MBIE plans to set up separate reserve comprising court-awarded costs after Financial Markets Authority says it could run out of litigation money

The Ministry of Business, Innovation and Employment is revising its funding agreement with the Financial Markets Authority, and plans to set up a reserve fund allowing the country’s financial markets regulator to keep court-awarded costs.

This would be in addition to the Financial Markets Authority’s annual litigation fund, Ministry of Business, Innovation and Employment (MBIE) financial markets manager Amy Lewis says.

This comes after the Financial Markets Authority (FMA) raised concerns about its litigation fund in its statement of performance expectations for 2025/26, which was publicly shared in July.

"An increase in litigation activity is anticipated towards the end of 2024/25 financial year. As a result, the latest annual forecast for litigation expenses for 2024/25 is $6.7 million, exceeding the annual appropriation of $5 million.

"Should actual expenditure surpass the appropriation, we will draw on the existing cash reserve carried over from 2023/24 to meet the shortfall. However, this would fully deplete the reserve," the FMA wrote. 

In the report, the FMA forecast spending on litigation for 2025/26 was expected to exceed the allocated $5 million.

There would be no extra funds to cover this shortfall, the FMA report said, and the regulator had been working with MBIE to help address the problem.

With multiple cases in the works: “This presents a significant risk. Insufficient funding may limit our ability to progress existing cases or initiate new ones, potentially impacting our regulatory effectiveness in financial markets," the FMA said.

Litigation and unpredictability

"An important part of the FMA's enforcement function is to undertake civil or criminal court proceedings, and proceedings before the Financial Advisers Disciplinary Committee, under the Financial Markets Authority Act 2011, the Financial Markets Conduct Act 2013 and other financial markets legislation," Lewis says.

"Litigation expenditure is inherently irregular and unpredictable, subject to the occurrence and nature of legal proceedings."

“The creation of a reserve of court-awarded costs is expected to help better manage this unpredictability so the FMA can take action as required," adds Lewis.

A spokesperson for the FMA says an agreement has been reached in principle and it is finalising an update to its litigation funding agreement with MBIE.

'It is vital the FMA is properly resourced'

Minister of Commerce and Consumer Affairs Scott Simpson says he’s aware of the pressures on the FMA’s litigation funding.

"I received advice from MBIE earlier this year on options to more efficiently fund the FMA’s litigation work. I will have more to say in due course," Simpson says. 

“In my 2025/26 letter of expectations, I encouraged the FMA to boldly enforce breaches of financial markets regulation. It is vital the FMA is properly resourced to carry out this important enforcement work."

Simpson says: "I asked MBIE to progress a solution that will see the FMA retain costs awarded to it by the courts".

"I am confident this pragmatic solution will enable the FMA to fully exercise its enforcement responsibilities."