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Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.

The Ultimate Guide to

Financial Markets Authority (FMA)

The Financial Markets Authority (FMA) are the Crown entity within New Zealand responsible for the regulation of financial services and capital markets. Guided by the requirements of the 2013 Financial Markets Conduct Act (FMC Act), the independent agency regulates securities exchanges, and key people/organisations within the industry, such as brokers. They act in a supervisory capacity, using a risk-based approach to oversee the activities and operations of registered and licensed firms and individuals.

History of the FMA

Formed in 2011, the FMA took over the role of the regulator from the predecessor, the Securities Commission of New Zealand, as public confidence in the regulator was undermined following the failure of several New Zealand finance companies and poor performance in the financial markets.

In 2008, New Zealand entered a recession when various factors, including the global financial crisis, local drought, and weaker trading and production conditions, all caused the economy to deteriorate. Although it began to grow again in 2010, this growth was modest. An overhaul of the existing regulatory system was undertaken resulting in the formation of the FMA as the industry regulator in 2011. The role of the new regulatory watchdog was to rebuild confidence in financial market activity, as well as use its supervisory and regulatory powers to mitigate the risk of similar damage to the economy reoccurring.

The Financial Markets Conduct Act passed in 2013 strengthened the regulatory framework within the financial services industry. The act introduced standards which are recognised internationally, incorporating elements from top regulators such as the Australian Securities and Investment Commission (ASIC), and the Japanese Financial Services Agency (FSA). Where New Zealand was previously a haven for foreign financial firms with insufficient capital and poor operational standards, the current requirements ensure that only the most robust and financially stable firms are granted permission to carry out regulated activities in the country.

Regulatory Objectives

With the aim of promoting “fair, efficient and transparent financial markets”, as set out in the FMC Act 2013, FMA has identified the following objectives:

  • governance and culture
  • capital market growth and integrity
  • sales and advice
  • investor decision making
  • conflicted conduct
  • effective front line regulators
  • FMA effectiveness and efficiency

These key areas were identified by the Strategic Risk Outlook 2017, and this risk management framework determines the focus of the FMA’s operational requirements. The framework is reviewed on a continual basis by the leadership team, and the Audit and Risk Committee are responsible for oversight of the process. The Board receive quarterly updates regarding the risk management framework and operational risk register.

The FMA’s Functions

Supporting the framework are functions, which shape the FMA’s approach to governance. These include monitoring and supervision, policy and guidance, investigations and enforcement, education and information, and licensing. These functions all have the key objective of promoting healthy and informed participation in the financial markets from businesses, investors and consumers.

Role of the FMA in the Forex/CFD online trading industry

The financial products covered by the FMC Act include derivatives, equity securities, debt securities and managed investment products. As such, Forex and CFD brokers fall within the scope of the legislation and are required to seek a licence from the FMA, permitting them to conduct regulated activities.

As a licensee, derivatives issuers are required to comply with: Financial Reporting Obligations, keeping thorough accounting records and lodging audited financial statements with the Companies Office; Product Disclosure Statements (PDS) obligations; Derivatives Investor Money requirements, ensuring client money is segregated and held on trust, with thorough records maintained; and Supervision requirements, whereby licensed firms will be subject to the risk-based monitoring conducted by the Financial Markets Authority.

Other standard conditions for FMA firms applying for a licence include net assets of $1M or 10% of their average revenue; a robust management structure, with allocated resources for compliance and risk management; appropriate onboarding standards for new clients; and internal risk and client margin management.

Advantages of Using an FMA Regulated FX Broker

The stringent standards that are required of FMA regulated Forex and CFD providers ensure that the safety of their clients is of the highest priority in their operations. In order to be authorised by the FMA, the broker needs to be able to demonstrate sound business practices; and brokers who fail to meet the requirements are not granted a licence. If already registered, they could have significant penalties imposed on them, including having their licence suspended or even revoked. This acts as a deterrent for those who would otherwise have strayed from the rules.

The regulation, therefore, provides traders with the confidence and peace of mind that their provider is acting in their best interests, which could not be guaranteed when dealing with an unregulated broker.

Conclusion

The regulatory reforms that have been undertaken within New Zealand in recent years, including the introduction of an all-encompassing regulatory body, the Financial Markets Authority, and the legislation brought about in the Financial Markets Conduct Act in 2013, have brought New Zealand into line with some of the world’s most trusted and credible regulatory regimes.

For traders operating in New Zealand, this has allowed their confidence in the system and in their brokers to be restored. Providers now fall within a regulatory framework that is capable of identifying and penalising malpractice and abuse, ensuring the protection of consumers and clients.

Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.