New Zealand Law Society - FMA focusing on conduct and culture

FMA focusing on conduct and culture

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Five years after it was formed, the Financial Markets Authority (FMA) says it is hitting its straps as the regulator for the financial services sector.

In the FMA's annual report for the year to 30 June 2016 which was recently tabled in Parliament, chairman Murray Jack, says the Authority has been in transition for the past few years, but over 2015/2016 evolved into a "fully-fledged conduct regulator entering the final stages of major regulatory change".

Mr. Jack says since the FMA was established in 2011, the financial services industry has mainly seen it as an emergency response law enforcement agency that mostly dealt with cases under the old Securities Act and Securities Market Act. 

"Now, however, the experience is increasingly that of dealing directly with a conduct supervisor seeking to exert its influence early, across the financial landscape, using a range of powers and increasingly speaking directly to investors and customers."

Culture club

The FMA is focusing on the relationship between conduct and culture on customer outcomes, rather than process, a shift that is taking the industry some time to adjust to. "We believe we can influence improved conduct and culture within the financial services industry in a way that, over time, drives improved levels of confidence for participants, customers and investors," Mr. Jack says.

The FMA's chief executive, Rob Everett, says conduct is the core component of the Financial Markets Conduct Act and that conduct is driven by the culture within firms and the financial services industry as a whole. "I have made it clear that the FMA doesn't set culture – that's the job of industry leaders. But we know that culture is critical. It drives how people behave; it drives what actually happens at firms; and, in the end, it drives what customers experience and how they are treated," Mr. Everett says.

Key achievements in 2015/2016

During the year the FMA published a report on sales practices within the life insurance industry, which identified 200 financial advisers as being in need of furthering monitoring, involving 65,000 active policies and $110 million in annual premiums. "The report showed that the quality of a policy was only a minor factor in whether a policy was replaced. High upfront commissions and overseas trips also appeared to be effective sales incentives for advisers," the FMA's annual report states.

A review of anti-money laundering and countering financing of terrorism (AML/CFT) procedures found there was room for improvement across the 800 regulated firms and individuals. "In particular, we noted instances of a lack of senior management oversight, a lack of clear AML/CFT controls, insufficient ongoing customer due diligence and account monitoring, and insufficient or unclear information about the nature and purpose of business relationships with customers."

After completing a review of the sales and advice sector, the FMA indicated it would step up its engagement with the sector. "While we saw some excellent practices and a commitment to take their obligations seriously, we found there was still plenty of room for improvement to reach the standards of conduct we expect."

The Authority also launched its Investor Capability Strategy in July 2015, which focuses on KiwiSavers and areas that pose the greatest risks to investors over the age of 50.

2015/2016 by the numbers

  • 38 managed investment schemes were licensed for the first time
  • $132 billion in total funds under management in New Zealand
  • $3.07 billion raised through same-class offers during the financial year
  • 66 overseas companies were removed or dissuaded from registering on the Financial Service Providers Register
  • Three new peer-to-peer lenders and one new crowdfunding platform licensed
  • Six directors sentenced after pleading guilty to charges laid by the FMA
  • 14 investor guides published