BIG to govt: the FMA should redirect focus to high-risk areas

Boutique investment managers want FMA compliance expectations scaled back so that they can focus more on what matters.

Wednesday, December 13th 2023, 6:00AM

by Andrea Malcolm

A Boutique Investment Group (BIG) briefing to Minister for Regulation David Seymour, Minister of Commerce Andrew Bayly and Minister for Seniors Casey Costello says fund managers have faced a relentless stream of regulation in the past six years.

BIG wants this tapered off to let them properly bed in what is already in train and free up time to look at more important issues.

The regulatory stream of the last six years includes the value for money programme which, although not statutory falls under FMA guidance and expectations; climate change reporting; the FMA and Reserve Bank review on governance; liquidity risk management proposals; the shift towards ‘fair customer outcomes’; reform or new laws on privacy, AML/CFT and modern slavery and ongoing requirements of the Financial Markets Conduct Act.

Bayly has replied that the government is very aware of the issues, and he is working with his colleagues.

A different set of issues

“We’re not trying to put less resources into compliance,” says Simon Haines, chair of BIG. “We want to use our compliance resources to look at a different set of issues because we don’t think what we have to look at hits the highest risk and highest value factors for New Zealanders.

“For example, if we could place more of the resource we are currently putting into AML/CFT obligations into addressing a global rise in scams that would benefit New Zealand. We also need time to understand the implications of transformative technology like AI, which we cannot get to if we are bogged down with low value compliance matters.”

FMA KiwiSaver scrutiny too narrow

The brief also draws attention to the fact that currently Australians stand to get a much better quality of life than New Zealanders when they retire and the necessity to keep building KiwiSaver.

“KiwiSaver is the only investment that many people have. If there's not enough, where will their decent quality of life come from?”, says Haines.

KiwiSaver, in particular, has political and reputational issues associated with it, he says. Providers are looked at again and again, but the FMA doesn’t scrutinise administrators who are unregulated, custodians or the shallowness of capital markets which are all part of the KiwiSaver value chain.

Look beyond licenced fund managers

BIG also says that it is not in New Zealand’s interests to have such a level of focus on licensed fund managers. The regulator should also prioritise monitoring higher risk areas, where investors stand to lose everything.

There are all kinds of businesses that target people who are either very young and inexperienced (like crypto currency platforms, option and share trading platforms and training courses in foreign exchange), says Haines.

At the other end of the spectrum are unregulated “wholesale” forestry schemes and property syndicates, targeted at over 65s which can also be extremely high risk.

“We would like the FMA to flex its powers under part 2 of the FMC Act and sit on that sector with a bit more emphasis,” he says.

A strong regulator is important

However BIG doesn’t want FMA resources cut as part of a public service cull and notes it is funded from industry levies and not taxes.

“As an industry we support having a good working relationship with the FMA and them being well resourced; the danger of being under regulated is actually quite great,” says Haines.

“Instead, it’s about redirecting the FMA’s attention to what BIG sees as more important issues that would better serve New Zealanders.”

Tags: FMA