The Financial Markets Authority has refreshed its foundation Strategic Risk Outlook (SRO), published in 2015. It plans to steam ahead on its current course, with some slight repositioning to deal with emerging risks.
The FMA has put a number of "developing themes" on its "risk radar" in the updated SRO:
- retail investor uptake of more complex or risky products – e.g. banks' increased use of subordinated unsecured debt instruments or people classifying themselves as wholesale investors to access sophisticated products but lacking the requisite knowledge to make informed decisions
- items currently beyond the FMA's control but which bear on its regulatory mandate – e.g. core product areas of bankers and insurers, FX trading and certain services offered by overseas entities
- helping investor decision-making when the current accommodating interest rate environment ends
- cyber resilience and data security
- demographic change – FMA plans to work with other agencies to improve the advice available to those nearing the point of retirement
- wholesale market conduct, and
- market infrastructure.
Many of these risks reflect the various impacts of technological change. The FMA reasserts its support for innovation and considers that its regulatory settings are flexible enough to allow it to respond quickly to new opportunities in a timely manner, pointing to its timely licensing of peer-to-peer lenders and crowd-funding platforms.
Current priorities reaffirmed
The FMA's top seven priorities are:
- governance and culture
- conflicts of interest and how they are managed
- capital market growth and integrity
- investor decision-making
- sales and advice
- effective frontline regulation, and
- the FMA's own effectiveness and efficiency.
When to intervene
Factors the FMA takes into account when deciding to intervene include:
- how many customers or investors may be affected and the severity of that effect
- the money at stake
- the probability of the potential harm, or whether it has already happened
- the level of financial capability of the victims – the lower this is the more likely it is that the FMA will get involved
- whether intervention is within the FMA's remit and whether the outcome with justify the cost.
The FMA notched up a reasonably successful enforcement record last year, according to the just released Conduct Outcomes Report for 2016 which shows that 70% of its completed investigations resulted in sanctions other than court action.
These included banning orders against four directors and the removal of 28 firms from the Financial Services Providers Register.
Of the proceedings which went to court; 60% are still active, 20% resulted in a court judgment, 10% were settled and 10% have been discontinued.
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.