Challenges ahead for FMA

Increasing financial challenges lie ahead for the Financial Markets Authority, but advisers should not assume that means they will get an easier time from the regulator.

Wednesday, June 5th 2013, 8:36AM 1 Comment

by Susan Edmunds

That’s according to former FMA staffer turned compliance consultant, Gavin Austin.

The FMA’s Statement of Intent, which lays out the organisation’s plans for the next three years, shows the FMA will come under increasing strain despite its workload increases.

The first year the SOI covers, ending June 2014, will be supported by funding for transitional costs, of about $1.6 million. But this funding runs out the following year.

The document says: “FMA is forecasting small surpluses in the first year and then to use reserves in the remaining two years of this SOI. The reserves carried forward are important to enable FMA to carry out our statutory functions and, in particular, to fund the continued build of systems to support FMA’s data gathering, strategic intelligence and implementation of our expanded regulatory framework.”

The FMA says it will work with the Government to ensure it has adequate resourcing to support the implementation of its strategies and any further expansion of its regulatory mandate. Its remit will be broadened with the implementation of the Financial Markets Conduct Bill. It says: “We will work with MBIE to monitor and manage the collection of fees and levies effectively.”

The SOI shows that the FMA is expecting income of $1,068,000 in the 2013/2014 year, down markedly from the $4,469,000 recorded in the 2012/2013 year. By 2014/2015, it will be making a loss - $632,000 that year and then $1,155,000 the year following. Cashflow from operating activities is forecast to fall from a $4,623,000 surplus in 2012/2013 to $338,000 in 2015/2016.

Existing investments and borrowing will help to cover periods of shortfall.

The SOI shows that $12,556,000 per annum has been set aside for “risk-based monitoring and surveillance”. Another $7,241,000 is for boosting investor awareness and providing market analysis and guidance. Another $7,973,000 is for investigation and enforcement functions. It wants 90% of AFA applications to be processed within 20 working days.

Austin said a lack of resource was one of the reasons he had left the FMA.

The team working on AFA monitoring were being asked to also take care of monitoring the new anti-money laundering legislation, which comes into force at the end of this month.

“They’re stretched monitoring RFAs and AFAs, let alone QFEs, which they say they want to do.”

He said the FMA needed to decide what it wanted to focus on, because it would not be able to do everything. “I don’t know whether that means advisers can take a breath and say there’s a slimmer chance that they’re going to have the attention on them, and they have a bit longer to get their houses in order.”

He said he would not recommend that approach because the FMA was going to be a lot stricter on enforcement of the second round of regulation.

Barry Read, of IDS, said the FMA was doing well at what it said it was going to do. He said it was not feasible for a regulator to have eyes in every business.

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