Authorised financial advisers are being told that the Financial Markets Authority's conduct guide, released today, does not alter in any way the Code of Conduct that financial advisers already practise under.
Thursday, February 2nd 2017, 10:06AM
The FMA has today released its conduct guide for financial market participants. It is part of a new focus on conduct for the regulator.
It outlines a basic framework of factors that make up “good conduct”: Capability, the management of conflicts, organisational culture and controls, and communications.
The FMA said high standards of conduct were important to support fair, efficient and transparent markets, and to encourage confident participation in them.
“Poor conduct, however, can destroy confidence and discourage participation in our financial markets.”
Among the expectations outlined in the guide are that financial services providers have the skills to provide an appropriate service and meet professional standards of care, the customer’s interests are served as well as the provider’s business interests, the provider’s culture encourages and recognises good conduct from the top levels of management down, and that the cost of the provider’s product or service is reasonable (and does not reduce the return or benefit customers get from it, to the point where the customer’s need is not met).
The FMA said it would take a risk-based approach to monitoring conduct.
“We will assess which financial service providers (providers), and what conduct, are mostly likely to pose risks to fair, efficient and transparent markets – and harm to investors and consumers – and direct our regulatory attention and effort accordingly.”
The FMA said the conduct focus was not only a shift of emphasis in its own operations but would represent a change for those it regulated.
“They may need to think differently about what they do with their people and organisational culture, and their processes and controls, to show their customers – and, where necessary, us as regulator – that they understand what good conduct is, and can habitually demonstrate it.”
But those hoping for a one-rule-for-all approach will be disappointed.
The FMA said conduct was particular to each business or person and to their circumstances. “A regulator cannot, and should not, prescribe how that happens. We appreciate that some people have already thought deeply about this. Others are still coming to grips with it. We expect this document to prompt those we regulate to examine how they think about good conduct to ensure they consistently deliver good outcomes to their customers.”
FMA director of regulation Liam Mason said: “While we hope the conduct guide and its contents will be considered relevant across all financial services, it was created for the sectors that we regulate under the FMC Act so they have a clear idea of what we will be looking for when we are monitoring.”
He noted AFAs already have a code of conduct that they must comply with, which is enforceable under the Financial Adviser Act (FAA). He said it should be emphasised that the guide did not change any aspect of the AFA Code, nor was it intended to operate in the same way for broader financial services.
“As we assess risk and harms in the market, our focus will be on whether the providers we regulate have the interests of their customers at heart. In particular, how that customer-centric perspective is embedded within the way they approach compliance obligations and their business activities more generally,” Mason said.
The guide recognises the imbalance of information and expertise between users of financial products and those making and selling them. An additional, consumer-focussed guide will be published shortly to further help consumers understand what they should expect from their financial services providers.
The guide to FMA’s view of conduct (including summary of submissions and a copy of each submission) https://fma.govt.nz/compliance/consultation/
