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Industry adjusted to culture shock: FMA

The Financial Markets Authority says its latest annual report shows it has started establishing itself as a fully-fledged conduct regulator – but there has been some “culture shock” in the industry as it made the adjustment.

Monday, October 10th 2016, 11:17AM 4 Comments

by Susan Edmunds

It says it had seven key strategic priorities for 2016, including improving governance and culture, helping market participants manage conflicts of interest, helping capital market growth and integrity, addressing sales and advice processes, and improving investor decision-making.

It is now five years since the FMA took over from the Securities Commission.

It said things that had gone well in that time included its work completing finance company cases, improving transparency, reducing the regulatory burden through exemptions and designations under the Financial Markets Conduct Act (FMCA), engaging with newly-regulated sectors, NZX oversight, inter-government relationships, work on corporate governance and international connectedness.

But the switch from punishment to prevention in enforcement had some challenges and meant a tricky balancing act between speed and thoroughness of investigation, and openness versus confidentiality, it said.

The new regulatory landscape had been a culture shock for firms that had not been regulated before, it said. “We look to shift interactions on problematic issues from the defensive and adversarial, to having sensible and early conversations.”

It now regulates 1828 authorised financial advisers, 640 registered financial advisers, 26,000 advisers in 56 QFEs and 800 AML/CFT reporting entities.

This year, it has also been focused on preparing the final pieces of the FMCA, coming into force in December.

Chairman Murray Jack said providers would take time to get used to the new "business as usual".

“In particular, they are still adjusting to our persistent focus on the relationship between culture, conduct and customer outcomes, rather than process.”

Rob Everett, chief executive, said “The broad scope of the regulatory changes introduced since the FMA was established in 2011 has been reinforced over the past 12 months.  We’ve worked with the industry to prepare them for the end of various transition periods and to implement the last major piece of the licensing framework - for managed funds - in December.

“The framework is now in place with a broader range of providers operating under a new licensing regime and the FMA using the full suite of its powers to drive good conduct within the regulated sphere.  So this is where we are shifting through the gears to demonstrate how we will focus on culture, conduct and customer outcomes. For us it has been important over this past year to give the industry an insight into how this will work in practice through supervision and monitoring and through enforcement where necessary.”

The FMA had a target of 65% to 75% investor confidence in New Zealand financial markets, as determined by an independent research company’s survey of attitudes. It recorded a result of 59% in the 2016 year.

The FMA recorded a deficit of just over $4 million for the year to June 30.

Tags: FMA

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Comments from our readers

On 10 October 2016 at 12:13 pm w k said:
wow ... didn't realise rfas are such rare commodity.

"industry adjusted to culture shock"... yeah right, sure did.

my brother just bought a 100yr old 130m2 wood & iron roof house on 600m2 section for $404k (outside auckland of course), took insurance from bank who advised him insure it for $400k. yes, i adjusted my shocked level .... higher, that is.

over to you fma ... what say you?
On 11 October 2016 at 3:09 pm R1 said:
The FMA gives itself a "pass" in its Annual Report and yet we have these facts from Mr Everett:
"The FMA had a target of 65% to 75% investor confidence in New Zealand financial markets, as determined by an independent research company’s survey of attitudes. It recorded a result of 59% in the 2016 year."

Given the FMA's charter is about building confidence he must be including the opinions of the QFEs in his pass rating as we can be pretty sure they have a lot of confidence in the regulatory regime; business as usual being acceptable.

In terms of the FMA's use of its "full suite of its powers to drive good conduct within the regulated sphere." it would have to said there has been a lot of use of the wet bus ticket and no use of its powers to prosecute (that I can recall) when it comes the 'big end of town'.

I wonder if there are bonuses being paid to senior management at the FMA for their interpretation of a pass grade? I for one hope not.
On 12 October 2016 at 11:35 am blogger billy said:
Paddy age 13 says "Dad, wanna see my school report ?"

Dad "sure son, let's have a look ........ well , Paddy that looks very good, but the wrting looks odd. Who wrote it ?"

Paddy replied "Oi did"
On 12 October 2016 at 3:53 pm gavin austin adviser business compliance said:
The FMA might be giving themselves a pass mark as they seem to have managed to get rid of about 5800 RFAs since their last annual report. Love the cumulative graph results on the first section - makes everything look good when in fact year on year they aren't doing much at all - funny how they are allowed to be misleading with impunity. Of course the excuse will be that they have had the FMC act to bed in meanwhile the big end of town just keep trucking along using dubious product solutions and "sales" advice.

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