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FMA Has Botched Its Crisis Management

6 December 2013

FMA Has Botched Its Crisis Management

The review of the Financial Markets Authority (FMA) released yesterday is so narrow and self-serving that it has infuriated investors who have lost their life savings in the Ross Asset Management (RAM) fraud.

The FMA is in crisis and it is showing the same lack of skill that Fonterra displayed in the recent botulism scare. The corporate management manuals are full of excellent advice on how to turn around a crisis, but the FMA seems oblivious. By restricting its review to ‘stakeholders’ in the industry, who work with the FMA, and ignoring customers, especially those who have lost most everything, the FMA has committed a profound corporate gaffe.

There can be no doubt that the FMA review is a reaction to its terrible performance over the collapse of Ross Asset Management; RAM is mentioned time and time again throughout the review document.

The list of regulatory failings of the FMA is long in the case of RAM. A host of warning signs that should have been obvious to those with insider knowledge and powers such as the FMA, banks, IRD and the broker community were ignored. Written warnings to the authorities were ignored. The FMA issued a licence to David Ross with no checks, misleading a host of investors to believe Ross was legitimate. A proper audit of Ross’s activities has not been done post collapse, leading to an embarrassing recent find of one stash of hidden funds, and the potential for much more. Investors have been left in a legal vacuum with no clear path to recover their stolen property. Further, the cost of recovery is dumped on the investors who have lost everything, and those who made money get to ride on their backs. And still further, those who should have known, particularly the broker community that referred clients to Ross and profited from him, do not have to help with any recovery (unlike other countries).

Strangely, those who should have known and did nothing were consulted during the FMA review. Those investors who have been robbed were not even told the review was happening. The finance industry is full of closed and secretive ‘insider’ relationships that are sometimes illegal and too often downright unethical. In choosing to do an ‘insider’ survey the FMA has perpetuated the culture of an industry that is demonstrably hostile to small investors and their issues.

The FMA must urgently re-examine its recovery strategy to help regain it’s credibly as regulator and stop the flight of investors from the investment markets. It must seek to create a more legal and ethical finance industry that is responsive to its customers.

To quote an investor “The FMA is not the sheriff riding into town to clean it up, they are the horse and cart that picks up the horse poop after the bad guys have robbed the town”.

FMA report https://www.fma.govt.nz/media/1916023/fma-progress-review-oliver-wyman.pdf

ENDS

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