The Government has announced an increase of $4 million to the Financial Markets Authority’s litigation fund for 2019/20 to strengthen enforcement capability.

The increase, which will bring the regulator’s litigation fund annual budget to $6 million for 2019/20, is intended to ensure the regulator has access to the resources required to bring legal proceedings when it needs to.

The FMA’s litigation fund was set at $2 million per year when the regulator was established in 2011.

“Fair, efficient and transparent financial markets are vital for New Zealand’s economic wellbeing,” says Commerce and Consumer Affairs Minister, Kris Faafoi.

“As the financial markets regulator, the FMA plays a key role in delivering those benefits for New Zealanders.”

He added: “However, cost increases and the rising complexity of investigating serious breaches of the law are placing pressure on the FMA’s enforcement and litigation functions.

“Institutions within the financial sector are often well-resourced and willing to litigate when enforcement action is taken.”

Faafoi noted that a larger legal fighting fund sends a message that the regulator is sufficiently resourced to “take on those with deep pockets” while being well placed to respond to misconduct.

He says the increase to the litigation fund ensures the FMA is well-prepared to act as a proactive regulator of New Zealand’s financial markets.

“This will mean the FMA can continue to enforce the high level of professional standards the public expects from the financial sector,” said Faafoi.

Despite a recent injection to the Financial Markets Authority’s legal fund, the organisation’s impending remit to regulate insurers and banks means it’s going to need a bigger purse, chief executive Rob Everett says.

Everett said the FMA is having a “funding conversation with the government” about the baseline funding the organisation receives. Its latest annual report shows it gets $36 million for operations from the government annually, excluding the $2m for the litigation fund.

The FMA would not comment on how much extra funding they were seeking but confirmed they were in talks with the Ministry of Business, Innovation and Employment and government. 

Last month, Consumer Affairs Minister Kris Faafoi announced a new financial conduct regime on the back of reviews by the Reserve Bank of New Zealand and the FMA on conduct in the banking and insurance sectors. The review of the conduct of life insurers painted a particularly critical picture, finding poor-value products, delayed payouts and overcharged customers.

The Financial Services Legislation Act passed in August created a licensing regime for financial advisers overseen by the FMA. Subsequent legislation further expanding the FMA’s remit is being drafted “at break-neck speed” in the hopes of passing it before the election, Everett said.  

The new legislation would create a conduct licensing regime for banks and insurers that would require licensed institutions to treat customers fairly and prohibit sales incentives such as leader boards, overseas trips or any other type of bonus for selling a certain number of financial products.

“The stick is big enough for now, but you throw banking and insurance into that and I think our powers will be adequate. It’ll be a question of another funding round, so we’ll have to see how that pans out,” Everett said.

The extra $4m for the FMA’s litigation fund announced on Tuesday would be used to hire external lawyers, forensic accountants and investigators that aid in getting the cases “to the door of a court,” Everett said.

However, it could not be used to hire more staff or help with other costs that may be associated with an expanded remit. 

“If we’re at danger of not taking a piece of litigation because there’s not the financial resource that would not be a good place to be.”

He said the government’s announcement about the extra funding, which came the day before the organisation’s annual report revealed the organisation had spent nearly $1m over budget in the last year, was more than just convenient timing.

“We wanted to make sure there wasn’t a perception in the market we were at the end of our tether financially speaking.”

He said the well-resourced organisations the FMA was often tasked with regulating would be well aware of the litigation tactic to make things drag on as long as possible until legal costs became prohibitive.

 “We have to make sure well-resourced, more stubborn, players don’t get to a settlement-type situation more easily than a smaller lesser-resourced player.”