Proposed new powers for the Financial Markets Authority (FMA), including for without-notice warrantless on-site inspections, should be scrapped because there’s no evidence such powers are needed, according to law firm DLA Piper.
“If a court cannot be persuaded to grant a warrant, a raid should not be conducted,” the law firm says in a submission to parliament’s finance and expenditure committee which is considering the Financial Markets Conduct Amendment Bill.
The law firm describes warrantless on-site inspections as effectively “a raid” on private property and says allowing such actions would remove a fundamental constitutional control on the exercise of executive power.
“There should be compelling and exceptional policy reasons if this fundamental constitutional control is to be done away with,” but no such compelling and exceptional reasons exist, DLA Piper says.
The bill is proposing to allow such inspections and to require prior approval from the FMA for any significant transactions or changes in control of the firms it licenses, which DLA Piper also opposes.
The FMA already has the power to conduct without-notice on-site inspections so long as it first obtains a warrant from a court.
“These existing expansive powers create sufficient safeguards for both regulators and regulated firms,” it says.
“The bill does not identify any reason that would justify a departure from the safeguards afforded by this well-established practice.”
“The bill does not identify any reason that would justify a departure from the safeguards afforded by this well-established practice.”
DLA Piper says requiring licensed firms to get the FMA’s prior approval for any change in ownership “would create a drag on efficiency and investment,” would add cost, delay and uncertainty to transactions such as acquisitions, divestments and capital raisings involving licensed firms.
It notes that the Reserve Bank does currently have such powers over transactions involving banks, non-bank deposit takes and licensed insurers, those organisations for which it acts as prudential regulator.
DLA Piper says RBNZ is responsible for a relatively small number of entities but the FMA regulates the conduct of a very wide range of entities.
Getting RBNZ approval can take months to give its approval.
In fact, AMP proposed selling its life business to Resolution Life in October 2018 but it took until June 2020 for RBNZ to give its approval after it demanded a number of changes to the sale’s conditions.
“We are not aware of any material issues justifying a departure from the current notification regime. It is also not obvious to us what the FMA would be assessing and whether it is equipped to make such assessments,” the law firm says.
Currently, licensed firms are required to notify the FMA as soon as practicable of any changes in control and other significant transactions or changes in legal structure, such as amalgamations.
The FMA already has “extensive powers” to address any concerns, which can include imposing conditions, varying a license or even cancelling a license, DLA Piper says.
The current situation encourages firms to engage with the FMA at an early stage of a transaction as a matter of standard practice.
“In our experience, this informal engagement process works well and we are not aware of any material issues being raised by the FMA regarding this process,” it says.
“While we acknowledge that the FMA should have effective tools to monitor the compliance of regulated firms, we are not aware of any evidence to suggest that the FMA’s existing tools are insufficient,” DLA Piper says.
