Enforcement by the Financial Regulators in June/July 2015

Home Insights Enforcement by the Financial Regulators in June/July 2015

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Contributed by: Polly Pope, and Emma Rae

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Published on: July 14, 2015


Points of interest

We highlight four significant settlements announced by the Financial Markets Authority. Two of these relate to the tail of the FMA’s action against finance companies whilst the other two relate to areas of continued focus for the FMA: the secondary markets. This reflects that secondary market conduct issues such as market manipulation, insider trading and continuous disclosure remain a priority area for the FMA.

Settlement with Milford Asset Management

June saw the announcement of a high-profile settlement between the FMA and Milford Asset Management Limited in relation to the FMA’s investigation into certain trading activity between December 2013 and August 2014 by a trader employed by Milford. The FMA’s position is that the trading conduct breached the market manipulation prohibitions in s11B of the Securities Markets Act 1988.

The FMA concluded that the Milford Board failed to ensure that there was the requisite degree of monitoring of the trading activity, and also considers that Milford is liable for the trader’s alleged breaches. Although Milford denies it is liable for any breaches, under the terms of the settlement Milford has agreed to pay $1,100,000 in lieu of a pecuniary penalty and $400,000 as a contribution to the costs of the FMA’s investigation. Milford has also undertaken to complete recommendations made by PwC regarding its trading systems and controls. 

The settlement does not include the individual trader.

The size of the settlement:

  • may be seen in the context of the pecuniary penalty of $130,000 that was levied on an individual in New Zealand’s first case relating to market manipulation in 2014.
  • reflects the powerful enforcement tools available to the FMA in civil proceedings. The FMA has the ability to seek pecuniary penalty orders in civil cases, which only need to be established on the balance of probabilities (as opposed to criminal prosecutions which need to be established “beyond reasonable doubt”.) Many of the statutory provisions under which the FMA could seek pecuniary penalties do not require the FMA to prove that the defendant had any particular state or mind, or intent. 

A copy of the settlement agreement and the FMA’s press release can be found here.

FMA issues warning on continuous disclosure obligations

The FMA has settled its investigation into Pacific Edge Limited regarding potential breaches of its continuous disclosure obligations, issuing a public warning to Pacific Edge. The FMA’s view is that it is likely Pacific Edge contravened NZX Main Board Listing Rule 10.1.1(a) and, accordingly, section 19B of the Securities Markets Act 1988.

The FMA considered that Pacific Edge should have disclosed access agreements entered into between its American subsidy and two US organisations in October 2013 immediately upon execution. Once the existence of the agreements was disclosed, the price of Pacific Edge’s shares increased. 

Following engagement with the FMA, Pacific Edge undertook a compliance audit, and also agreed to make a compensation payment of $500,000 to be distributed to shareholders who sold Pacific Edge shares during the period of delay between signing of the agreements and the announcement to the NZX.

A copy of the full warning can be found here, while the Deed of Settlement between the FMA and Pacific Edge is here.

FMA enters into $18 million settlement with Hanover defendants

The FMA has settled its civil proceedings against the former directors of three companies known as the Hanover finance companies, as well as the former directors of Hanover Group Ltd (a parent company). 

As part of the settlement, $18 million will be distributed to eligible investors who invested in the Hanover finance companies in the period from 7 December 2007 to 23 July 2008.

In describing the decision to enter into a settlement, the FMA stated that it believes that the terms of the settlement provide a better and earlier outcome for the relevant investors than going to court, and also meet the FMA’s regulatory objectives in taking civil action. 

The FMA6s press release on the settlement is available here.

$10m settlement of Dominion Finance and North South Finance proceedings

A settlement totalling $10.235 million has been negotiated between the FMA, the liquidators of Dominion Finance Group, and the receivers of North South Finance, in relation to civil proceedings against the directors of both collapsed finance companies. In its claim, the FMA had alleged that the directors of the collapsed finance companies failed to perform their roles as directors and did not take adequate steps to ensure they were aware of the company’s true position.

A copy of the FMA’s media statement can be found here.

FMA releases Statement of Intent for next four years

The FMA has released its Statement of Intent 2015–2019, which sets out the regulator’s strategic direction and performance framework for the next four years. The Statement of Intent builds on the seven strategic priorities identified in the FMA’s Strategic Risk Outlook, released in December 2014 (as discussed in a previous edition of this newsletter) and reinforces the current aims and objectives of the FMA.

The Statement of Intent provides a number of key targets that will be affected by the FMA’s enforcement performance, including its aim to have 70-75% of stakeholders in the financial markets confident that the FMA is doing a good job in regulating NZ’s financial markets. 

The Statement of Intent further highlights the FMA’s recent emphasis on ensuring that the frontline regulators under its supervision (including the NZX) are operating efficiently and contributing to the regulation of the financial markets, as well as its focus on ensuring high quality offer disclosure documentation, through setting survey-based performance targets in each of these areas.

A copy of the Statement of Intent can be read here.

NZX passes its Annual General Obligations Review

The FMA has conducted its fourth annual review of NZX’s performance, concluding that the market operator is carrying out its role as a frontline regulator effectively.

The review assesses NZX’s compliance with its obligations under the Securities Markets Act 1988, which require NZX to ensure the registered markets it operates are fair, orderly and transparent. The FMA review has concluded that NZX is meeting its obligations, with its activities demonstrating a commitment to continuous improvement and ensuring ongoing compliance with its statutory obligations.

The review commends the increased visibility of NZX enforcement actions (including its use of the NZ Markets Disciplinary Tribunal), and the increased information and communication from NZX about its enforcement efforts. The review also praised the development of better internal processes for managing its regulatory activities.

Unlike past reviews, the FMA has not made any specific recommendations about particular actions the NZX should consider adopting. However, given that some measures (such as the penalties and powers of the NZ Markets Disciplinary Tribunal) are currently under review, the FMA may have more to say on the NZX’s enforcement powers in coming months.

A copy of the full review can be found here.


This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.

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