Business

FMA gets funding boost after tight year

The Government has tripled the Financial Markets Authority's annual litigation budget after a blowout this year, the first step in what the regulator hopes will be an across-the-board funding boost, Marc Daalder reports.

The Financial Markets Authority's litigation fund has seen its first bump since the regulator was established in 2011 with a $2 million budget. Now the Government has boosted that to $6 million for the 2020 financial year that began on July 1 after the agency went over its 2019 budget by almost $1 million.

Minister of Commerce and Consumer Affairs Kris Faafoi said the increased budget "ensures the regulator is well placed to respond to misconduct and it sends a clear message that the FMA is resourced to take on those with deep pockets".

The decision came the day before the FMA released its annual report for the 2019 fiscal year, which revealed the watchdog spent $2.98 million. Its budget was $2 million.

“Busy year for litigation”
"The past year has been a particularly busy year for litigation ... and our remit is expanding in the coming year. Our annual report, released tomorrow, will provide more details on this," an FMA spokesperson cautioned before the release.

Faafoi had also intimated that the FMA had spent over its budget in the last fiscal year. "Cost increases and the rising complexity of investigating serious breaches of the law are placing pressure on the FMA’s enforcement and litigation functions," he said.

"Institutions within the financial sector are often well-resourced and willing to litigate when enforcement action is taken."

In the 2019 financial year, the FMA engaged in several high-profile lawsuits. Perhaps most notably, the regulator finally won a multi-year court battle against ANZ over information related to the Ross Asset Management ponzi scheme.

This is not the first time that the financial services watchdog has gone over budget, although it is the largest amount. In 2017, the FMA spent $2.3 million in litigation. In 2013, it spent $2.16 million.

The FMA's spokesperson said the new funding would leave it better equipped to tackle wrongdoing. "We are pleased this additional funding has been confirmed for the current year so we can maintain our momentum as an active regulator."

Although it is partly funded by the Government and partly by industry fees, the FMA relies entirely on Government money for its litigation fund. Prior to May 2011, the regulator was called the Securities Commission and had a lawsuit budget of $1.37 million.

As remit expands, more funding needed
The watchdog also ran a $659,000 deficit in its investigation and enforcement section and a $338,000 deficit as part of its "market analysis and guidance" functions. This was offset by a $1.79 million surplus in licensing and compliance, leaving it with a net operating surplus (not including the litigation fund) of $797,000.

Rob Everett, the regulator’s chief executive, told Newsroom that Wednesday’s report “demonstrates the increasingly broad reach of the work that we’re doing. If you look at the reviews we did with the Reserve Bank into the banks and insurers, that wasn’t planned work, it’s not – at least at this point – necessarily all directly within our remit,” he said.

“As we mature as a regulator and the remit we’ve been given continues to expand, we’re active on a number of fronts.”

Everett said the FMA’s budget operates in a four-year cycle and “we’re at the point in the cycle where we’re talking to the Government about funding going forward”.

“In addition to our existing remit, we’ve got all the changes from financial advice, which will be a big piece of work for us. Beyond that, you’ve had the Government announce that they want us to take on a licensing role with banks and insurers,” he said.

“For our current remit, I think we’re okay, but in the context of an expanded remit, we are talking to the Government about what it would take to fund that properly. It will need more funding for us to continue the level of engagement and intensity that we want across those sectors.”

“We have said to the Government, that even on our current remit, for us to operate at the level that we think we should – and that we think the market thinks we should – we can’t continue to do that on the current funding.”

A spokesperson for Faafoi told Newsroom that “any future funding around the FMA would be subject to budget discussions which the Government is not at liberty to talk about”.

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