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FMA puts finishing touches on draft conduct guidelines

Newly ensconced FMA boss Samantha Barrass is planning to publish draft conduct guidelines for the financial industry “shortly” and is urging advisers to have their say.

Friday, March 18th 2022, 7:56AM 6 Comments

by Jenni McManus

The CEO, an ex-pat Kiwi and former Reserve Bank economist who has been in her new role for only about six weeks, says it’s important to get adviser input into the draft guide which will cover the entire financial sector.

“We’re very mindful of the amount of regulation that’s open for consultation, so we are going to provide a four-month period of time [for] feedback which we hope makes it a bit easier to take the time to engage in this guide,” she told a webinar hosted by the Financial Services Council this week, attended by about 600 people.

In line with her preference for guidelines to focus on services and outcomes for consumers, Barrass says the consultation document will not be a prescriptive checklist of dos and don’ts. Rather, it will set out the principles that providers must apply when designing products or delivering services.

For most industry players, Barrass doesn’t expect this will be a big ask. “I’d like to think that most or all of what you see in this guide will be consistent with your own expectations for yourselves on the way you deliver your products and services,” she said.

The draft guide will update previous draft guidelines and will be forward-looking, Barrass says, reflecting the FMA’s regulation of banks and insurers. “We’re the principal conduct regulator and it’s important we refresh and keep up-to-date our expectations of what good conduct looks like.”
The guidelines will be grounded in four principles: treating customers fairly; good governance and accountability; effective systems, controls and reporting; and identifying and remediating issues.

This principles-based approach sets New Zealand apart from other jurisdictions. It’s imperative that regulators pivot from prescriptive rules compliance to understanding the key interventions needed to make a difference to consumer outcomes, Barrass says. “It’s important that people get the financial products and services they need, making savings for the big things in their lives.”

“We have an advantage in New Zealand as we go into new regimes in that we’re not massively encumbered by the detailed and prescriptive input approach of many other jurisdictions. In the financial advice regime, we have an approach in the code that’s refreshingly outcome-focused.” Elsewhere, she says it’s very different.

A central requirement in the Financial Markets (Conduct of Institutions) Amendment Bill (COFI) is to set up, maintain and implement a fair conduct program. “I know there’s more to it than that,” she says, “but for a central requirement to be grounded in the requirement for a fair conduct approach makes it internationally very much of its time and possibly ahead of its time in terms of approach to regulation.”

Avoiding gridlock

Other priorities for Barrass include bedding in the new licensing system for financial advisers which is due to take full effect in March next year. To avoid gridlock, she wants advisers to get class 3 applications in by June and class 1 and 2 by September. To get a “calm delivery” of the new regime, it will be easier for everyone if the bulk of applications don’t arrive just before the deadline.

Wholesale investing is also in her sights. These investors – habitual or experienced players or those with more than $5 million to spend – don’t get the same protections as retail investors – for example, they won’t receive product disclosure statements for investment offers and they don’t deal with FMA-licensed firms. Barrass says many of the investments “operate at the edge of the regulatory remit” and she wants to understand who’s investing in these products and the level of risk.

Her particular focus is the extent to which vulnerable consumers and people who are, in fact, retail investors are accessing the wholesale market and the harm this may cause them.

For the past 10 years of her regulatory career, Barrass says she has witnessed the harm caused by “people’s inappropriate access to markets and products that they simply do not understand.” Many go into these investments without proper advice or support.

“Genuinely sophisticated knowledgeable people should be the only ones accessing wholesale markets,” Barrass says. She has requested information from the industry and will publish a report later this year.

On the issue of cyber risk, Barrass says it’s impossible to over-state the importance of being prepared and ahead of the risk wherever possible. Russia’s invasion of Ukraine has heightened the risk even further and the FMA plans to release an information sheet outlining the issues organistions need to consider when formulating cybersecurity plans.

Working style

Barrass says it’s her intention to remain “completely connected” to the industry. “It’s absolutely vital to ensure we understand the issues and practicalities, we understand the impact of new approaches …the unintended consequences…

“My style is to listen, do my utmost to understand perspectives … I’m really keen not to create an unnecessary regulatory burden. I welcome feedback, early warning on issues and ultimately, we share the same goal which is a healthy financial sector that’s supporting a strong economy that is working for all New Zealanders.”


But Barrass will wave a big stick if necesssary. Nobody wants to start with enforcement, she says, especially when introducing a new regulatory regime. “My experience as a regulator tells me you need 99.999% of your regulated community complying and understanding and being able to deliver against expectations. You really want to bring down to the minimum the number who don’t.”

But enforcement is an important for instilling confidence around regulatory outcomes and it is a tool the FMA needs to use when faced with conduct or behaviour that creates a lot of harm or demonstrates “a can’t or won’t approach to compliance”, she says.

Tags: CoFI conduct

« Advisers told full licencing will become more streamlinedFMA didn't disclose Booster conflict »

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Comments from our readers

On 18 March 2022 at 1:41 pm Murray Weatherston said:
I have to shake my head when I read stuff like this.

Regulation 101 says first define the problem. Next work out the ways of addressing the problem. Regulation is usually the option when all else would fail.

Contrast this with what the CEO has said about conduct regulation above.

the consultation document will .....set out the principles that providers must apply when designing products or delivering services."

Fair enough. But she goes on to say:

"For most industry players, Barrass doesn’t expect this will be a big ask. “I’d like to think that most or all of what you see in this guide will be consistent with your own expectations for yourselves on the way you deliver your products and services,” she said.

So if people were already doing what the regulations are going to require, what is the need for regulation?

I know I would be wasting my breath asking to see a cost benefit analysis of the COFI reforms. I am pretty certain none exists.

Financial institutions will spend a fortune getting all the systems that their lawyers will tell them they need in case FMA comes knoocking.

But who really pays in the end - well the poor old consumer who is supposed to be the benficiary.

I have yet to be persuaded that there is systemic product design failure in the financial markets. Anyone who has ever worked in the private sector ought to know that the principal principle is to give the customer what she wants.

Maybe that's just not taught in policy analysis kindergarten.
On 18 March 2022 at 2:45 pm w k said:
heads i win, tails you lose.
On 18 March 2022 at 4:08 pm Amused said:
Well said Murray.

On 18 March 2022 at 5:35 pm LNF said:
In a separate article today
"vulnerable consumers and people who are in practice retail investors, are accessing wholesale markets and the harm this may be causing them and their families,
things that have made me want to put my head in my hands and weep"
And another on Good Returns
FMA didn't disclose Booster conflict"

Thanks my good judgement to exit this industry
On 21 March 2022 at 9:30 am Bikedude said:
Is this a Monty Python sketch???
On 21 March 2022 at 10:02 am Dirty Harry said:
I thought we (advisers) already had a pretty good conduct guide...
That we had our say on...
That has been published...
And is overseen by an independent Code Committee that is established by Part 4 of Schedule 5 of the FMC Act to produce a draft Code for approval by the Minister - and therefore is not run by the FMA - ohhhh... I see.

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