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FMA outlines supervision approach

The FMA is warning that just doing the basics of compliance won’t be enough under the Financial Markets Conduct Act.

Monday, March 9th 2015, 6:00AM 2 Comments

by Susan Edmunds

Director of compliance Elaine Campbell spoke to Duncan Cotterill Law in Wellington last week about the approach the regulator would take to its supervision responsibilities under the Act.

It has 11,000 businesses and professionals under its watch and has licensing responsibilities for many. It is concentrating on supervision as its main form of preventative regulation.
The FMA identified its seven priority areas in its Strategic Risk Outlook, published in December.

These include firms ensuring quality sales and advice practices, addressing conflicted conduct in financial services, ensuring high standards of governance and culture among firms, ensuring integrity and growth in capital markets, ensuring effective frontline regulators, and improving information and resources for investors making decisions about products.

Campbell said the FMA would expect firms to be running systems that showed they were operating at the highest standards of conduct.

The FMA had had a choice with the FMCA, she said, of whether to implement the Act demanding line-by-line compliance with pre-determined standards, or to allow businesses to establish their own systems to comply with the spirit of the law. “We’re focusing our effort on the results that are apparent in the market rather than the detail of how you do it.”

She said a system that complied on paper but produced poor quality results, such as one that allowed ongoing poor conduct in a sales force, was a poor quality system.

Compliance should not be delegated, Campbell said. Senior management should know about the sales practices of their advisers and staff, especially when they were remunerated according to sales by type or volume, including soft dollar benefits. They should also know about the quality of disclosure  to consumers and be aware of the firm’s conduct between professionals.

“In a financial advisory practice [that means] how advisers conduct themselves towards advisers from another firm. People often overlook the fact that the FMA is interested in the whole industry, not just the places where firms sell to retail investors or consumers. Wholesale and institutional practices matter - and we expressly have jurisdiction in this area,” she said.

Campbell said the FMA encouraged financial services businesses to be open with it about things that had gone wrong. “We are as interested in how they are remedying a problem as much as we are in what has happened.”

She said the intensity of the supervision of licenced businesses would vary.  The FMA’s Strategic Risk Outlook was a guide to what would receive the most attention over the medium-term, she said.

Its reports on the industry’s sectors would also guide market participants on what the FMA was prioritising.

“Enter into engagements with us professionally and anticipate that we will do the same,” she said.

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Comments from our readers

On 9 March 2015 at 10:22 am Brent Sheather said:
This is sensible stuff from the FMA. Outcomes are far more important than procedures.

Regards
Brent Sheather
On 9 March 2015 at 2:33 pm traveller said:
wouldn't it be nice if Ms Campbell spoke to financial advisers rather than a group of lawyers who are above much of the regulation.

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