Meet the regulator – FMA speech at Simpson Grierson

Tēnā koutou katoa and thank you for the invitation to talk with you today. I am Louise Unger, the FMA’s Executive Director for Response and Enforcement, and this is Margot Gatland, our Head of Enforcement.

 

 

Over the next hour we will give you a brief overview of the Response and Enforcement Function and where it sits within the FMA. We will then go into some more detail about the work of the Response and Enforcement teams, with a particular focus on how misconduct is referred and assessed, and how decisions are made in respect of regulatory responses.

Following the release of the FMA’s Financial Conduct Report last month, we also wanted to share the FMA’s Regulatory Priorities in the context of enforcement, how they are relevant to current work, and do a brief overview of some of the current enforcement work.

The FMA was established in 2011 to restore investor confidence following the collapse of a large number of finance companies during the Global Financial Crisis. The collapse of these companies cost everyday investors, as well as the Government, billions of dollars.

The FMA currently has just under 320 staff. We have grown in recent years as our responsibilities have grown - from a capital market’s regulator to a broader financial regulator covering, for example, banking, insurance, financial advice . For an independent Crown entity, we are relatively unique in having the majority (around two-thirds) of staff based in Auckland, where a large number of our market participants are.

We have five enterprise groups that sit under each of the Executive Directors in the Executive Leadership Team, and I am responsible for the Response and Enforcement enterprise group.

Response and Enforcement 

• Response and Enforcement is made up of the teams who assess and address conduct that poses harm to New Zealanders at the more significant end of the spectrum, as well as our specialist supervision teams who supervise, monitor and deal with conduct that occurs and needs more intensive, ongoing supervisory support across different sectors.
• To break down what they do in more detail – we have: 
• a response team (called Perimeter and Response) who do most of the case assessments where it appears there may have been material misconduct (either as the initial part of a fuller investigation, or an initial enquiry or smaller investigation in itself) and they use our formal administrative regulatory tools to intervene or respond to identified misconduct.
• We also have an Evidence and Investigations team who are focused on gathering evidence and completing investigations where there is a suspicion of serious misconduct and it appears the conduct may warrant litigation as a response, or where urgent action is needed to obtain evidence or preserve assets.
• And then we have our enforcement team, lawyers who work alongside the Evidence and Investigation team throughout an investigation and who make enforcement recommendations, which often includes civil and criminal proceedings.
• We also have our Specialist Supervision function that is made up of teams that are responsible for the FMA’s approach to operational resilience, anti-money laundering, investor information and intensive supervision.

Referrals, assessment and decision making 

We know there is interest in how misconduct is referred and assessed, and how decisions are made in respect of regulatory and enforcement responses.

Possible misconduct is referred to the FMA through a number of channels. It might come through from our frontline colleagues in the Licencing and Conduct Supervision team through their monitoring process. It might come from an investor or consumer of a market participant’s services, it might be a self-reported issue, or it might be referred to us by another agency like the NZ Police or the Commerce Commission.

For each case of possible misconduct, we have triage criteria which influences whether a case needs to be escalated to us and if so, which of our teams looks into a matter. I won’t run through them all, but they include the seriousness of the misconduct, the harm, duration, scale and whether it is within the FMA’s Regulatory Priorities.

We have a category that recognises urgent referrals that need to be escalated immediately, such as where consumer or investor funds are at risk. If the misconduct is on-going, how the entity is responding to it and whether it has been remediated will also be relevant.

You might be wondering, where does self-reporting fit? 

For self-reported matters, we consider the similar triage criteria, including whether remediation has occurred, and, if so, how quickly the issue was rectified and remediated, and the efficacy of the entity’s escalation of the issue internally and to the FMA.

Among our minimum expectations for those we supervise, noting it is mandatory for some licenced entities, is that issues and potential breaches should be self-reported to the FMA. This is a sign that entities take their legal and licensing obligations seriously - and by informing us, they will endeavour to fix the issues quickly.

When the self-reported issues have the potential to reveal significant breaches or involve risks and harms to customers, we may investigate further, and it can result in enforcement action.

How entities react when an issue is discovered is important. The FMA’s expectation is that an issue should be escalated promptly with the board and the FMA being informed, ensuring timely remediation and communication with customers. While entities may be tempted to wait until they have fully unravelled the problems before making first contact with the FMA or their customers we consider it is better to prioritise early engagement and stop the harm.

The nature of the underlying misconduct itself will always be the driving factor in assessing the appropriate response. The more serious the misconduct – to consumers or to the market - the more likely we will take enforcement action, irrespective of how it was reported.

Possible regulatory responses 

When we look at what regulatory (or enforcement) response is most appropriate, we have more than just litigation available to us.

It’s important to emphasise that our action will be proportionate to the misconduct to achieve an appropriate market outcome or change in behaviour. In the event of misconduct, we may intervene on an informal basis or at a low level – for example, in addition to the regulatory tools, we consider feedback letters as a type of regulatory response.

We may also use a combination of regulatory tools and fulsome investigation, followed by litigation, to respond to misconduct to stop the harm initially and then to hold individuals and entities to account for serious misconduct.

We use our published Regulatory Response Guidelines to support our recommendations and decision making with our responses, and to provide consistent and transparent decision-making.

However, it is important to emphasise that while the application of the assessment criteria is approached in a consistent way, the response to every case will depend on its own facts and what objectives we are wanting to achieve in relation to that entity and/or sector at a particular point in time. This may result in different responses to similar cases.

Our Perimeter and Response team who primarily administer the FMA’s regulatory responses, generally assesses about 30 cases at any one time. Currently 1/3 of the cases relate to the conduct of licensed financial advice providers or individual financial advisors, 1/3 are fair dealing cases which cover matters like the bank and insurer self-reported remediation cases or false or misleading disclosures relating to investment offers (such as claims regarding ethical investing, misleading statements about returns or risks relating to an investment) and about 1/3 relate to fraud or scams or unlicensed or unregistered financial service providers.

Over the last three years (to end June 2025) the Perimeter and Response team have issued 16 feedback letters, two private warnings, 10 public warnings/censures, requested four action plans, cancelled six licenses, and issued one stop order.

Our Market Conduct team, who are encapsulated within the Perimeter and Response team, generally assess about 25 cases at any one time. Currently 1/2 of the cases relate to the trading misconduct on the NZX, and the majority of these relate to insider conduct. Other trading misconduct cases include suspected market manipulation, and technical breaches, such as substantial product holder notices. Other cases that the Market Conduct team assess relate to misleading advertising by wholesale property offers and various complaints about disclosures made by listed issuers. 

Litigation responses 

It is important to note that, as evidenced by our Regulatory Priorities, we enforce across a range of conduct from fair dealing to fraud. Accordingly, civil and criminal proceedings will be an appropriate response to a range of conduct that falls within the FMA’s remit.

The inherent seriousness of different types of conduct varies, as does the harm and impact of it, and this means that similar enforcement responses will be used on seemingly quite different conduct that has varying impacts on consumers, investors and the market.

In the past two years we have commenced 14 proceedings, concluded 19 proceedings, executed four search warrants, sought one statutory management and used one formal regulatory tool in conjunction with an investigation.

The majority of the cases commenced have been civil proceedings, and a good number of those have been under the fair dealing provisions in response to self-reported breaches by banks and insurers. We have also had several market conduct proceedings – insider conduct and market manipulation. There have also been several Crimes Act prosecutions, often involving former and current financial advisors.

Outcomes focused regulator 

The FMA is an outcomes focussed regulator, which means we will prioritise our work so that we are focussing on addressing the largest risks or opportunities in order to achieve the best outcomes for investors, consumers and businesses. We will be engagement-led to achieve the outcomes we are seeking where that is possible, but we will also lean into using our full regulatory toolkit, including strong enforcement responses, where that is warranted to achieve swift intervention, hold individuals or entities to account and to deter harmful conduct occurring in the future. We want to be proactive and ensure obligations which entities need to comply with are clear and that market participants are clear on the FMA’s expectations.

As part of our proactive approach, we are actively seeking out more opportunities to get in front of those in the financial services sector, as well as those who work to support it, to increase visibility of the FMA’s response and enforcement work and outcomes.

An example of proactive engagement recently is the letter I wrote to banking chief executives to raise our concerns with mortgage fraud and the red flags that we want to ensure they are actively looking for. We will be meeting with many of the banks to talk more about this over the next few months. Another example is our report on shadow insider trading that we have just issued today, which reinforces our expectations around the responsible use of non-public material information.

Regulatory priorities

We know there is a clear desire across markets for transparency, certainty and improved engagement with all sectors, which is why, last month, we released our inaugural Financial Conduct Report - a key report designed to provide clarity to the financial sector on what to expect from us as a regulator. It sets out our priorities for the next financial year and the drivers behind why these are our priorities.

From 2017 to 2025, the FMA’s key regulatory priorities identified governance, culture, systems and controls as a focus.

The report, which covers 12 months from the beginning of July, continues these themes as priority areas for us. It provides context and reasoning for our priorities by outlining key conduct risks and opportunities on the FMA’s radar and how we plan to address them. We anticipate the Financial Conduct Report will become an annual go-to reference point for us, our stakeholders and media to understand where we are focused, and what we aim to achieve for the year ahead.

Overall, this report is a roadmap that sets out why and how we are working towards achieving our statutory objective: which, as I’ve already mentioned, is to promote and facilitate the development of fair, efficient and transparent financial markets, and to promote the confident and informed participation of businesses, investors and consumers in financial markets. If you haven’t already read it, I strongly encourage you to. 

Specific response and enforcement priorities 

We have existing cases at different stages of investigation across the areas of cross sector, banking, insurance financial advice, capital markets and investment management that fit within the regulatory priorities. 

The following Regulatory Priorities are a focus for response and enforcement activity in that these will be the ones that are the most directly relevant to decisions on what misconduct we prioritise when deciding to open new investigations over the financial year: 

Financial advice 

• Conduct impacting consumers in vulnerable circumstances 
• Consumers and investors understand fees, incentives and commissions 

Capital Markets 

• Tackling misleading disclosure by wholesale issuers 
• Clear expectations for ethical investment disclosures 
• Insider conduct and continuous disclosure 

Investment Management 

• Ensuring consumers and investors interests are at the forefront of decision making 

Cross sector 

• Disrupting scam activity 
• Ensuring customers are treated fairly when things go wrong; customers know how to make a complaint and are remediated fairly (with a particular focus in the banking/NBDT and insurance sectors) 

Reactive work will always make up a good portion of our work. In recent years, we have experienced an increase in referrals of more serious misconduct including where investor funds may have been misused or are at risk.

As you would expect, it is not uncommon for complaints to be referred to a number of agencies. When that happens there is coordination between the agencies as to which agency will pick up a matter and why. No agency has unlimited resources, and while the FMA has retained more criminal (in relation to the financial markets) cases than it has in the past, we have to make careful decisions about what we should pursue and what is for other agencies. Our remit is a determining factor in what decisions we decide to make – for example, those that involve a financial advisor, but could also be pursued by other agencies if they have capacity (such as the Police or the SFO). 

While the Regulatory Priorities will strongly shape what cases are progressed by our response and enforcement teams over the next year, there will always be serious misconduct within our remit but outside of our annual priorities that still needs to be assessed, investigated and, if warranted, enforced. So our priorities do not mean that we won’t address issues that fall outside of the priorities. But our resources require us to constantly prioritise and assess where the greatest harm is.

As already mentioned, we have a portfolio of cases that are progressing through our Perimeter and Response team. We also have a portfolio of cases that are in the more detailed investigation phase or late enforcement phase, and at litigation. The majority of these in fact align with our new regulatory priorities. However, investigation and litigation can have a long pipeline and some of them were opened before the Regulatory Priorities were set. Several of these several matters involve serious misconduct that falls outside our current Regulatory Priorities but remains sufficiently egregious to warrant investigation and a response if appropriate.

Looking forward, in the next 12 months we have a number of significant investigations or litigation cases to progress. These are in the following categories: 

• Criminal (including securities / investor fraud) 
• Part 2/ Part 7 Financial Markets Conduct Act – Fair Dealing and Disclosure Breaches 
• Market Misconduct
• Fair Dealing bank/insurance cases – a variety, including some self-reported and some referrals 
• Financial Adviser – misconduct 
• Mortgage Fraud 

Fair dealing 

In relation to our approach to self-reported fair dealing matters in the banking and insurance sectors, many of you will be aware that since the conduct and culture review in 2018 we have been very active in the way we have responded to historical and ongoing failures by banks and insurers to deliver on customer promises.

This was a deliberate strategic response by the FMA and is a good example of a deliberate focus on issues in certain sectors that has led to a number of positive outcomes, including: 

• holding a number of banks and insurers to account for significant and prolonged overcharging resulting in pecuniary penalties totalling well over $14 million; 
• entities improving their systems and focussing on the deliverability of promised benefits; 
• creating reliable new jurisprudence relating to Part 2 FMCA which will inform and guide future behaviour and
• regulatory responses (particularly administrative decisions regarding regulatory tools and Enforceable Undertakings); 
• Substantially improved entities’ engagement with the FMA on remediation issues. 

We always need to evolve our regulatory strategies, and therefore our future focussed regulatory approach to these issues will take into account what has been achieved to date in the sector uplift and improved customer outcomes, the role of CoFI in providing us with a legal framework to require uplift in better customer outcomes, the use of CoFI in enforcement responses and a focus on using the full range of our reg toolkit in addition to litigation (for example, enforceable undertakings). But it is important that we continue to use litigation where warranted. 

Thank you 

We want to thank Simpson Grierson for inviting us to speak today and of course thank you to all of you for taking the time to come and hear us talk about our work. I think it would be fair to say that we collectively want the same end result – it is not just the FMA that understands the importance of, and wants to contribute to, fair, efficient and transparent financial markets. We know that keeping an open dialogue with all parts of the financial services sectors, including those in the room today, is critical to our success in fostering the fairest financial sector in the world.

We are more than happy to take any questions.