12 September 2011

FMA announces its Enforcement Policy

The Financial Markets Authority (FMA) has published its Enforcement Policy to assist financial markets participants to have a clearer understanding of FMA's role, functions and priorities.

Chairman Simon Allen said today publication of the policy marked a milestone within FMA's first six months as New Zealand's fully-fledged financial services law enforcement body.
"Promoting and facilitating the development of open, efficient and transparent markets is FMA's main objective under our governing legislation.  By publicising our Enforcement Policy we are deliberately seeking visibility and hope to assist participants in meeting their compliance obligations.

"That is why we also fully intend to publicise our enforcement action unless there are legal or other compelling reasons not to.   The open scrutiny will serve as a powerful and educative deterrent," Mr Allen said.

Mr Allen said enforcement action was only one way in which FMA would seek to raise the standard of corporate governance in New Zealand.

"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.

"FMA will focus its energy not across every act of misbehaviour or insignificant breach but primarily on those areas of misconduct where the failings or breaches are intentional or reckless or involve other serious unlawful conduct, and where the perpetrator set out to intentionally mislead or deceive innocent investors or third parties," Mr Allen said. FMA will not pursue litigation where the dispute is essentially private in nature as this would not be an appropriate use of public moneys.

Four important 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.

"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," Mr Allen said.

"FMA will focus on priority areas where misconduct presents the biggest risk to the function of open, transparent markets.

"Protecting the integrity of KiwiSaver is an obvious priority because so many New Zealanders are enrolled in the scheme, which is 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," Mr Allen said.  

Other priority areas include compliance with new licensing regimes and monitoring of trading on registered securities exchanges.  FMA will actively monitor and enforce the boundary between unregulated and regulated activity, particularly in relation to the financial advisers regime.

At the other end of the priority spectrum, however, FMA's Enforcement Policy is transparent about the factors it will weigh in deciding not to pursue every breach that comes to its attention.   

For example, a case might be set aside where: 

  • Enforcement would not be justified in the public interest;
  • There are opportunities for more effective intervention - such as referral to the Serious Fraud Office;
  • The breach is a one-off, isolated case, or involves minor events relating to technical error or similar issues;
  • The breach can be better resolved directly by disputes resolution schemes or by contract between private parties.

Mr Allen said FMA's Enforcement 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. FMA will also consult with interested parties, including other public sector agencies and industry bodies, as to the application and effectiveness of this policy.
FMA will also issue an intended approach to litigation, and a policy on conducting investigations.


A copy of FMA's Enforcement Policy is available here


Nick Stride on 09 985 4868 or 021 739 052