Mortgage fraud and advisers’ commissions under the FMA microscope

The Financial Markets Authority (FMA) is going after advisers and FAPs who flout its rules and pose significant risks for borrowers.

Tuesday, June 30th 2026, 7:49AM

by Sally Lindsay

Picture: FMA Chief Executive Samantha Barrass (Supplied)

The FMA has identified four themes it will prioritise over the next year across the sectors it regulates.

These include managing conflicts from renumeration structures; banks’ and non-bank deposit takers’ design of new and redesigned existing products; the use of complaints to drive improvement; and fraud detection and prevention, specifically in relation to mortgage and insurance fraud, and the fraudulent use of KiwiSaver for first-home withdrawals.

The themes represent important areas where a phased, multi-year approach is likely to be necessary to support improved consumer and market outcomes, the FMA says.

Fraud is the most complex area, where both lenders and borrowers can be victims; even borrowers who are apparently complicit may themselves be victims of manipulation or deception, the FMA says.

It involves:

Mortgage fraud – this involves deceit or misrepresentation during the process of obtaining, funding, or insuring a mortgage loan, such as by using false property valuations, income or employment details, or other financial information.
Fraudulent use of KiwiSaver first-home withdrawals – this involves deceit or misrepresentation to access KiwiSaver funds for a first-home purchase, for example, claiming eligibility criteria are met even though they are not, or funds not being used for their intended purpose.
Insurance fraud – this involves deceit or misrepresentation in the process of obtaining, underwriting, or claiming on an insurance policy. It can include providers taking out insurance policies for dead or fictitious policyholders (tombstoning) or failing to disclose information that is relevant to underwriting assessments, such as pre-existing health conditions or family history.

The regulator has ongoing active investigations into alleged mortgage fraud, which it says it will progress with the aim of holding "bad actors" to account and deterring others from such conduct.

In the past year it also sent a letter to FAP mortgage aggregators and professional adviser associations, as well as banks and non-bank deposit takers, outlining its concerns about mortgage fraud and setting out a list of “red flags” to help them detect and respond to fraud risks.

FMA chief executive Samantha Barrass says this focus builds on the previous priority relating to consumers in vulnerable circumstances, where we were concerned about a rise in fraudulent activity in relation to financial advice on mortgages and life insurance products.

We continue to receive complaints and reports of potential mortgage and insurance fraud involving financial advisers and FAPs.

Mortgage fraud can result in consumers experiencing unmanageable debt, loss of property, and long-term financial stress, she says.

In the coming year the FMA says will continue to support FAPs to detect and respond to fraud risks by strengthening its existing information channels to improve the timeliness and quality of fraud reporting, including through enhanced engagement with providers, aggregators and dispute resolution schemes.

Commission-based business models pose risks

Hovering over mortgage advisers is another of the FMA’s priorities – managing conflicts from renumeration structures.
A majority of FAPs and financial advisers in New Zealand work on commission-based models.

While the FMA says these models can improve access to advice, they carry risks for borrowers that need to be managed.

The regulator says while its regime provides the framework to ensure clients’ interests are prioritised, the regulator says it continues to get reports of misconduct and fraud motivated by high upfront commissions.

As part of the FMA’s previous priority focus on fees, it identified inconsistent disclosure practices across the sector, particularly in the disclosure of the actual commission payable to both the FAP and the individual adviser, and in the treatment of clawbacks where advice does not proceed or products are replaced early.

Barrass says ongoing monitoring has highlighted a wide range of business and remuneration models across the sector, including specific features in some that pose a greater risk of poor consumer outcomes.

“Gaps were identified in FAPs’ recognition of vulnerability indicators and advice processes, resulting in poor advice outcomes.”

This includes the sale of unsuitable products and inappropriate replacement business driven by commission incentives.

The FMA’s access to advice review also identified that certain commission structures can, at times, prioritise new business over the servicing of existing clients.

Barrass says focusing on this area will support the regulator’s longer term objective of ensuring incentives across the sector are commensurate with the service and/or product provided.

“We are aware of instances of unmanaged conflicts leading to poor or unsuitable advice, inappropriate replacement business and fraudulent activity.”

It will focus on ensuring FAPs have effective processes and controls in place to manage conflicts of interest arising from commissions, and to detect and deter misconduct that may be incentivised by commission-based relationships. This includes misconduct arising from both upfront commissions and ongoing commissions.

“Where we see mis-selling of products we will take appropriate action using our full range of regulatory tools,” Barrass says.

Agreements between product providers, such as banks, insurers and fund managers, including expectations set in those agreements and how FAPs may influence conduct and regulatory compliance, will also be part of the FMA’s focus.

There will also be emphasis put on whether disclosures clearly explain the nature of ongoing services and related remuneration, so consumers can readily understand what to expect from their financial advice provider over time.

This will include responding with more serious interventions to hold bad actors to account and provide credible deterrence of further misconduct where the FMA identifies significant disclosure gaps.

AI and innovation

FMA acting chairman Steven Bardy says as the country is in an environment of significant uncertainty and heightened risk globally and domestically this reinforces the importance of a robust, well-functioning financial sector that is resilient.

He sees technology transformation becoming an even more important driver of efficiency, competitiveness, resilience and the consumer experience in the financial sector.

“New Zealand is in the early stages of developing a modern digital financial system and rolling out its building blocks, including open banking standards, consumer data rights, and digital identity services.

“The FMA recognises the importance of embracing innovation, and an area of increasing focus for us is the role of artificial intelligence (AI) in the financial system.”

It’s review will look at the use of AI in financial advice to better understand how it is used in practice, the associated conduct risks, and the safeguards firms have in place.

From the regulator’s access to advice review, it identified an opportunity for growth in digital advice, but it also highlighted that many firms are adopting an unnecessarily cautious approach to innovation.

“There is an opportunity to build greater confidence across the sector in how the responsible adoption of innovation can support good consumer outcomes,” Bardy says.

The FMA will consider its findings from the review and whether there are opportunities to share practical insights with industry on applying AI within technological innovation.

Tags: FMA fraud