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'Sales and advice' one of FMA's risk priorities

Advisers can expect an increase in monitoring activity over the coming year as the Financial Markets Authority resumes tighter supervision of the sector.

Wednesday, February 15th 2017, 6:00AM 5 Comments

by Susan Edmunds

The FMA has today released its Strategic Risk Outlook, an update of a document first produced in 2014.

“In some ways not a lot of changed [since then] but in others, everything has changed,” said FMA chief executive Rob Everett.

The FMA was now operating with the Financial Markets Conduct Act in full force, and the Financial Advisers Act rewrite was looming.

The market was also changing as international factors, such as Brexit and the election of Donald Trump, played out.

Everett said the FMA's mandate and powers were markedly different to those of its predecessor, the Securities Commission. 

"Generally the industry views that as a good thing," he said. "As long as it happens to someone else."

Everett said he expected a busy year, with more finance company fallout to work through and the Warminger judgment to come. There are also still problems of abuse of the Financial Service Providers Register.

The SRO notes that mis-selling of financial products, and sales and advice, are key priorities for the regulator.

Everett said it was likely there would be more cases brought before the Financial Advisers Disciplinary Committee, the body that deals with breaches of the AFA code of conduct.

Since its inception only six advisers have been to the FADC, the most recent in 2014.

FMA director of regulation Liam Mason said, over the medium-term, advisers would see a step up in regulation. He said it was likely the number of advisers under the FMA's jurisdiction would increase many times under the new version of the FAA.

“We had a period last year when the focus was on licensing under the FMC ... and had a little less monitoring activity [on advisers] than has historically been the case but we do see that picking up," he said.

That would be partly off the back of the FMA's new focus on conduct, and also through its work on insurance churn and KiwiSaver practises.

Two more cases that were last year signalled as being due to appear before the FADC were still in progress, he said.

Mason noted that when the FAA was revised, it should create a level playing field for advisers. At present, the FMA must take non-AFA advisers to court over any breaches, which the FMA noted was an extra hurdle.

Everett noted that financial advice had a key role to play when it came to tackling information asymmetry between consumers and product providers - a risk mentioned in the report. Mason said KiwiSaver had greatly expanded the investor population to the point where people who had never invested before were doing so. "Previous notions of what a prudent investor might think have been shaken up."

Other key themes in the SRO include the emergence of rapid technological innovation.

Everett rejected the idea of a "sandbox" to encourage robo and fintech innovation. He said he hoped the FMA was developing, or had developed, an innovative culture with a willingness to facilitate and encourage new business models, so that such an initiative was unnecessary. "Part of our job as a regulator is to get out of the way when we can."

The SRO also notes issues around the "regulatory perimeter".

Mason said it was likely that as the FMA tried to redraw its perimeter, those providers committed to working outside it would reposition their businesses. But he said the FMA owed it to compliant businesses to try to tackle those who dodged its remit.

The FMA said increased funding from July would give it more opportunity to plan ahead and the updated SRO was the first step of the next planning cycle.

Other issues identified were retail investor participation in complex and risky products and helping investor decision-making in changing market conditions.




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Comments from our readers

On 15 February 2017 at 10:04 am R1 said:
Notably the words "making sure all providers of advice and seller of products act in the best interests of their clients", or such like, are absent from this commentary. Business as usual for the big end of town and screw the independent AFAs down? What a wasted opportunity to provide "fairness and transparency" for the investing public that would be.
On 15 February 2017 at 10:40 am Dirty Harry said:
Pretty sure the quote "Part of our job as a regulator is to get out of the way when we can." will mean different things to different people.
On 15 February 2017 at 5:35 pm w k said:
have the regulators or anybody ever done a survey to find out if consumers/retail investors had ever bought a financial product without seeking some sort of advice?

if majority of the consumers/retail investors do need some sort of advice before purchasing a financial product then this "sales vs advice" is irrelevant.

finally, this "sales vs advice" thing has only proven me correct. in one meeting over a year back, i think. some estimated 50 advisers and 3 reps from mbie were talking about this "sales vs advice" thing. those who spoke up were not for it and offered good alternatives. a lady speaker (not from mbie) suggested we should write in with our suggestions. i told her their mind has already been made up long ago and they will NEVER take any advice from advisers. all these seminars, workshops, consultations, etc were just a show - i stand corrected. when was the last time regulators adopted one suggestion from advisers? just one.
On 17 February 2017 at 8:12 am AFA Muggins said:
The FMA has lost it's way and has simply become an example of revolving door regulatory capture, being consulted to by vested interests producing products, that have power and influence.

"Part of our job as a regulator is to get out of the way when we can." - the complete opposite has been the case for the advisory force. Regulation through guidance notes and amendments to them being an example.

It represents the big end of town, has little in the way of transparent accountability (which has been called for by market commentators), and now is clearly ramping up activity to further the benefits to those institutions.

Where is the advisory representation on the board?

Where is the accountability of the FMA?

Where has ANY of the consultation with the advisory force and representative bodies resulted in any implemented changes from the FMA rather than 'consultation' simply been lip service? - both from FMA and MBIE.

On 17 February 2017 at 7:14 pm Chatterbox said:
Target sales & advice is one sector. Another is provider market practices. Show us where they are being monitored and supervised other than capital reserves and prudential compliance. I have monitored an institutional product malpractice relied on intentionally by providers for over a decade and its become worse and worse while sales and advisers believe it must be ok because they are educated to believe it. What happens at the top filters down to the retail market - and in this sector the fraud is so wide scale that its clear regulators are either complicit, naïve or turning a blind eye. Everything else such as this issue is just noise.

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