A leading New Zealand financial services law firm has warned that the industry is ill-prepared for increasingly heavy-handed regulatory enforcement tactics.
At a recent workshop, DLA Piper partner Emma Moran said the Financial Markets Authority (FMA) is stepping up its exercise of broad Section 25 information-gathering powers.
Moran said anecdotal evidence from customers and other industry insiders has made Section 25 notices, which require recipients to provide all requested information to the FMA, a go-to regulatory tool. said to suggest.
And even more disturbing, she said, the FMA’s orders “almost without exception” come with strict confidentiality clauses that prohibit those who receive the notice from sharing that knowledge. .
“Section 25 notices can be issued to anyone in the industry,” Moran said. “But due to confidentiality requirements, I can’t discuss it with anyone else, except my legal counsel, or risk criminal conviction and fines of up to $300,000.”
He said the visible-only provision raises significant conflict-of-interest issues for Section 25 applicants who may have internal disclosure responsibilities (such as in board reporting or merger due diligence). said it was possible.
Additionally, regarding the potential mental health implications, Moran said secret orders create a lot of stress for individuals who don’t know where to turn for help.
“All regulated financial services firms should be aware of the following: [of the Section 25 and confidentiality clause rules] And have plans and processes in place to deal with them,” she said. “Employees need to know what to do, whether they can consult legal counsel, and who that legal counsel is. [if the business has one]”
Moran said the FMA could also help by issuing industry guidance on how to comply with Section 25 notices.
“There is concern in the industry that regulators are overusing their Article 25 powers,” she said. “Of course the FMA should have these powers, but they must exercise them reasonably and proportionately. The devil is in the details of how regulations are applied.”
Feedback from DLA Piper clients suggests that, in most cases, companies would have provided information to the FMA upon request had it not been for the Section 25 kicker.
“Most people in the industry want to do the right thing and comply with regulations,” Moran said. “But the FMA’s belligerent approach could backfire.”
Alasdair Macbeth, partner at DLA Piper, said regulators have used Section 25 notices in the past to address everything from relatively minor disclosure document errors to anti-money laundering violations and other more serious issues. said it had pursued various enforcement actions.
“We have seen Article 25 issued for a number of things, and it seems to be the most powerful enforcement tool,” said Macbeth.
“We do not know how the FMA decided to issue notices or identify where to send notices, but it appears that notices can be used in unjustified circumstances.”
Regulators have so far exercised their Article 25 powers in industry-wide investigations, including insurance and banking reviews in 2019. 2021 Survey Regarding the relationship between life insurance companies and financial advisors.
At the time of publication of this article, FMA has not responded to inquiries.
https://investmentnews.co.nz/investment-news/legal-firm-questions-fma-secret-powers/?utm_source=rss&utm_medium=rss&utm_campaign=legal-firm-questions-fma-secret-powers Law firms question FMA’s secrecy powers