Regulatory Framework and Compliance
What this domain tests
This section tests the regulatory architecture around NZDX advice and trading: who regulates what, which conduct is prohibited, and what licensing and disclosure duties apply to advisers.
Regulators and rules
The Financial Markets Authority (FMA) is the conduct regulator. The Reserve Bank of New Zealand has prudential responsibilities. NZX operates the licensed market and sets NZX Market Rules for participants and trading conduct. The Financial Markets Conduct Act 2013 (FMCA) governs offers, disclosure, fair dealing and licensing. The Financial Services Legislation Amendment Act 2019 (FSLAA) introduced the financial advice provider (FAP) regime, with financial advisers and nominated representatives owing duties under the Code of Professional Conduct.
Prohibited conduct
The FMCA fair-dealing provisions prohibit misleading or deceptive conduct, false or misleading statements, insider trading and market manipulation. Inside information is material information not generally available that would affect price if disclosed. Trading or tipping on it is prohibited.
Worked example
An adviser learns confidentially that a bond issuer is about to be downgraded. Before the market announcement, the adviser sells the bond from a client portfolio and tells a friend to do the same. This is insider trading and tipping: the information is material, not generally available and would affect the bond price. The correct response is to cease trading on the information and escalate it under the firm's confidentiality and market-conduct procedures.
Traps that cost marks
Assuming registration is the same as licensing; believing NZX rules displace the FMCA; forgetting that disclosure of conflicts is a continuing duty; and treating a breach as only a compliance issue when it may also be a fair-dealing offence.