[Weekly Wrap] Fixing the FSPR

One of the big stories this week was the belated move of the government to tighten up the financial services providers register.

Friday, March 15th 2013, 7:44AM

by Niko Kloeten

The changes announced this week include preventing people with overseas convictions for fraud, theft or money laundering within the last five years from registering as financial services providers.

You'd think this would be fairly obvious but somehow this was overlooked in the initial legislation. The changes will also give the FMA the power to direct that registration be declined, which is a useful addition to the toolbox of the regulator and again, something that should have been in place to begin with.

Some people in the industry have also questioned the value of having the FSPR run via the Companies Office instead of the FMA, which would seem a more natural fit.

While the government moves to plug the holes in the FSPR, the FMA is looking to identify risks among providers of Disretionary Investment Management Services (DIMS).

Weaknesses in the DIMS regime have been exposed by the failure of Ross Asset Management and although there will be changes to DIMS under the Financial Markets Conduct Bill, the FMA can't wait for that to come through. RAM has given some useful pointers as to what the FMA should look for as warning signs, including managing large amounts of money with few staff and having no third-part custodian to handle funds.

And in other regulatory news, the IRD is close to making its decision on changes to the way foreign pension transfers are taxed. The tax department is renowned for sticking to its guns when it has firm views on issues so it will be interesting to see how far it will budge on some of the matters raised by industry participants during the submission process. Its proposal could bring millions of dollars of extra tax into the government's coffers, so the IRD is unlikely to do more than a few minor tweaks to its current proposal.

Still on the topic of regulation, an academic reckons it has led to poor quality insurance advice. According to Dr Michael Naylor of Massey University, regulation has led to more marginal investment advisers moving into insurance. Naylor has previously said that most AFAs are unqualified to do stock picking.

We had a couple of research-related stories this week. One was on the prospect of Australian firm SuperRatings coming to New Zealand, which would add even more competition to the KiwiSaver ratings market. SuperRatings hasn't confirmed the move yet but it has quite a rigorous process and its arrival would be good for consumers and advisers. Expect to hear further developments in this story within the next week.

Another story was around the battle to prevent conflicts of interest for Mercer and other firms that have a dual researcher/fund manager role. There's no doubt about the quality of Mercer's research (well, at least AMP thinks so), but having to wear the two different hats could present an issue from a regulatory perspective, with Australian regulator ASIC for instance working on the issue of research "independence". In the meantime Mercer's emergence adds to an already crowded local research market featuring Morningstar, Lonsec, Fundsource and van Eyk.

In other news on our site this week, the OCR is likely to remain unchanged this year and lower mortgage rates are possible. And in insurance news, the Reserve Bank is considering a clampdown on the use of re-insurance as a funding tool.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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