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Another official regulatory dig into NZ custody arrangements is on the cards with the Financial Markets Authority (FMA) doing some early spadework this month. In a monthly update, the FMA called for industry input on “key risks and issues where client assets and money are held in custody” before embarking on a full review later this year. The scheduled probe comes six years after the regulator published a ‘thematic review’ of local custody practices that found some weaknesses but stopped short of recommending a licensing regime for the industry. Post the 2019 report, the custody-related fraud of Dunedin-based financial adviser, Barry Kloogh, prompted the FMA to engage with the Ministry of Business, Innovation and Employment (MBIE) on potential legislative reforms. While the MBIE talks have yet to yield results, the pending formal review will revisit the “regulatory settings for custody of client assets” in NZ, the FMA update says. “Our aim is to identify any risks, issues and areas for improvement, and explore options to strengthen regulatory protections for custody of client assets. Robust client asset protection promotes confidence in our regulatory environment and growth of capital markets.” But FMA regulatory policy head, Lucy Ellis, said industry comment on the current state of custody in NZ would help inform the full review process. “Ahead of the launch of our discussion document early next year, we have been talking with stakeholders and using pre-consultation to make sure we focus on issues that matter to the market and consumers,” Ellis said. NZ is unique among developed nations in the lack of a formal custody licensing regime, which the International Monetary Fund (IMF) has long identified as key risk to the financial system. The IMF is due in NZ next year to conduct its 10-yearly financial health-check of the country, with custody likely to feature once again on the agenda. DLA Piper consultant, Alasdair McBeth, told an industry gathering earlier this year that the IMF has “always given us a negative report on the regulation of custodians and the wholesale market and we expect that this will not change”. The FMA will be accepting the pre-comments until November 27 via this email address.
