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Financial services provider 'should be allowed to follow law'

Financial markets participants should be entitled to work on the basis of what the law tells them to do – not how the Financial Markets Authority wants them to interpret it, one legal expert says.

Friday, August 5th 2016, 6:00AM 3 Comments

by Susan Edmunds

Ross Pennington

The FMA last week released a “good conduct guide” outlining how it expects financial services providers to demonstrate the conduct required of them under the Financial Markets Conduct Act.

But Chapman Tripp partner Ross Pennington said the guide was created without a clear, relevant statutory basis and was open to subjective interpretation.

“While the guide brings the topic of good conduct in financial markets to the fore, the rules are somewhat ‘fuzzy law’ in that they have been created without a clear and relevant statutory standard,” he said.

“Everyone is entitled to engage on the basis of what the law is, not what someone makes it up to be,” he said.

He said the guidelines were open to subjective interpretation and vulnerable to swing with the mood of the FMA.

It was also at odds with the Government’s response to the Securities Law Review discussion paper that expressly rejected a statutory duty to "treat customers fairly".

Pennington said while the guide was fairly benign in itself, it was important to engage on the process that had been followed so that it wasn’t the beginning of a “slippery slope” of the regulator overstepping the mark.  There were important principles at stake.

“Who could you argue with concepts such as serving customers? No one could but the point is about certainty, rule of law and the separation of powers. There is a great law here and people are entitled to rely on it in the form that it’s been written.

“This isn’t one data point that is isolated by itself. There is a trend where the FMA says it's not focusing on the law … but the trouble is the breadth of the law is the fact.”

He said anything that made people more reluctant to engage with markets by trading, offering products or launching new services was potentially a problem. “When there is uncertainty people stop doing things.”

Pennington said the basic fair dealing standard in the Financial Markets Conduct Act was essentially an anti-fraud measure to stop misleading or deceptive statements or conduct.

FMA is taking submissions on its conduct guide.

Tags: Chapman Tripp Financial Markets Conduct Act FMA

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Comments from our readers

On 5 August 2016 at 8:07 am w k said:
well written law - regardless of whether you agree with it or not, any man in the street who reads it understood what it meant.

a badly written or garbage law - 10 experts will give you 10 different interpretations. and there is only one winner in such law ...... (and need i mention the word churning?).

On 5 August 2016 at 4:09 pm Robert Oddy said:
Well said, Ross. We at SiFA have previously made comments about similar issues in connection with the Financial Advisers Act and the annual AMLCFT return questions. We use the term regulation by guidance note and legislation by FAQ.
On 7 August 2016 at 2:22 am henry Filth said:
If an activity is regulated by law, then what value should we mug punters expect from a "good conduct guide" ?

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