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KiwiSaver managers have work to do: FMA

The Financial Markets Authority has defended its decision not to name two KiwiSaver funds that it felt were in breach of regulations.

Wednesday, July 17th 2013, 4:24PM

Elaine Campbell, FMA’s head of compliance monitoring, told a quarterly stakeholder briefing this morning that 15 funds with a total of $5 billion in funds under management, were selected for its monitoring programme. The purpose of the exercise was to see how managers were complying.

She said these reports weren’t the place to name and shame funds. However if there were concerns of public interest the FMA would disclose names.

"Where FMA identifies compliance issues to such an extent that the public interest demands we name the participant, we might name that participant outside the monitoring report,"

The FMA has given some more information about the breaches. It says ‘Fund A’ had insufficient disclosure of the key terms and conditions with respect to withdrawals from the fund. The fund has agreed to make the changes requested by FMA. They will be made shortly.

‘Fund B’ had inappropriate disclosure of past investment performance and asset allocation disclosures contained in advertising material. The fund has agreed to amend its advertising material immediately and will make the appropriate changes to its offer document in September.

Campbell says the issues identified with the two managers had been fixed.

"In each of the two cases we were able to address our concerns by engaging directly with the two participants concerned and we've achieved the outcome that we sought."

Campbell said the FMA also looked at the funds in terms of the new periodic disclosure reporting that comes into force in October.

This was to give guidance to managers about what they needed to do.

The FMA has highlighted a number of areas that will need improvement.

One is returns. Currently managers use a variety of methodologies to report performance. Under the new rules performance calculation will be standardised.

This means there will be some discrepancaries in the numbers. The authority has suggested some ways of addressing this including recalculating past returns.

She also said there were inconsistencies in return reporting between different documents such as investment statements and websites.

"What we're concerned about is where there are inconsistencies between the issuers' (internal) offering documents," she said.

Campbell was concerned that some trust deeds had very sweeping descriptions of asset allocation and risks. A fund that may be classed as low risk could actually end up having a high-risk allocation.
Also risks need to be more specific.

"What we're expecting to see is a focus on the risks that are specific to the scheme, rather than a document containing a 'witch's brew' of generic risk disclosures."

Another area of concern is that some trustees have disclaimers saying they haven’t checked everything the manager does.

Campbell said this is inappropriate for front line supervisors like trustees.

"Disclaimers of that nature are not consistent with our view of what the trustee's role is as a frontline supervisor in this space."

« Get out of bonds and into shares: PainIFA working on pro-bono offering »

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