In July each year the FMA publishes its Annual Corporate Plan, which sets out the regulator’s vision and intentions for financial markets and their participants over the 12 months ahead.  The latest, Annual Corporate Plan 2021/22 (“Plan”), is the second such plan produced within the COVID-19 era, wherein a lot of new risks and uncertainties have been introduced into markets and economies worldwide by persistent and ever-changing global pandemic conditions that have no foreseeable end. 

Reflecting this, the Plan states at the outset:

“Recognising “change is the new normal” is undoubtedly the theme of our Annual Corporate Plan for 2021/22.

“Areas where we see the need to respond to rapidly developing conditions include products and services that have ESG (environmental, social and governance) aspects, fintech innovation, and the risks from cyber attacks or technology failures.

“In addition, as both we and the industry navigate the recovery, our key focus must be on the customer. At the heart of good conduct is understanding and responding to changing customer needs.”  (Plan, p. 4)

Of course, at the time that this quoted passage was written, “Fortress New Zealand” had not yet been breached or reverted once again to COVID-19 Alert Level 4 national lock down due to a community outbreak of the Delta variant of the virus.  Our country looked like it had held out successfully from the onslaught of the global pandemic, but as change is indeed the new normal, nothing can be taken for granted as fixed and stable anymore.  Our financial markets and their participants should always be prepared for an unlikely scenario.

The Plan sets out some important priorities in its Capital Markets and Investment Management sections that market participants, including licensed MIS Managers and their Supervisors, will need to attend to closely.

Capital Markets: Messages for market participants

In the Capital Markets section (p. 7), which is addressed to market participants in general, there is an extensive retrospective discussion of the impact of the 2020 COVID-19 global pandemic on the New Zealand equities market. Prospectively, concerning legislative changes that will affect market participants, there is passing mention of the Financial Market Infrastructures Act 2021 and the Financial Markets Conduct (Licensing of Administrators of Financial Benchmarks) Amendment Regulations 2020 (effective from 15 March 2021), plus a short paragraph concerning the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill (“Bill”). In the latter case, things are moving along quickly now, with the Final Report on the Bill being publicly released by the Parliamentary Economic Development, Science and Innovation Committee in mid-August. 

In the remainder of the Capital Markets section, the Plan signals that the FMA will be paying attention to complaints and enforcement concerning misconduct in regulated markets and striving for more transparency in entities and investment products.

Listed as areas of the FMA’s capital markets focus are:

1. Implementation of regulatory reform – related to the legislative changes noted above
2. Listed equity and debt market sector resilience – concerned with the NZX’s implementation of its formal action plan required after the FMA conducted a targeted review of the NZX’s technology capabilities in 2020
3. Market integrity – dealing with complaints and taking enforcement actions
4. Audit and financial reporting – completing audit reviews, publishing the annual Audit Quality Monitoring Report, monitoring financial reporting compliance by FMA reporting entities

Investment Management: A busy to-do list for MIS Managers and their Supervisors

Four main topics occupy the Investment Management section of the Plan (p. 8).  The FMA describes them as concerning the rotation of KiwiSaver default providers that is due to occur in December 2021, when nine default providers are scheduled to drop to six; a pilot project currently being conducted with Supervisors and selected MIS Managers to test implementation of the FMA’s Guidance Managed fund fees and value for money, published in April 2021; the impact of low interest rates in driving investors to embrace higher risks in the search for yield; and improving both poor conduct from investment product providers and investor understanding of the meaning and nature of long-term investing, particularly via KiwiSaver.

Listed as areas of the FMA’s investment management focus are:

1. Supporting changes to the KiwiSaver default provider structure – concerned with transition of default KiwiSaver members to their new default providers and ensuring compliance of these providers with their obligations
2. Value for money – working with Supervisors on implementing annual value-for-money reviews by MIS Managers, and reviewing KiwiSaver scheme member recruitment incentives
3. MIS Sector Risk Assessment – working with Supervisors to generate entity level risk assessments to be aggregated into risk reviews for MIS sub-sector levels (eg., KiwiSaver, mortgage funds) for future FMA workstream planning
4. Financial promotions and informal disclosure – focusing on financial product fair dealing obligations and truth-to-label (eg., ESG, risk, etc.)
5. Treatment of wholesale investors – conducting reviews of wholesale offers and how their offerors deal with wholesale investors

Conclusion

“Publication of the FMA’s Annual Corporate Plan each July is always a major calendar event for licensed Supervisors and their FMC reporting entity clients,” said Matthew Band, General Manager of Corporate Trustee Services at Trustees Executors.

“The Annual Corporate Plan 2021/22 is no exception and as always we find matters of direct importance to ourselves in our operational planning over the next twelve months to come, and also for the clients we supervise who are subject to the FMCA regime.”

“Of particular note in our workload this year arising from the Plan are three activities in which we will be heavily engaged.”

“These include implementation of the managed fund fees value-for-money assessment regime for MIS Managers, which is currently underway at a pilot trial level.”

“I would like to take the opportunity to thank those MIS Manager clients who have worked with us on our part of the pilot trial, which is being conducted in conjunction with the FMA.”

“There is also the MIS Sector Risk Assessment reporting to complete, in which we will analyse relevant risks as they specifically apply to each of our MIS Manager clients under supervision and provide detailed information on our findings back to the regulator.”

“At the end of the year there will be the rotation of KiwiSaver default providers that we will need to monitor in respect of our MIS Manager clients who are involved.”

“Aside from these matters, we are all of us of course back to working under COVID-19 Alert Level 4 restrictions at the time of writing, with all that entails for work conditions and other aspects of our lives.”

“I wish all our clients and their families the best in these trying times and trust that you all keep safe and well.”

For comment or more information, or to be added to the free email subscriber list of “The Supervisor”, please contact Matt at [email protected].