A growing public perception that NZX' regulatory decisions are at risk of undue influence has forced the market operator to strengthen conflict management.
The Financial Markets Authority’s NZX general obligations review, released publicly this morning, gives NZX’s conflict management procedures a pass mark for identifying and managing any potential conflicts between the company’s commercial interests and its role as frontline regulator.
FMA says it has not seen instances of undue influence on NZX’s regulatory decisions but it notes any credible perception of such an influence could undermine the company’s regulatory effectiveness and erode market confidence.
“FMA believes there is a growing public perception that the regulation function may not always be seen to be impartial when investigating complaints or potential breaches concerning entities that have a significant association with NZX outside the normal issuer or market participant relationships.
“This view is based on a growing number of queries and complaints to FMA, as well as media commentary about conflicts that may arise for NZX and how these are managed.”
As reported by NBR last October, the regulator was having its conflicts of interest policy put to the test due to two of its directors’ association with NZX-listed Abano Healthcare.
As part of the FMA review, NZX has agreed to establish a board conflicts committee, expand the scope of a newly created regulatory governance committee to include reviewing policy changes, and involving the NZ Markets Disciplinary Tribunal in regulatory decisions under certain circumstances.
The tribunal’s annual report, highlighted in Friday’s NBR print edition, said it was encouraged by NZX’s greater attention on enforcement but it now wants to see that converted to improved performance.
The FMA raised compliance issues in its report, stating it had seen no evidence of a greater involvement by its enforcement arm in investigating potential breaches by market participants, such as broking firms.
“Accordingly, this will be an area reviewed by FMA in the current period, to assess if the changes advised by NZX have been successfully implemented and are achieving better outcomes."
After concerns raised last year by FMA about the slow pace of investigations, NZX introduced internal service levels – with the intention to refer matters to the tribunal within four months and to conclude enquiries within three months.
However, FMA says further improvements are needed as NZX has no maximum timeframe within which to complete investigations and, after a tribunal referral, there is no specified timeframe for preparation of a statement of case.
NZX has agreed to improve communications about investigations after FMA received complaints.
There should also be a refined process for clear rules breaches, FMA says. NZX has agreed to review its penalty structure for minor and unambiguous breaches.
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