Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

FMA releases findings of MIS custody review


13 December 2019

FMA releases findings of managed investment scheme (MIS) custody review


The Financial Markets Authority has published a summary report on a review of custody arrangements in managed investment schemes (MIS) in response to questions raised by the International Monetary Fund (IMF).

The thematic review, conducted by PwC, focused on retail funds and found 99.95% of MIS assets are being held in custody appropriately. Assets typically not held in custody were mainly bespoke assets, such as derivatives and term deposits¹.
The review identified issues around the consistency and independence of custody arrangements.

MIS managers are responsible for the investment strategy, while supervisors are responsible for custody: holding and safeguarding the scheme’s assets and keeping accurate records. By default, supervisors are custodians but they may appoint another appropriate independent person as custodian.

One of the issues raised by the review was that supervisors are often delegating custody administration tasks back to fund managers, such as record-keeping. Although the legislation requires the custodian to ‘ensure’ that accurate records are kept, rather than requiring the custodian to keep all records itself, the FMA said this practice weakens the separation of functions and duties.

Liam Mason, FMA Director of Regulation, said: “Custodians perform key functions in safeguarding investors’ assets. They provide an additional layer of protection for investors from risks such as human error, fraud and manager insolvency.

“We were pleased to find the vast majority of assets under management were being held in custody appropriately. However, we have identified potential weaknesses in the way custodians and supervisors have implemented certain provisions of the legislation. We will engage with the industry to clarify and reinforce our expectations and we’ll continue to assess if further legal reform is required to license custodians.”

Two other key findings from the review were:
• Because a very large proportion of managed fund assets are invested in wholesale funds, where custody is not regulated (apart from fair dealing in the Financial Markets Conduct Act), supervisors need to ensure they do due diligence on the custodial arrangements of wholesale funds.

• The ‘annual audit (assurance) engagements’ obtained by custodians were generally positive but there were a variety of approaches implemented by schemes, which resulted in inconsistencies. Annual audit assurance engagements require custodians to procure a report from an auditor that provides assurances on custodial processes, procedures and controls.

Supervisors are licensed by the FMA but custodians are not. In 2017, the IMF recommended that custodians be licensed by the FMA. The regulator has concluded there is more that supervisors can do to implement sufficient controls and oversight of custody arrangements within the current legislation of the Financial Markets Conduct Act but will assess options after industry engagement.

ENDS

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Smelter: Tiwai Deal Gives Time For Managed Transition

Today’s deal between Meridian and Rio Tinto for the Tiwai smelter to remain open another four years provides time for a managed transition for Southland. “The deal provides welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed to working on a managed transition with the local community,” Grant Robertson said. More>>

ALSO:

Economy: Strong Job Ad Performance In Quarter Four

SEEK Quarterly Employment Report data shows a positive q/q performance with a 19% national growth in jobs advertised during Q4 2020, which includes October, November and December. Comparing quarter 4, 2020, with the same quarter in 2019 shows that job ad volumes are 7% lower...More>>

NIWA: 2020 - NZ’s 7th-warmest Year On Record

The nationwide average temperature for 2020, calculated using stations in NIWA’s seven-station temperature series which began in 1909, was 13.24°C (0.63°C above the 1981–2010 annual average). New Zealand’s hottest year on record remains 2016, when... More>>

Quotable Value New Zealand: Property Market Set To Cool From Sizzling To Warm In 2021

Nostradamus himself could not have predicted the strange series of events that befell our world in 2020 – nor the wild trajectory of New Zealand’s property market, which has gone from “doom and gloom” to “boom and Zoom” in record time. Even ... More>>

PriceSpy: Research Reveals How Shopping Behaviours Have Changed This Christmas

According to a new survey* from PriceSpy , almost 50 per cent of Kiwis are looking to shop locally this Christmas in light of Covid-19; The research also found consumers are changing their shopping habits, with one in seven (14 per cent) getting super-organised ... More>>

Commerce Commission: Noel Leeming Group Warned For Making Delivery Representations Without Reasonable Grounds During COVID-19 Lockdown

Noel Leeming Group has been warned by the Commerce Commission for making delivery representations about two products which, in the Commission’s view, it did not have reasonable grounds for at the time the representations were made. The warning ... More>>