FMA Publishes 2022 Annual Report

The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko, has published its Annual Report for the year ended 30 June 2022. The Annual Report reflects the FMA's focus areas, developments in regulatory regimes, governance, and performance measures.

The Annual Report is of interest to all financial market participants since it provides insight into the financial priorities and strategic activities of the FMA as the principal conduct regulator of New Zealand's financial markets.

The 2022 Annual Report is the first Annual Report released under Samantha Barrass' tenure as Chief Executive. The FMA has continued to expand its remit and show greater willingness to exercise its enforcement powers. The Annual Report reinforces the FMA's commitment to adopting an outcomes-based approach to regulation within the financial sector. As noted by Ms Barrass in the Annual Report:

"Firms will see a palpable shift in our approach: a strong focus on the outcomes being achieved, with compliance being a means to an end and not an end in itself. There will need to be greater engagement and understanding between the FMA and the industry..."

New regulatory regimes

Over the past year, several legislative reforms and regulatory developments were put in motion. Key developments include:  

• Cyber and operational resilience remains a key focus area in which the FMA is enhancing its monitoring approach. The FMA published an information sheet that details risk management and helps financial service providers meet relevant license obligations.

• Financial Markets (Conduct of Institutions) Amendment Act (CoFI) was passed into law in June 2022. Under CoFI, banks, insurers and non-bank deposit takers must treat consumers fairly by applying the "fair conduct principle." The FMA is continuing to develop its approach to the implementation of the regime including finalising a draft licence standard condition and guidance for fair conduct programmes.

• The financial advice regime requires anyone giving advice to retail clients to operate under a financial advice provider licence issued by the FMA. To assist financial advice providers in transitioning to full licence requirements in time for the March 2023 deadline, the FMA has developed comprehensive licensing tools including publishing guidance on the matter.

• The managed investment scheme (MIS) risk assessment report was published, covering a range of risk factors relating to operations, investment and governance. For more information on this, see our recent analysis.

• The value for money guidance published in 2021, outlined that all fund managers must annually review the reasonableness of their fees and act in their members' best interests. The FMA noted in its Annual Report that as regulator it is willing to exercise other tools if fund managers consistently fail to provide customers value for money.
• Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) policy and processes were the focus of the statutory review led by the Ministry of Justice. In addition to continuing regular compliance monitoring, the FMA published AML risk ratings for each monitored financial sector, and for the first time included virtual asset service providers.
• The FMA and the Reserve Bank of New Zealand (RBNZ) published the Financial Market Infrastructure (FMI) framework providing guidance on the relevant factors to determine whether an FMI is deemed of systemic importance. Under the new FMI regime, FMA and RBNZ are joint regulators.

• The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act introduced mandatory climate-related disclosures. For more information on the climate-related disclosure (CRD) regime, read our analysis here. The FMA is continuing to develop its implementation approach and has published guidance on its initial monitoring approach to record keeping.

• The FMA has noted that the Guide to Good Conduct for financial service providers will be updated to provide a single set of conduct principles that align with regulatory requirements for all monitored sectors.

Enforcement activity

The FMA has adopted an increasingly hands-on approach to enforcement, which we expect will continue and intensify.

Recently, the FMA has filed High Court proceedings against, or has issued warnings to several prominent financial institutions for contravening the fair dealing provisions in the Financial Markets Conduct Act 2013 (FMC). The FMA has also had a strong focus on deterring misleading advertising. The FMA has previously issued guidance on advertising financial products.

The FMA has noted the potential vulnerabilities of retail investors in financial markets. In this regard, the FMA has stated that the provision of derivatives to retail customers remains a key focus area. Notably, the FMA has censured multiple financial institutions for breaching their derivative issuer license obligations.

The FMA has also indicated that compliance requirements may increase in relation to preventing misconduct in the treatment of wholesale offer disclosure exclusions.

If you have any questions regarding the FMA's Annual Report or would like further information, please contact us.