FMA tells managers about misconduct risks

The FMA has sent a Information Sheet to fund managers about misconduct risks which is being interpreted as a response to alleged market manipulation at Milford Asset Management.

Friday, August 14th 2015, 1:23PM

The Information Sheet, Market misconduct risks: a guide for MIS managers details the FMA's expectations as well as a list of potential controls.

It says the note is for managers who trade directly in financial products.

"Directors and senior management are responsible for ensuring that doing the right thing and putting client interests first are central to the culture of the firm."

It says directors and senior management are accountable for all trading transacted in their firm's name, including proprietary trading accounts. It also says it covers trades done for the firm or for personal accounts.

"We will take seriously any evidence of a lack of focus on, or commitment to, maintaining an adequate and effective risk and compliance framework."

In the sheet the FMA lists nine potential controls which it says are examples of compliance methods used by fund managers around the world.

Perhaps the most interesting potential control the FMA notes is around Conflict of interest policy. It notes that there are potential conflicts around trading activity where there are performance fees, extensive trading around performance reporting dates "such as portfolio pumping or window dressing".

It also says another potential conflict is talking to the media about specific securities or sectors

"The commentary itself, as well as trading activity shortly beforehand or afterwards, should be monitored and assessed within the risk and compliance framework."

The FMA says it is not a complete list and same may not be appropriate for a particular manager."

"Managers with higher-risk trading activites such as active trading strategies, proprietary trading, or those who have direct market access systems, which may lead to a higher likelihood of market misconduct, will need more robust direct controls than managers with lower-risk trading strategies."

READ Information Sheet here

Tags: FMA Milford Asset Management