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One case in 10 related to advisers: FMA

Going to court is not always the most effective way to deal with conduct and compliance issues, the Financial Markets Authority says.

Tuesday, February 21st 2017, 6:00AM

by Susan Edmunds

It has released its Conduct Outcomes Report for the period from July 2015 to June last year.

It shows that 70% of completed investigations resulted in sanctions other than court action.

Almost 30 firms were removed from the Financial Services Providers Register. Four company directors agreed not to be involved in financial markets for a set period of time.

The FMA said it took a risk-based approach and focused on the types of conduct that were most likely to pose the most serious risks to fair, efficient and transparent markets.

Nick Kynoch, the FMA’s general counsel, said there were a range of tools the FMA was prepared to use.

“The FMA’s early years were dominated by wading through the rubble of the finance company collapses.

"That work is now done, with the final cases before the courts. We will continue to use court action where this best secures our desired regulatory outcome. Litigation may serve as the best deterrent and the most appropriate sanction, or for getting compensation for victims or clarifying the law. We also have powers to influence conduct and demand compliance where we see the potential for poor outcomes or wrong-doing.”

The FMA took 10 court cases over the period, of which one related to a financial adviser. It said it would take action where it saw instances of non-compliance from advisers.

The case in question was Stephen Duff, who was a registered but not authorised financial adviser.

The FMA was worried he was operating as an AFA without authorisation and his conduct breached relevant legislation.

He agreed to deregister as a financial adviser, transfer his client list to an AFA and DIMS to a DIMS provider and restrict his participation in financial markets.

"Wherever possible, we will work with businesses and individuals to achieve voluntary behavioural change that addresses misconduct and reduces the risk to investors. We reserve formal court proceedings for the most serious misconduct, and where a court outcome is required to protect consumers,” the FMA said.

In another case, an RFA was warned of suspected of misleading or deceptive conduct.

After investigation, the FMA decided his conduct was misleading or deceptive.

The RFA completed and submitted a direct debit form, purportedly signed by his client, declaring that he was in good health, without the client’s authority.

"We assessed the level of misconduct and felt it was appropriate to issue a warning. Our decision-making is always guided by public interest factors."

The FMA said it had considered the fact that the RFA deregistered from the FSPR voluntarily, and that his employment was terminated and he had left financial services.

"We felt assured this was a one-off incident. His employer's file review showed no other misconduct. He made no financial gain and there was no monetary loss to clients. When he recommended his client change insurance policy, he believed the product was appropriate."

But the FMA said even though the adviser believed the product was suitable, the conduct was unacceptable.

"We will take action against financial advisers when we see misconduct. In the Duff case, our approach considered the RFA’s willing co-operation with us, and the fact that he stopped working in the financial services industry. We were satisfied that it was in the public interest to issue a warning, rather than pursue prosecution."

The report also notes the FMA’s investigation into insurance replacement business. It says it has contacted advisers identified as having unusually high levels of replacement business and is in the process of obtaining further information about them and their clients.

Tags: FMA

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