"Compliance over enforcement" will be the Financial Markets Authority's preferred course of action, which says the KiwiSaver scheme in particular will be a priority for the financial services body.
Chairman Simon Allen said publication of the FMA's enforcement policy yesterday marked a milestone for its first six months as New Zealand's fully-fledged financial services law enforcement body.
"We're not going to be shy about saying what our priorities are,
what areas we are going to go after, and what our levels of
tolerance are," Allen said.
"FMA will focus on priority areas where misconduct presents the biggest risk to the function of open, transparent markets."
He said protecting the integrity of KiwiSaver was an obvious priority because so many New Zealanders are enrolled in the scheme, which he called "a fundamental plank of New Zealand's retirement savings strategy".
"We will focus on KiwiSaver sales and distribution practices and will act decisively against any evidence of misconduct in this part of the market."
Other priority areas include compliance with new licensing regimes – particularly the financial advisers regime – and monitoring of trading on registered securities exchanges.
"FMA wants to see a new era of professionalism amongst the country's executives and directors. Our clear preference is for compliance over enforcement. Our first recourse will be to comment, to write guidance and reports, to speak to the country through the media and other channels and to make recommendations for law reform.
"But we also have new powers, including a new ability to seek remedies for poor governance on behalf of shareholders and companies, and we will use these where necessary."
He said the FMA would not pursue every single breach but would concentrate on misconduct where failings were intentional, reckless, or involved other serious unlawful conduct, and where the perpetrator set out to intentionally mislead or deceive innocent investors or third parties. Where necessary, it will use its powers to bring test cases that will clarify “grey areas” of the law.
It would not pursue litigation where disputes were essentially private in nature as that would not be an appropriate use of public money, Allen said.
Other reasons not to complete an investigation would be if enforcement would not be justified in the public interest; there were opportunities for more effective intervention such as referral to the Serious Fraud Office; the breach was a one-off, isolated case; involved minor events relating to a technical error or similar issues; or could be better resolved directly by disputes resolution schemes or by contract between private parties.
The FMA plans to publicise any enforcement actions it takes, unless there are legal or other compelling reasons not to do so.
"The open scrutiny will serve as a powerful and educative deterrent," Allen said.
He said four principles underpin the enforcement policy:
- FMA will use the full regulatory toolbox, which includes bringing criminal prosecutions for serious misconduct; using our power under section 34 of the FMA Act to take action on investors' behalf; and holding directors, senior executives and advisers accountable where necessary. Where appropriate we will require market participants to provide financial compensation for losses sustained due to unlawful conduct.
- Decisions about allocating FMA's resources will be prioritised. Matters that will gain the full force of FMA's scrutiny are those involving large numbers of investors at risk of significant or potential loss, those where there is evidence of intentional unlawful behaviour, and those where there is a need to send a clear regulatory signal to the markets.
- All financial market participants need to have clear and well-understood responsibilities. FMA is committed to an open and educative approach about its role, functions and policies so participants can achieve best practice standards of compliance.
- Where necessary, FMA will use its powers to bring test cases that will clarify "grey areas" of the law.
Allen said the policy was a guide for market participants rather than an exhaustive or legally-binding document, and would be revised from time to time as regulatory objectives and priorities changed.
The FMA will also issue an intended approach to litigation and a policy on conducting investigations.
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