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FMA sets course for new era in conduct regulation

16 February 2017

The Financial Markets Authority has published its updated Strategic Risk Outlook (SRO), which sets out how the regulator identifies and prioritises the key risks to its objective of fair, efficient and transparent markets.

In 2014, the FMA established seven strategic priorities to address the main risks and potential harms to financial markets. Those priorities and the drivers of risk have been reviewed to ensure the FMA sets a clear direction at the beginning of a new era for conduct regulation in New Zealand.

“Since the Financial Markets Conduct Act came into full effect in December 2016, and with confirmation of our funding, we now have certainty over our mandate and resources, which means we can take a longer term view of our strategic planning,” says Rob Everett, FMA’s Chief Executive.

“While the seven priorities remain consistent, there have been developments in the underlying risks in the market and innovations in the way financial services operate.

“The review of the SRO reflects on developing themes and draws on the experience of other international regulators. So, while the focus of our efforts must be local, we are increasingly conscious of the global perspective in our assessment of risks.”

The seven strategic priorities are governance and culture, conflicted conduct, capital market growth and integrity, investor decision-making, sales and advice, effective frontline regulators and FMA effectiveness and efficiency.

The drivers of risk cover a broad range of factors including investor understanding and behaviour, environmental issues, such as New Zealand being a small, concentrated market and governance issues such as culture, conduct and conflicts of interest.

“Our approach, with the SRO, enables us to continue to address the causes of harm and therefore helps to prevent poor outcomes for consumers and New Zealand markets,” says Mr Everett.

“This is a sign of how we can influence and affect change in providers. By giving the industry a clear view of what we want to achieve and our expectations of providers, we hope those we regulate will respond positively as they continue to adapt to the new approach to conduct regulation.”

The changes identified during the SRO review include regulating in an environment of rapid technological innovation and change, retail investor uptake of more complex or risky products, reviewing its regulatory perimeter and establishing our response to any activities that occur outside of this, and helping investor decision-making in changing market conditions.

“Changing market conditions also pose a risk to investors - as global political events create uncertainty around regulatory regimes and heightened volatility in international financial markets,” says Mr Everett.  

“While low interest rates and strong returns have been experienced for some time now, the economic and market cycle will change at some point and long-term interest rates have started to rise. We will continue to focus on helping investors make informed decisions, as the extent and pace of these changes may well bring challenges for some.”

Last updated on the 16th February 2017