The Financial Markets Authority’s top priority in capital markets is to tackle misleading wholesale issuers capturing a greater number of investors who aren’t savvy enough to make well-informed decisions about the unregulated offerings.
That’s one of 21 priorities across a range of sectors under the market watchdog’s expanding remit, topping the list for capital markets.
“We continue to see a significant number of wholesale offers that contain false, misleading or unsubstantiated information, particularly in their advertising,” the FMA’s first financial conduct report said in mapping out the regulator’s priorities for the next year. “This use of broader advertising channels means greater potential for less-sophisticated investors to be attracted to offers that are unsuitable for their needs.”
The FMA is waiting on a High Court determination on whether wholesale issuers need to do more due diligence on the eligibility of investors to participate in unregulated offers, and it’s knee-deep in an investigation into the failed property developer Du Val, which had raised some $41 million from 180 or so eligible investors.
Bold ambitions
The market watchdog was formed 15 years to be a super-regulator of financial markets, charged with reviving investor confidence after the collapse of dozens of finance companies wiped out billions of dollars of investors’ money and to avoid a similar situation to the Blue Chip debacle, where the FMA’s predecessor, the Securities Commission, deemed the property investment schemes weren’t captured by securities law, leaving little recourse to the 2,000 or so investors owed $84 million by that failure.
The Supreme Court ultimately disagreed with that interpretation in a case taken by property developers, although the FMA chose not to take it further when Blue Chip-funded developers settled with investors.
The watchdog’s perimeter is also extending to taking a more active role in virtual assets and tokenised products, where the FMA sees a risk of adoption by retail investors without adequate protection, and disrupting the growing problem of investment scams, which are increasingly affecting New Zealanders with $194 million of losses reported in the September 2024 year, a level the regulator anticipates was heavily under-reported.
Chief executive Samantha Barrass said the report is a response to a desire for transparency, certainty and better engagement with the sector, and comes after a series of roundtable discussions with her peers across the watchdog’s remit.
Close ties
“This underscores the importance of engaging with the industry and stakeholders, to identify and respond to emerging risks,” Barrass said in a statement. “We encourage boards, executives and leaders to use the FCR to understand the FMA’s regulatory priorities for the coming year and consider how these insights can help their business ensure better outcomes for consumers and markets.”
The FMA attracted criticism for the way it first went about trying to introduce an outcomes-focused approach to regulation, with many in the sector wanting greater clarity.
“We recognise effective implementation of an outcomes-focused approach requires greater dialogue with industry and stakeholders about the most significant risks and opportunities for New Zealand businesses, investors, and consumers,” chair Craig Stobo and CEO Barrass said in their preamble in the report. “Part of this is being transparent about the conduct we see (both good and poor) and our regulatory priorities for addressing that conduct, which is the primary purpose of this publication.”
The FMA’s top cross-sector priority is reducing unnecessary regulatory burden, with a streamlining of licensing and encouraging new services in its sandbox pilot environment. The government is also driving efforts to reduce regulation seen as a barrier to capital markets and businesses more generally.
Reporting by Paul McBeth. Image from Nik Shuliahin 💛💙 on Unsplash.
