NZ regulator reports on risk of managed funds

regulator, report, fundsA report from New Zealand’s Financial Markets Authority (FMA) has highlighted the operational risk of managed investment schemes (MIS). The managed funds sector has seen continued growth and new product development in recent years, which has prompted the FMA to publish its Managed Investment Schemes Sector Risk Assessment. The study concludes that the controls currently used by fund managers have reduced the overall risk of the sector to medium/low, concluding that the likelihood of harm occurring is “unlikely”. However, the absence of these migration measures would increase this risk to medium/high. The report, which surveyed 53 licensed fund managers in New Zealand, highlighted five top contributors to overall risk in the sector – macro-economic factors; product management; new financial instrument management; investment operations; and manager oversight of outsourced investment services. The regulator also highlighted that operational risk ranks higher than both investment and governance risk post-mitigation due to risks in product offering, investment operation and outsourcing oversight. Operational risk is also relatively higher for large managers due to the size and complexity of the funds they manage. The report also touches on three emerging risks in the sector – cybersecurity, climate disclosure and business continuity planning. “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,” said Paul Gregory, FMA director of investment management. “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,” added Gregory. © 2023 funds global asia

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