FMA Finds Significant Weaknesses in Derivative Issuers Client Assessments

The NZ regulator has published a report on its supervision activities taken place over the past 18 months.

The Financial Markets Authority (FMA) has published a report on its supervision of activities taken place over the past 18 months, with the authority finding weakness across four main areas of its regulated sectors: governance and oversight, conduct and culture, compliance assurance programmes and compliance and controls.

Although the report highlighted that large parts of the financial services sector are doing their utmost to meet the New Zealand regulator’s expectations, the FMA has called for further and more widespread improvements to governance and compliance.

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According to the report, when looking at the licenced derivatives issuers in New Zealand that it monitored, the FMA found significant weaknesses in the way they assessed the knowledge of clients, experience and understanding of derivatives.

There are 25 licensed derivatives issuers in New Zealand. From monitoring the companies by the Kiwi watchdog over the past 18 months, the regulator found there was insufficient information collected to support the product suitability assessment.

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Furthermore, the authority found there were poorly designed assessment processes, none or insufficient documentation of the rationale for approving proposed derivatives for investors, minimal direct contact with prospective investors and more weaknesses.

FMA: the Issues Identified Are Concerning

According to the FMA, the weaknesses found during its monitoring period were consistent with its Derivatives Issuer Sector Risk Assessment, where the agency asked for licensed derivatives issuers to complete an assessment of their own practices and compliance.

Rob Everett, FMA Chief Executive, said in the statement published today, that the issues identified across its monitoring were concerning, adding that he anticipates that the FMA will take increasingly strong action where deficiencies are not remedied appropriately or in a timely manner.

“We are at a point now where the volume of FMA guidance, level of engagement and maturity of the regulatory regime mean there are no excuses for conduct that presents the risk of harm to investors, customers and the integrity of the markets,” he continued in the statement.

“While we have seen positive evidence of genuine customer focus during COVID-19, there is more work to be done to build a sustainable customer-centric culture.”

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