Enforcement by the Financial Regulators in March 2015

Home Insights Enforcement by the Financial Regulators in March 2015

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Contributed by: Polly Pope and Emma Rae

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Published on: March 31, 2015


Points of interest this month

Review of financial advisers legislation is formally underway

The review of the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 is now formally underway, with the release of the terms of reference for the review kicking off an anticipated 16-month consultation and reporting process.

In terms of enforcement implications, the dispute resolution scheme for financial service providers will be squarely within the scope of the review. The relevant part of the Act was reviewed by MBIE in September 2013, focusing on consumer awareness of the dispute resolution schemes and other issues affecting accessibility. At that time, it was recommended the dispute resolution provisions be re-evaluated as part of the broader review of the legislation. 

The initial focus of the review will involve MBIE updating its understanding of the role of financial advice and financial service provider registration and dispute resolution in improving financial outcomes for New Zealanders, before consulting on the objectives, intervention logic and issues involved with each Act by releasing a discussion paper in early May 2015. The consultation process will seek feedback from a wide range of sources in the finance industry, including consumers (through consumer surveying and focus groups) and advisers.

The terms of reference also include MBIE’s indicative timing for the remainder of the review, with its report on the FSP Act due by 15 August 2015, and its report on the FA Act due by 1 July 2016.

The full terms of reference of the review can be found here. The FMA’s media release on the review is here.

Anti-Money Laundering supervisors issue formal warnings

This month, both the FMA and the Reserve Bank issued formal warnings for compliance failings under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

The FMA issued a formal warning to MSL Capital Markets Limited for failing to perform and provide the FMA with an audit on its AML/CFT risk assessment and programme. The AML/CFT Act requires a reporting entity to ensure its risk assessment and AML/CFT programme are audited every two years, or at any other time at the request of the relevant AML/CFT supervisor.

This warning comes after JP Morgan Chase Bank’s New Zealand branch was issued a formal warning by the Reserve Bank. The Reserve Bank released a statement that it believed the branch’s risk assessment didn't fully meet all requirements of the Act for a four-month period in 2013. In both cases, the problem was (or was being) rectified and there has reportedly been subsequent compliance by the reporting entities with the relevant requirements.

FMA provides further guidance on the Financial Markets Conduct Act 2013

The FMA continues to reiterate that it will take a practical approach to its increased supervision responsibilities under the Financial Markets Conduct Act 2013. Speaking in Wellington, Elaine Campbell (FMA Director of Compliance) reiterated that the FMA will take a facilitative approach that focuses on preventative regulation and open engagement with stakeholders.

It is clear that the FMA is open to two-way engagement as the new regime beds in – encouraging businesses and firms to be open with the FMA through timely engagement and high quality data (including when things go wrong), as well as its own commitment to providing quality feedback (including conducting briefings on the FMA's findings at board or senior executive level if required). 

The full speech (which contains some comments about the special role of legal practitioners as well as guidance about the role of boards and senior management and the FMA’s ongoing supervision function) is available here, and the FMA’s summary press release can be read here

International Developments

Enforcement update from the Australian Securities and Investment Commission

The Australian Securities and Investment Commission has released a report detailing its investigation and enforcement outcomes for July to December 2014. During that time, ASIC completed 94 investigations, charged 14 persons with a combined total of 173 criminal charges and recovered approximately $25 million in compensation and/or remediation. It also recovered a further $3 million in civil penalties imposed on liable parties, disqualified 16 directors, and achieved a range of alternative regulatory outcomes, including changes to entities' procedures, amended disclosures, and amendments to transaction terms.

The scope of enforcement action taken by the ASIC reflects its wide reach as a law enforcement agency, including its responsibility for serious corporate fraud and loan fraud. The scale and seriousness of enforcement action may also reflect the more settled nature of Australia’s financial markets regulatory regimes. This is in contrast to the developing nature of New Zealand’s package of financial markets legislation and range of enforcement agencies, which has resulted in an increased focus on education and compliance engagement by our financial markets regulators, in addition to enforcement action where that may be warranted (for example, see the discussion of the FMA’s Investigation and Enforcement Report for the year to June 2014, discussed in a previous edition of this round-up). 

A full version of the ASIC enforcement report is available here.

Misleading product disclosure statements considered in Australia

A recent decision of the Supreme Court of Victoria regarding allegedly defective product disclosure statements has helped to highlight some important differences between the applicable Australian statutory provisions and the corresponding provisions of the FMC Act and associated regulations.

As discussed in a recent Russell McVeagh Corporate Alert, the Court’s reasons shed light on the significance of some of these differences, which include the types of risks that should be disclosed, the availability of a defence where reasonable steps are taken to ensure a PDS is not defective, and where the onus of proof lies for establishing (or presuming) a causative link between the defective disclosure and any loss suffered.

The full issue of Russell McVeagh’s Corporate Alert, containing a more detailed summary and analysis of the case can be found here.

“Closet-tracking” under scrutiny in Norway

A notable development this month is action by the Norwegian regulator targeting a fund that was marketed and priced as an actively managed fund, but which the regulator considered not to be actively managed and, instead, merely mirroring an index. The regulator found that the management of the fund for the last five years deviated considerably from its publicly-stated investment strategy, and has ordered DNB Asset Management AS to take action to remedy the situation. 

More detail is available on the regulator’s website (available 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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