The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko has today published its , which analyses key risks in the funds management industry at a sector level.
The report notes effective risk management by MIS managers (i.e. fund managers) is an important mitigant against the potential for harm to the best interests of investors in managed funds, including KiwiSaver.
The report concludes the controls currently used by managers reduce the overall risk of the sector to medium/low. Without controls, the risk would be medium/high. Within the overall rating, however, effectiveness of controls varies and there are pockets of relatively higher risk within the sector (in all cases, these are heightened by current macroeconomic conditions). Examples include investment risk for mortgage fund managers, governance risk for the managers of smaller funds, and operational risk for the managers of larger and more complex funds.
The report is based on a survey of the four Supervisors of 53 licensed fund managers¹, with the results aggregated by fund manager, risk category (business governance, investment risk, and operational risk), sub-sector, and sector level. The FMA will use the report to identify risk areas to guide its engagement with Supervisors and the FMA’s own supervisory activity in the sector.
Paul Gregory, FMA Director of Investment Management, said: “The overall results of this report are encouraging because we found robust risk management across the funds management sector, which is a cornerstone for New Zealand’s investment sector, including KiwiSaver.
“We have also highlighted the importance of Supervisors’ continued efforts to monitor the sector and ensure that existing mitigants and controls remain adequate and effective.”
The key risk factors faced by managers are: macro impacts on investments, product offering risk, investment operations and outsourcing oversight risk, manager decision-making risk, manager financial strength, board oversight risk, and the risk of new (and typically volatile and/or illiquid) financial instruments.
The FMA report also notes emerging risks in cyber security, business continuity planning, and whether some managers can meet their future climate-related disclosure obligations.
