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FMA Conduct Guide useful, but clearer description of purpose needed

10 November 2016

The Financial Market Authority's Guide to the FMA's View of Conduct is a useful document for directors and licensed financial service providers, the New Zealand Law Society says.

However, in its comments on the Guide, the Law Society says it is important that it provides a clearer description of its purpose at the beginning of the document and the consequences of not complying with it.

"It should be made clear that the Conduct Guide does not introduce any new legal obligations and is not enforceable by the FMA or any other party," the Law Society says.

"Without such clarification, the Guide could be seen as potentially expanding the obligations of licensed financial service providers without legislation or judicial mandate."

Considering the purposes of the Conduct Guide, the Law Society notes that the Financial Markets Conduct Act 2013 does not have an express statutory mandate to create conduct obligations which apply to financial service providers.

It says this seems to have resulted from the 2010 securities law review, which considered whether there should be a principle-based overlay – requiring providers of financial services to retail customers to provide services in a fair manner.

However, this was rejected. Instead, Part 2 of the Act imposes requirements of "fair dealing” which targets misleading or deceptive conduct, false or misleading representations, and unsubstantiated representations.

The Law Society says it should be made clear that the Conduct Guide does not introduce any new legal obligations and is not enforceable by the FMA or any other party.

"Without such clarification, the Guide could be seen as potentially expanding the obligations of licensed financial service providers without legislation or judicial mandate."

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Last updated on the 10th November 2016