The FMA announced on 16 October 2015 its second internal restructure since it was established in 2011. In my view the most notable change is the creation of a greatly expanded general counsel (GC) role. The new GC role represents a marked change in FMA’s approach to the management of its lawyers and legal function. I think that the new structure should be positive for FMA and ultimately for market participants and investors. To understand the significance of the new GC role it helps to go back in time.

The FMA was established in part as a of result a 2009 review of the Securities Commission (FMA’s predecessor). The reviewers noted market perceptions that lawyers and accountants predominated at the Commission, contributing to a risk-averse, “legalistic”, approach and a lack of pro-active market engagement. The recommendations of the review influenced the FMA’s structure, choice of personnel and approach to regulation.

At establishment of the FMA in 2011 the GC role, while an executive committee position, had a much narrower scope than the equivalent role at the Securities Commission and few direct reports. Lawyers were dispersed in different teams and in most cases reported up to operational managers rather than to the GC. At the same time the FMA, following the recommendations of the review, employed staff from a wider range of backgrounds and set up a separate enforcement team (with its own contingent of lawyers). The overall effect was to reduce the collective influence of lawyers (in comparison to the Commission). It appears to me that this was intentional, at least in part, and a response to some of the concerns expressed about the Commission.

The new GC role will have a wide ambit and greater influence at the executive level and within the FMA as a whole. For example, the enforcement team has been disbanded and the GC will be responsible for lawyers from that team. While a significant departure from original GC role at the FMA I don’t think it suggests a return to a regulator where lawyers hold sway. Things have changed a lot since 2009. The FMA is a larger and more diverse organisation than the Commission, with enhanced governance and a different culture. Also, the regulatory landscape has changed significantly. The FMA has new powers that it states it will use to take a more “top of the cliff” (proactive) approach. So, to the extent that the concerns expressed in 2009 were valid, I doubt the same issues will resurface as a result of the restructure. In fact, I think that the new structure is a positive development.

The FMA encourages market participants to implement appropriate risk management functions and frameworks, so the new GC role might indicate that the FMA is “taking its own medicine” to a degree.  In a regulator a GC role is even more important than in the private sector. Not only is it imperative that the FMA, as a government agency, operates within the law, one of its key tasks is monitoring participants’ compliance with, and enforcing, financial markets law.  An experienced GC with oversight of legal support and compliance within the FMA will help to ensure that those outcomes are met and that legal resources are used effectively. The important role of lawyers in providing sound, objective, advice is supported by having a direct report to a GC. The new role will be able to contribute to a risk management framework that incorporates clear triggers for legal review and support at appropriate levels, which should facilitate both greater delegation of powers (another recommendation of the 2009 review) and improved compliance.

Overall, I think that the restructure gives the FMA a strong, coherent, platform for the future, which it can use to further its role as an effective financial markets conduct regulator and to support participants and investors.

Simon Papa