FMA publishes 2021 annual report
2021 marks the FMA's 10-year anniversary and was also a year heralding a significant change in leadership at FMA. Rob Everett stepped down from the CEO role in September 2021. Samantha Barrass, a returning Kiwi, took up the role on Tuesday after an interim period with FMA veteran, Liam Mason, as acting CEO. Ms Barrass has worked in a range of regulatory and executive roles in the UK and Europe, including as the CEO of the financial regulator in Gibraltar, where the role encompassed conduct and prudential regulatory oversight.
Why read the Annual Report?
The Annual Report is important to all financial market participants as it provides insight into the financial market and strategic activities of the FMA as a key regulator.
New regulatory regimes
Despite COVID-19 being an ever-present issue over the past year, the FMA has seen the introduction of several new pieces of legislation and resulting reforms for the financial market sector. As such, a key focus for the FMA for much of the previous year has been preparing for new responsibilities including licensing and supervising financial advice providers. This will continue into the new year with the FMA being the key supervisor for monitoring compliance with new requirements for insurers regarding policies and protections for customers, as well as reviewing the climate-related financial disclosures that will become mandatory for some entities.
Important regulatory developments include:
- The new financial advice regime and associated licensing requirements for financial advice providers under the Financial Services Legislation Amendment Act 2019 commenced on 15 March 2021, nine months later than originally planned. Under the new regime, providers of regulated financial advice to retail clients must either hold or operate under a Financial Advice Provider licence and adhere to the new Code of Professional Conduct for Financial Advice Services.
- Financial Markets (Conduct of Institutions) Amendment (COFI) Bill. More commonly referred to as ‘CoFI’, when enacted, the Bill will amend the Financial Markets Conduct Act 2013. The CoFI Bill sets out a framework for the FMA to license and monitor banks, insurers and non-bank deposit takers in respect of their conduct towards customers. As noted in the Annual Report, administering this new regime will require significantly expanded resources for the FMA’s growing remit.
- Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act. The introduction of mandatory climate-related disclosures (CRD) under the Act seeks to ensure that the effects of climate change are routinely considered in business and investment decisions. The FMA has published its implementation approach for the climate-related disclosures regime which outlines the FMA’s implementation approach for the CRD regime and sets out the roles and responsibilities of various government agencies, to help industry understand ‘who is doing what’ with regard to CRD.
- Disclosure framework for integrated financial products guidance. As investment products that incorporate environmental, social and governance (ESG) outcomes continue to grow in popularity, difficulties in evidencing and quantifying non-financial outcomes for these ‘integrated financial products’ were noted in the Annual Report. The FMA developed the disclosure framework in order to assist providers in demonstrating to investors that these products are functioning as advertised and delivering the expected benefits.
- Review of insurance contract law. The FMA is continuing to work with MBIE to conduct the review into insurance contract laws, which proposes making FMA responsible for insurers regarding insurance policies and protections for customers.
The FMA’s interest in KiwiSaver fees has matured into a holistic focus on ‘value for money’. Despite the statutory obligation not to charge an unreasonable fee being specific to KiwiSaver schemes, the FMA’s expectation has extended to all managed funds - guidance has been released for fund managers to ensure their fees are reasonable. The guidance sets out the FMA’s interpretation of fund manager issuer obligations to act in members’ best interests and sets out a framework for fund managers and supervisors to conduct a complete evaluation, taking into account fees, returns, advice and other services which provide value to investors.
Enforcement activity
Deterring misconduct was a key theme over the past year and we expect to see this trend gaining more momentum in the coming year, particularly with the FMA’s now expanded and well-resourced enforcement team. As the FMA expands, it can be seen to be taking an increasingly hands-on approach to enforcement, particularly focusing on ensuring good conduct is observed by players in the financial market and around compliance with Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).
Notably, the FMA has taken several high-profile enforcement actions this year - the FMA has noted in its Annual Report that a key strategic intention is to deter misconduct through effective enforcement action. This is expected to continue and intensify, particularly in the AML/CFT space, as the FMA publicly acknowledged in September 2021 that it will escalate its enforcement approach to non-compliance with AML/CFT obligations.
"The FMA is growing and adapting to implement [our] new responsibilities, which will benefit the wellbeing of New Zealanders. It is encouraging to see through our regular surveys that stakeholders continue to see the FMA as supporting market integrity and good conduct."
Examples of key enforcement actions taken by the FMA include:
- A prominent financial institution was found to have breached the FMCA by way of making misleading representations in the supply of insurance contracts to retail customers;
- Formal warning to an individual for conduct that was likely to have amounted to market manipulation; and
- Criminal charges were brought by the FMA for misleading statements made by an individual on their company’s website and for misrepresenting their company’s Financial Service Providers Register registration status.
If you have any questions regarding the FMA's Annual Report or would like any further information, please contact one of our experts.
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This update was prepared by:
Rachel Taylor, Alasdair McBeth, Neisha Mistry, Tom Barnes and Janet Liu.
