MIS managers (i.e., boards and senior management), are you leveraging your licensed supervisor’s independent observations, insights, and knowledge?

20 April 2023, Mark Jephson, Partner– Mosaic Financial Services Infrastructure

It may be yesterday’s news for most of you, but we have finally digested the FMA’s Managed Investment Scheme Sector Risk Assessment (SRA).


For us, the SRA highlighted that New Zealand’s legislative and somewhat unique, supervision framework in respect of managed investment schemes provides New Zealand MIS managers with a unique opportunity to leverage the independent observations, insights, and knowledge of their licensed supervisor to help them understand how successfully they are identifying, assessing and managing the risks faced by investors in their managed investment schemes.

The SRA results were based on a collation of bottom-up risk assessments of each MIS manager by the respective licensed supervisor and appear to have only focused on the ‘known, knowns’ from a sector risk perspective.

While SRA does not necessarily identify and assess MIS sector (or sub-sector) risks for which the licensed supervisor has limited ability to influence or responsibility to monitor and evaluate, it was pleasing to see the FMA leveraging the benefits of the licensed supervisor framework to obtain a detailed and independent picture of the areas were MIS managers are performing well or not so well in mitigating and managing the typical MIS manager non-compliance risk factors.

And licensed supervisors should be well-placed to provide this bottom-up risk assessment at an individual MIS level. They have a fiduciary duty (to investors) to independently monitor each MIS manager’s performance (i.e., compliance) with their issuer obligations to their investors. As a result, they should be able to reasonably assess each MIS manager’s risk of non-compliance, particularly where that non-compliance is likely to impact investors in their managed investment schemes adversely.

In contrast, Australia’s legislative regime for retail-managed investment schemes is different. It does not require an independent supervisor, with a fiduciary duty to investors, to supervise each MIS manager’s compliance. It is largely a ‘self-supervision’ model, with responsible entities and superannuation trustees ‘self-supervising’ and regulators providing oversight from afar.

The ‘self-supervision’ failures identified in the Hayne inquiry (February 2019) highlighted that self-supervision and oversight from a regulator from afar do not always work out well for investors or the MIS manager themselves…

Therefore, it seems prudent for MIS managers (particularly their boards and senior management) from both commercial and fiduciary perspectives to leverage New Zealand’s licensed supervision framework and regularly and meaningfully engage with their licenced supervisor to understand the supervisor’s view of their risk maturity and performance in identifying, assessing, and treating their risk of non-compliance and its potential impacts on investors.

MIS manager boards, as a matter of good practice, will typically meet with their financial statement auditors before signing off on their financial statements each year and in our view, MIS manager Boards should meet (independently of management) with their licenced supervisor at least annually and senior management more regularly than that.

The MIS manager risk factors that the SRA was based on are relatively comprehensive, and we recommend you ask your licensed supervisor to provide them to you. They should provide a good basis for discussion with your licensed supervisor.

MIS managers should expect their licensed supervisors to be able to provide a pragmatic, tailored and informed view of their compliance performance and risk management, and licensed supervisors should be willing and ready to provide it.