New FMA boss Samantha Barrass plans to tackle wholesale investment

Wholesale investment schemes are in the sights of the new Financial Markets Authority chief executive Samantha Barrass.

She spoke publicly to the finance industry at an event held by the Financial Services Council since taking on the top job six weeks ago.

Outlining her priorities for the FMA Barrass said wholesale investments were on the edge of its regulatory remit but it wanted to better understand who was investing in those products and the level of risk for investors.

“We are particularly focused on whether and the extent to which vulnerable consumers and people who are in practice retail investors are accessing wholesale markets and the harm this may cause them and their families.

“This is really important to me.”

Barrass said during her regulatory career over the last 10 years one of the things that had made her want to put her head in her hands and weep was the harm that had been caused by people’s inappropriate access to markets and products that they simply did not understand.

“They go into them without advice and support and have lost a lot. This is a very important area to get a grip on.

“Frankly it’s less around does someone have $100,000 or whatever it is to invest, but that genuinely sophisticated and knowledgeable people should be the only ones that are accessing the wholesale markets.”

There are two main ways individuals can qualify for wholesale status: by having enough wealth, or through investment experience.

The wealth route requires either having $1 million in investable assets or a net worth of more than $5m. Investors can also qualify if they can afford to put $750,000 into an investment.

Those going down the investment experience track have to be signed off as an eligible investor by a financial adviser, lawyer or accountant.

But there are concerns that rising property prices mean more people can potentially qualify for the wealth category without having much investment experience.

And low investment returns are enticing some investors to look to wholesale investments which promise much higher returns but without any of the protections that offers to the general public must have.

Barrass said it had requested information from the industry and would publish a report on its finding during this year.

She also said that cybersecurity and cyber resilience were another area of importance – especially with what was going on in Europe with the war in Ukraine.

“It remains a significant risk across the sector around the world and has probably increased given the developments in Europe and in Ukraine over the last few weeks.

“I know it keeps me up at night and it will keep most of you up at night as well and with good reason,” she told members of the finance industry.

Barrass said the Council of Financial Regulators was establishing a cross-agency committee of experts to share information, collaborate and build on the domestic cyber attack protocols already under development.

“We will be shortly releasing an information sheet outlining things that organisations really need to think about considering when formulating cyber security plans.

“It is impossible for me to overstate how important it is that we are all focusing on this and we are doing everything we can to get ready and be prepared ahead of these risks wherever possible.”

Cyber attacks have hit a number of major financial organisations in New Zealand in the last two years including the Reserve Bank, New Zealand stock exchange and a number of banks.

Barrass also outlined progress on licensing financial advisers and said it continued to work on ensuring KiwiSaver members received value for money from their providers.

“We published some guidance on this last year. We have recently run a pilot with KiwiSaver providers to test an assessment tool that is designed to assist with their annual reviews on value for money.

“It has proved quite a useful review of how well providers have been applying principles in our guidance and we will be publishing our findings in the next couple of months.”

Barrass said the FMA was a busy regulator with a lot of change coming as it adds conduct regulation for banks and insurers to its remit this year.

But she said some things would not be changing.

“We won’t hold back on taking enforcement action where we see breaches of conduct, particularly where we have put a lot of work and time in to support the implementation of new regulatory requirements. and time has gone by and we are still seeing important breaches that are causing harm.

“That is going to continue.”

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