Regulator finds most providers meet obligations, but custody reporting and oversight weaknesses could expose investors to risk
Financial advice providers (FAPs) and discretionary investment management service (DIMS) providers licensed in New Zealand are being urged to check their own custody and reporting arrangements, after a Financial Markets Authority (FMA) review found weaknesses that could leave investors exposed if left unaddressed.
Review findings
The Effective Protection of Client Assets review surveyed around 130 financial advice providers on their client money and property arrangements, then followed up with in-depth monitoring inspections of 20 licensed FAPs and DIMS operators, according to the FMA's media release.
The regulator found that providers were generally meeting their obligations, with several examples of good practice identified across the sector. However, it also flagged shortcomings in governance, oversight and investor communication that could increase the risk of consumer harm.
Custody reporting under scrutiny
The review's central concern was inconsistent oversight of custody reporting, with some providers failing to ensure independent custody reports reached investors on a regular basis.
Reporting from custodians is what lets investors check, independently, that their money and property are actually where they should be — and the FMA found this safeguard wasn't always being delivered as it should.
"Protecting client assets is fundamental to investor confidence and market integrity,” said Emelie Jensert (pictured), the FMA's head of investment management. “Licensed providers must understand their obligations and maintain effective oversight, governance, and controls to ensure client money and property remain protected regardless of whether services are provided in-house or outsourced."
Jensert added, "Investors should receive clear information about custody arrangements, fees, and independent custody reporting, so they better understand how their money and investments are safeguarded and the role custody reporting plays in protecting their assets."
What it means for advisers
In response to these gaps, the FMA is now calling on all licensed providers to review their processes for protecting client assets and confirm their systems and checks are fit for purpose — particularly where custody functions are outsourced to third parties.
For mortgage and financial advisers operating under a FAP licence, the message is clear: robust custody arrangements and clear reporting to clients are now firmly in the regulator's sights, and firms shouldn't wait for a formal review to test their own practices.
The findings also feed into a wider FMA discussion paper looking at where smaller FAPs' custody duties overlap with those of DIMS providers.
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