New Zealand's financial markets watchdog sees increase in insider trading complaints during Covid-19

The FMA said it will investigate referrals from the NZX and other complainants about market manipulation and insider trading during the Covid-19-era. Photo / File

New Zealand's financial markets watchdog has seen an increase of insider trading complaints in the Covid-19 era.

The Financial Markets Authority (FMA) today published its annual corporate plan for the 2021-22 year, which sets out the government agency's activities that will promote strategic priorities, address regulatory risks and harms, and deliver sector outcomes.

Over the past 12 months, the report noted, the FMA had seen an increase in the number of referrals and complaints relating to insider trading and market manipulation.

The regulator said it would be investigating referrals from NZX and other complainants, and taking enforcement action against market manipulation and insider trading.

In the first case of its kind, the FMA had charged former Eroad executive Hamish Sansom with insider trading. Sansom was acquitted after a retrial in 2018.

The FMA had received a referral from NZX about Sansom's trading and began an investigation into him and the former insights and analytics manager for transport logistics company Jeffrey Honey, who was convicted and sentenced to home detention.

The annual corporate plan also said the pandemic drove a significant increase in trading volumes, values, and volatility across markets.

"Despite suffering one of its largest one-day declines in price on record in March 2020, the NZX listed equity market recovered and reached record highs in early 2021," the document read.

"The Covid-19 pandemic continues to generate global economic uncertainty and heightened risk of price volatility across all asset classes. It also creates increased challenges in corporate reporting and disclosure from rapidly changing business and market conditions."

Driven by historically low interest rates, the FMA added, many investors are searching for yield.

"We see potential for harm to investors, some with large sums to reinvest, who are not aware of or misunderstand the risks of managed investments compared to the term deposits they are exiting because of low interest rates," the plan said.

"Competition for these investors may see providers over-emphasising potential returns in promotions, advertising, social media, and other informal means of disclosure. This could unduly influence inexperienced investors to invest in unfamiliar funds or other products with greater risk and potential for loss of capital."

A recent FMA survey highlighted the rising popularity of online trading platforms. Those who used an online platform to buy their shares were significantly more likely to be aged between 25-39, in full-time employment, and have an annual personal income of $100,000 or more.

The FMA said its efforts throughout the pandemic and recovery will focus on increasing investor understanding of the long-term nature of investments, particularly KiwiSaver, and highlighting the importance of being in the right fund based on risk appetite.

FMA chief executive Rob Everett. Photo / Supplied

The pandemic has also seen an increase in fraudulent activity, scams, and aggressive marketing for unregulated products such as cryptocurrencies.

"Much of this activity is conducted from overseas so our focus is on raising investors' awareness of risk," the FMA said. "... we will work alongside other government agencies to deliver regular campaigns and warnings to raise awareness of investment scams."

Covid-related uncertainty and the surge in trading volumes also triggered tech issues for the NZX. The exchange's operational resilience and fragility were further highlighted by a significant cyber-attack in August last year.

"We subsequently carried out a targeted review of NZX's technology capability, and required NZX to develop a formal action plan to address shortcomings. We will monitor implementation of the plan throughout the year," the FMA said.

More than a year on from the start of the pandemic, FMA chief executive Rob Everett wrote in the report, the economic disruption has not been as severe in NZ as predicted.

Financial services firms "generally appear to have managed the crisis well", he said.