FMA chief executive Rob Everett told the <i>Herald</i> on Friday that discussions were ongoing. Photo / Richard Robinson
Insider trading, conflicts of interest and poor corporate governance will be some of the Financial Markets Authority's key focus areas over the next two to three years.
The market watchdog has today laid out a seven-point strategic risk outlook, identifying the main priorities in terms of its regulatory efforts.
The FMA says its seven focus areas are:
- Governance and culture.
- Conflicted conduct, such as remuneration arrangements that result in poor advice around financial products.
- Capital market growth and integrity.
- Sales and advisory services reflecting the best interests of investors and consumers.
- Investors having access to tools that help them make informed financial decisions.
- Ensuring frontline regulators, such as exchange operator NZX, are effective.
- The FMA maximising its own effectiveness and efficiency as a regulator.
FMA chief executive Rob Everett said the strategic risks partly reflected the regulator's mandate under the Financial Markets Conduct Act, which has progressively come into force this year.
"We have to make choices about where we will focus our efforts in order to deliver the maximum results, taking into account our expanded mandate," Everett said.
"Firms and professionals within our mandate should anticipate us paying attention to the seven priorities over the next two to three years. Also, representatives of the finance professions - including directors, auditors, legal counsel and financial advisers - can expect us to work with them constructively on these areas to improve outcomes and build confidence."
In its report released today, the FMA flagged concerns about company director influence in New Zealand being "relatively concentrated in a small group of interconnected directors".
"While some degree of interconnectedness is vital to the efficient functioning of our financial system, it can also serve to amplify existing market frictions, conflicts of interest, information asymmetries and other structural and behavioural factors," the FMA said.
Read the FMA's full Strategic Risk Outlook here:
The regulator said it was the responsibility of boards to set strategy and lead through culture and values.
"Through our entity-based monitoring we will be asking boards of financial service providers how they know the organisation is focused on investor outcomes," the FMA said. "We will also ask if boards review regular information on customer outcomes such as complaints data, sales incentive structures and criteria for promotions and rewards."
The watchdog said its monitoring would also focus on distribution models that exacerbate conflicts of interest, such as remuneration arrangements that result in conflicted advice around the sale of financial products.
"These remuneration arrangements may include certain volume-based incentives, up-front commissions and trail commissions," the report said. "Within the managed funds sector, we will also focus on fee-driven behaviour that is likely to result in unfair investor or market outcomes."
The FMA said its work with exchange operator NZX aimed to achieve effective and timely responses to potential misconduct like insider trading and market manipulation.
"We will prioritise enforcement responses to these cases so that our licensed markets are seen as fair and transparent places to do business, for both onshore and offshore participants."
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