FMA issues conduct guidance as market correction risk grows

Thursday 28th July 2016

The Financial Markets Authority wants firms to have a better idea of its view on good business conduct as it races to shore up the country's regulatory framework in an environment of growing risk of market corrections.

The market watchdog wants feedback on its guide describing how the regulator views conduct and what it sees underpinning good practices. Chief executive Rob Everett said the document isn't a checklist for firms to meet a set of rules. Rather, it outlines what the FMA would expect company boards and management teams to do to ensure their firms are adhering to the spirit of the legislation.

The document was a direct result of discussions with firms that wanted a better understanding of how the FMA expected to approach certain issues and is the latest step in a drive to develop a robust regulatory framework.

"You are trying to push people in an environment where they don't necessarily think it's broken, and what we're saying is this is quite immature this space, and it's our job to mature it as quickly as we can," Everett told BusinessDesk. "We've been incredibly lucky in New Zealand with where things have stood, but as interest rates continue to go down and people are really starting to get desperate about yield, we are starting to see some of the more esoteric stuff pop up.

"We are conscious (that) the longer this goes on, the closer a big correction feels."

The FMA is finishing the introduction of the licensing regime, with fund managers the last group of firms going through this part of the overhaul of securities legislation.

Everett said company boards and management are central to setting the tone for firms' conduct. He accepts they can't be everywhere and watch over every aspect of a firm, but that doesn't absolve them of being accountable for any failures.

"We're not just sitting here waiting to catch someone out, we're trying to make sure it doesn't happen in the first place," he said. "The more we can engage with them to point them in the right direction, the greater chance we have of preventing a systemic blow-up."

If the FMA can be comfortable about the regulated operators in the industry, Everett says that gives it more freedom to investigate those grey areas of investment law.

"That perimeter, we do spend a lot of time on that, and at the moment we're seeing a lot of stuff pop up, particular around property," he said. "We need to be savvy about what's happening there, so that's why we're very focused on being able to look beyond the immediate licensed populations."

BusinessDesk.co.nz

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