Vanguard Warned About Greenwashing By The NZ Market Regulator

The Financial Markets Authority (FMA), New Zealand's financial markets authority, has warned the Vanguard Group for neglecting to provide information regarding violation warnings brought against it in Australia for claimed greenwashing within the stipulated time limit. Last year, Vanguard was penalized by the Australian Securities and Investment Commission (ASIC) for deceiving investors by exaggerating an absence that was supposed to bar investments in businesses with sizable cigarette sales. The largest mutual fund provider in the globe, Vanguard, has funds in Australia and New Zealand totaling about A$110 billion ($74 billion).

Vanguard had used a mutual recognition plan to sell funds to clients in New Zealand, but it missed the limit by almost two months to inform the FMA of the action taken by ASIC, the Australian securities regulator. Environmental organizations and authorities in Australia and other countries are stepping up their efforts to combat “greenwashing,” which is the practice of exaggerating how sustainable and ecologically favorable a financial product or venture is.

Vanguard's Breach Could Harm Autralia-New Zealand Market Agreement

According to the FMA, Vanguard failed to recognize its responsibilities and lacked sufficient procedures to guarantee that the necessary notification was submitted in a timely manner. If Vanguard's violation is not corrected, an arrangement between Australia and New Zealand regarding market products may suffer. A reciprocal arrangement between Australia and New Zealand permits Australian financial product issuers to conduct business there, and a New Zealand issuer may expand an offer that is listed there into Australia.

On November 11, 2022, Vanguard received three violation notifications from ASIC regarding the statements made in the offer papers of three funds made available to Australian investors. Investors in New Zealand can also access these funds through the Trans-Tasman Mutual Recognition system. (MRSO regime). ASIC performs central regulatory action under the MRSO system, which exempts Australian financial product producers from having to adhere to all of the requirements of the Financial Market Conduct Regulations 2014 (FMC Regs) in order to conduct business in New Zealand.

Vanguard Is Publicly Warned for Breaking the FMC Regulations

Vanguard was obliged to notify the Disclose Register of any disciplinary action or use of authority by ASIC no later than November 18, 2022, in accordance with rule 273(7) of the FMC Regs. This is done to make sure that any such move is disclosed to New Zealand clients. Vanguard submitted its notification on 2 February 2023, 55 working days after the violation warnings were sent, as a result of the FMA's involvement. The FMA is convinced that Vanguard's failure to recognize its responsibilities and lack of sufficient procedures to ensure that it submitted the necessary notification within the required timeline amounted to a significant breach of Vanguard's obligations under the FMC Regs.

There are severe repercussions for breaking these duties, according to Paul Gregory, FMA Executive Director of Regulatory Response, and Vanguard's violation could compromise the Trans-Tasman Mutual Recognition system if it is left unattended. The FMA will take regulation action when required to promote equitable, effective, and clear markets in New Zealand through compliance with the MRSO regime's standards. He added that it's critical for producers using the MRSO system to comprehend and take care of their responsibilities, and in this instance, an official public caution was suitable.

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