The Financial Markets Authority has laid out its plans for regulating financial over the next year and is targeting supervision of specific conduct risks.
In its Financial Conduct Report, released today, it has a number of priorities for the advice sector including conflicted remuneration and a new focus on fraud.
FMA Executive Director, Licensing and Conduct Supervision, Clare Bolingford, says the regulator has seen an increase in potential fraud across mortgages, insurance and KiwiSaver with the latter often related to mortgage fraud with first home withdrawals.
“We were getting some emerging insights that fraud was becoming more prevalent in the market, and certainly from the work that we've done, both with financial advice providers and also with banks and insurance companies have shown that it is increasing as an issue within the sector.
“(That) is why we're putting this focus on it.”
With insurance she says it is “misrepresentation in the process of either putting forward an application for insurance or indeed in the claims process.”
She says the advice community can support the detection of fraud.
”It's quite hard with fraud to actually find it, unless you're out there on the ground. So, what we're really looking for is support from providers themselves,” alongside its monitoring work.
“What I can’t tell you is how much there is out there,” she said. “But I can tell you that we are seeing evidence of fraud in the system.”
The biggest shift between last year’s report and this one is that the FMA has moved from identifying broad issues in the financial advice sector to targeted supervision of specific conduct risks, particularly commission conflicts, fraud and complaints management.
While commissions again appear in the section on financial advice Bolingford says the FMA is not anti-commissions.
“We do see a place for commission-based models in the advice sector,” she said. “We do think that a range of remuneration models support good access to advice, so it's not that we're saying commission itself, you know, is bad or we don't like it, but what we are concerned about is how the risks of conflicts or interests are being managed within remuneration models.”
She says the issue is that there is “a risk the customer's interest might not be put first, or that they end up with a product that isn't suitable for them because of particular types of commission-based structures.”
In particular she flagged upfront commissions as opposed to ones paid out over a period of time.
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