2014 marks the start of a new era for New Zealand’s financial markets – an ambitious and exciting period of change for market participants and for investors. This is the fourth article in a series outlining the key changes, the impact they will have on the future of our financial markets, and the role lawyers can play in helping achieve that change.
In this article we discuss the importance of fair conduct and dealing standards and our new role in handling financial market conduct complaints.
Market participants have a responsibility to act with integrity in their dealings with investors. This integrity is crucial to building customer trust and confidence, promoting the long term success of participants and growing New Zealand’s capital base.
Underpinning this relationship is the obligation not to engage in conduct that is misleading or deceptive, or is likely to mislead or deceive investors. This obligation is set out in Part 2 of the Financial Markets Conduct (FMC) Act 2013 and largely replicates parts of the Fair Trading Act 1986.
Managing conduct and fair dealing complaints
From 1 April, FMA will replace the Commerce Commission as the primary regulator of conduct in financial product and financial services (excluding credit contracts). Currently the Fair Trading Act 1986 regulates conduct in these areas.
Practically what this means is that from 1 April market participants should contact FMA with any complaints of misleading or deceptive conduct relating to financial products or financial services (excluding credit contracts). For any complaint about credit contracts, consumers should continue to contact the Commerce Commission who remains the primary regulator of this service under the Fair Trading Act.
The definition of financial services is broad and is defined in s5 of the FMC Act. With the exception of credit contracts, these have been imported from the definition of financial services under the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
It is also important to clarify that any complaints that relate to pre-1 April conduct will remain within the current jurisdiction of the Commerce Commission. However, if given consent by FMA, the Commission may also take regulatory action in relation to financial services and products under the Fair Trading Act. The FMA and the commission will put in place and publish arrangements setting out how the two organisations will work together in this area.
Reporting inappropriate conduct
Tips and complaints are an important source of information for FMA and we encourage market participants and the wider investor community to advise FMA of any poor conduct or behaviour that comes to their attention.
Regulated participants should have processes in place to facilitate and encourage internal whistleblowing if an employee believes there is inappropriate conduct within an organisation.
Processes should deal fairly with those employees and ensure prompt investigation. In some circumstances, employees can also make protected disclosures directly to FMA. FMA’s website explains more about this and how anonymous tip-offs can be made. www.fma.govt.nz/about-us/contact-us/other-enquiries/make-a-complaint-or-report-misconduct.
Changing our regulatory approach
The FMC Act defines four types of financial products: debt, equity, managed investment products, and derivatives.
A key change in the future regime is the ability for FMA to designate or “call in” certain unregulated financial products so they are classed as one of the four defined types. This will mean that the financial product falls within FMA’s regulatory and enforcement framework.
FMA will also be able to “designate” products that fall within one class of financial product to be in another. An example of this could be defining a specific type of equity investment as a managed investment product. The legislation sets out detailed considerations and consultation requirements that FMA will undertake prior to making any designations.
These changes ensure that the regime is flexible enough to deal with novel product types in the market and importantly that investors are protected from conduct that is potentially misleading or deceptive, or is likely to mislead or deceive. This change will also lower the incentives for market participants to seek legal loopholes.
Where to get more information
Keep an eye on our website for more details www.fma.govt.nz or sign up to our engagement site www.talktous.fma.govt.nz to receive regular updates.
Liam Mason is Head of Legal at the Financial Markets Authority.