Most Read Contributor in New Zealand, September 2016
The Financial Markets Authority (FMA)
Enforcement Policy setting out its enforcement priorities and the
approach it will take toward the use of its powers.
This is a useful initiative which will provide welcome clarity
and transparency. We summarise the main points of the Policy and
provide a brief commentary.
The FMA emphasises that this is "a living document" so
the enforcement priorities can be expected to change over time.
Early priorities are:
compliance with the new licensing regimes – for
financial service providers, financial advisors, trustees,
statutory supervisors and auditors, including monitoring the
boundary between regulated and unregulated activities, particularly
in relation to the financial advisers' regime
misconduct in KiwiSaver sales and distribution practices,
including those entities providing KiwiSaver through
"information only" services
trading conduct, "with a view to taking early action
should the need arise"
ensuring compliance with the Anti-Money Laundering and
Countering the Financing of Terrorism legislation, when it comes
into force on 30 June 2013.
These priorities are appropriate and as we would have expected.
Given that some of the issues involved are legally and factually
complex, early test cases are highly likely.
Openness and co-operation with the FMA, in particular where a
compliance problem has been self-identified and reported, will be
important in determining the level of any sanction or whether the
FMA considers that a sanction is warranted.
Use of powers
The FMA states that it will use "the full toolbox available
to us". This includes the use of criminal prosecutions for
serious misconduct, exercising a person's right of action when
it is in the public interest to do so, and requiring offenders to
compensate their victims.
It notes that, while there has been a recent focus on
directors' duties, it will also be holding senior executives,
shadow directors and external advisers to account. Tools to do this
include management banning orders and pecuniary penalty orders for
untrue statements made by experts in disclosure documents.
The Policy promises enforcement action which is
"proportionate" to the offence, and that the FMA will
"apply the principles of fairness and proportionality to any
decision on whether to pursue civil or criminal actions". The
FMA may be making a virtue of necessity here as resource
constraints will mean that it is going to have to pick its battles
to some extent.
Publication of enforcement action
The FMA favours a highly public approach "to maximise the
visible deterrence of enforcement activity". Accordingly, it
will allow name suppression and confidentiality only under
exceptional circumstances. This is in sharp contrast to the
historic position of the NZ Markets Disciplinary Tribunal (and
predecessors) which faced criticism for refusing, in some cases, to
identify firms and individuals under investigation.
The FMA will encourage out of court settlements where
appropriate but wants this option to be raised before it has
committed to pursuing litigation. For market participants, this
means that early case analysis will be essential to assess whether
it is better to go to court or to settle.
The FMA will expect a settlement proposal to be well developed
and to include draft admissions, a detailed and realistic
remediation offer and reparation where possible.
The FMA's commitment to transparency is commendable. We note
that it is planning two companion documents to the Enforcement
Policy: a model litigant policy and a policy on its intended
approach to conducting investigations.
These are also "nice to haves" – at least in
principle. Most public sector enforcement bodies have some form of
model litigant policy, requiring them to conduct any litigation
with the utmost propriety and to the highest professional
But experience has shown that this can mean different things to
different people – for example, it may (or may not)
include the taking of procedural points or strike outs
applications. This is particularly so as such policies are not
binding or enforceable.
Much more effective is the creation and nurture of an
institutional culture around enforcement. The FMA, given the scope
of its jurisdiction, seems the perfect agency to provide leadership
in this respect.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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