For the first time FMA strips a manager

In a first for the regulator the Financial Markets Authority has cancelled a fund manager's licence.

Wednesday, July 7th 2021, 8:59PM

The FMA has cancelled the managed investment scheme manager licence of Fund Managers Otago (FMO).

In a statement the FMA said Fund Managers Otago was "no longer capable of being a fund manager."

James Greig, FMA Director of Supervision, said the manager had failed on a number of matters.

“Cancelling a licence is one of the strongest regulatory actions we can take and it’s not a decision we take lightly,” he said. “It effectively stops a business from operating in the retail investment sector.”

The FMA found FMO’s inadequate compliance and governance arrangements had resulted in continued material breaches of its licence obligations. These included:

Disclosure: Incorrectly calculating and disclosing returns in fund updates
Related party benefits: entering into prohibited related party transactions
Compliance with SIPO (Statement of Investment Policy and Objectives): failing to manage certain funds within their SIPO limits for persistent periods of time
Record keeping: not maintaining appropriate records of key decisions and activities in relation to receiverships
Financial resources: not calculating net tangible assets in accordance with the standard licence conditions

Greig said cancelling FMO’s licence was the appropriate and proportionate response to material contraventions of its licence obligations.

In November 2020, the supervisor, Trustees Executors Limited, decided it was in the best interests of investors to remove FMO as manager of three schemes and requested the FMA appoint KPMG Restructuring Services as temporary manager to manage these three schemes.

Of the three schemes, two are legacy schemes that have been closed for several years and are in the process of being wound up: Capital Mortgage Income Trust and the NZ Mortgage Income Trust. The third scheme, the NZ Mortgage Income Trust (No 2) Fund, has approximately 600 investors. This fund was open in November 2020, but the removal of FMO as manager also means this fund is being wound up.

Tags: FMA