Financial Markets

Authority

Oversight Of

NZ Financial Markets

Who they regulate

1. primary and secondary

markets

2. participants in those

markets

3. Anyone who gets in-

volved in the financial

markets

‘to promote and facilitate the

development of a fair, efficient,

and transparent financial mar-

kets

‘watch dog’ conduct regulator

Financial Markets Authority Act 2011

MAIN OBJECTIVE

1. Education

2. Information

3. Monitor

4. Investigate

5. Enforcement

GREEN TAPE approach

rather than the red

tape approach—very

broad scope of what

they can do

s8 &s9 objective and functions

“a single, comprehensive regulatory agency with

extended powers”

Broad Scope of the Activities of

the FMA

1. investigations and enforcement

2. education and information

3. monitoring, licensing and supervising market partic-

ipants

4. anti-money laundering and countering financing of

terrorism

5. surveillance

6. complaints

7. policy and guidance

8. market oversight

9. relationships with other regulators (within and ex-

ternal to NZ

10. MOU’s with other financial regulators

1. interested in both the national and

global developments in the financial

markets

2. stay abreast of the trends and inno-

vations in the financial markets

3. look at possible risks to the mar-

kets—so that the markets always stay

fair and equitable

They don’t provide legal advice, matters on

competition and fair trading, companies in-

formation, consumer scams, credit and debt

issues, nor resolving disputes with financial

institutions

—-take over or initiate civil proceedings

against an issuer or on the behalf of an

investor for any market misconduct

1. serious harm to the market

2. significant loss (or risk of) to a large

number of investors

3. High product risk

4. Investor vulnerability

5. case involves predatory prevalent

patterns of misconduct

criteria for s34 use

Accept enforceable undertakings—the FMA

takes on an enforceable undertakings (ie a

person or entity has promised to address a

breach—and they don’t) so the FMA will ac-

cept an enforceable undertaking if it is in the

public’s interest

Public Interest Test (s34

(1) and (5) — if YES -

then proceedings begin

One of the key provisions of the

FMA Act s34 FMA

Will Publicise if Prosecution

is successful

Powers of the FMA

Investigation Enforcement Monitoring

Power to obtain information, documents

and evidence;

Power of entry and search—seizure if

necessary

Power to share information with any oth-

er agencies

Powers to act on the behalf of overseas

regulators

Very broad criminal and civil enforcement

powers

- can prosecute under the Crimes Act for

breaches

- can seek pecuniary orders against com-

panies

- can seek damages on behalf of an inves-

tor

- s34 powers —- *publicity if successful*

Options:

1. Take no action— encourage compli-

ance

2. GREEN TAPE APPROACH — educate

and encourage compliance

Whimp Partnerships

On 6 May 2011, the FMA ordered Mr Bernard Whimp,

(under section 49 of the FMA Act) to include a warning from

the FMA, at the beginning of any unsolicited offer docu-

ments he makes. Mr Whimp had made several unsolicited

“low ball” offers to investors

to purchase their shares in NZX-listed companies for prices

significantly below market values. Separately, after legal ac-

tion by the FMA, the High Court on 13 May 2011 ordered

the cancellation of offers to purchase securities at above

market price but with the payments spread over ten years.

The Court agreed that this feature was not properly de-

scribed and so the offer was misleading.

Phoenix Forex Ltd

FMA issued a warning to the public about Phoenix Forex Ltd

and the Oak FX foreign exchange trading system.

FMA believes that Phoenix Forex’s claims about the level of

returns made by its trading system are untrue, and that

Phoenix Forex is misrepresenting the profitability of, and

risks associated with, its trading system. Investments prom-

ising unusually high returns are often not legitimate

offers. FMA urges caution by anyone considering dealing

with Phoenix Forex.

Phoenix Forex is providing access to a foreign exchange trad-

ing system. Under this system, the investor opens an ac-

count with a third party broker and the investor’s account is

traded for the investor using algorithmic trading soft-

ware. Phoenix Forex undertakes extensive advertising, as

well as making unsolicited cold-calls to potential inves-

tors. FMA understands Phoenix Forex requires investors to

pay a substantial up-front fee of up to $25,700 to subscribe

for the system.

The return advertised is 50-65% which the FMA believes to

be untrue

Why the FMA works closely with other

regulatory bodies

Key relationships

- XRB

- Reserve Bank of NZ

- Registrar of Companies

- SFO and the Commerce Com-

mission

- IRD

NZX, NZICA, Auditors

overseas —AISC, Australian regu-

lators

1. exchange of information

2. co-operation for enforcement proceedings

and investigations

3. prevent money laundering— financial trans-

actions are increasingly global and borderless

4. Close relationship particularly with the Aus-

tralians as we have close financial relations

and want to encourage growth and access to

finance on both sides of the Tasman

5. Improve the financial reporting quality of the

market participants