New Zealand FMA Warns Derivatives Issuers to Ensure Compliance

Source: Regulation Asia Sanday Chongo Kabange, Regulation Asia 2020-07-29

Self-assessments by derivatives issuers have identified risks stemming from the way they handle client money, provide advice to retail clients, and handle vulnerable customers.

New Zealand’s FMA (Financial Markets Authority) has directed derivatives issuers to step up efforts to comply with obligations to protect retail clients in derivatives trading.

Derivatives are complex financial instruments and trading them is not a suitable investment for most consumers, the FMA says. Companies issuing derivatives to retail customers in New Zealand must be licensed by the FMA.

Currently there are only 23,000 retail customer accounts in New Zealand trading derivatives, but the FMA is concerned that vulnerable and unsuspecting customers, in a rush to make quick money due to economic and financial hardships brought by the Covid-19 pandemic, may not be getting proper advice or are being given wrong financial information which has led to poor investments and the loss of personal savings.

To help safeguard the interests of derivatives investors, the FMA surveyed 24 licensed derivatives issuers to determine the key risks in the sector. The highest risk issues identified in the self-assessments included noncompliance with rules for handling client money, determining client suitability, overseeing governance and compliance, and dealing with vulnerable customers.

Also identified were risks that retail customers may be getting poor outcomes from margin trading, poor conflicts of interest management in relation to proprietary trading, and inadequate oversight of outsourced functions at derivatives issuers.

“The FMA expects derivatives issuers to demonstrate that they are meeting their compliance obligations in accordance with the minimum standards, standard licence conditions, and other relevant financial markets legislation,” the FMA says, adding that the findings of the report will inform its monitoring activities.

“Where derivatives issuers are not meeting key compliance obligations, we may take action on the derivatives issuer’s licence, or other enforcement action,” it warns.

FMA

derivatives issuer

New Zealand FMA Warns Derivatives Issuers to Ensure Compliance

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