite difficult with technologies – like crypto-currencies – that are cross-border. But if scams come to our attention we do issue warnings.”
The FMA supervision division accounts for about 50 staff with the number set to grow substantially under the regulator’s wider brief (especially FSLAA) and ballooning budget over the next few years.