Unlawful and unethical behavior unnoticed

The Financial Markets Authority says in its latest report that unlawful and unethical behaviour by advisers is going unnoticed.

Tuesday, July 2nd 2013, 7:23AM 1 Comment

by Susan Edmunds

Some financial market participants are failing to meet the standards of behaviour that the FMA thinks New Zealanders should be able to expect from them.

It has released its investigations and enforcement report for the year ended May 31.

In that time, there were 1273 complaints and 2923 inquiries made to the FMA.

The FMA said an emerging theme was that unlawful and unethical behaviour among financial advisers was going unnoticed. It was encouraging investors to ask questions of their financial advisers, especially around unrealistic portfolio returns.

It said while investors needed to take responsibility for their decisions, market participants needed to strive to act in a way that would raise professional standards, maintain market integrity and restore investor confidence.

Of the 50 inquiries and investigations the FMA has under way, 27% related to contraventions of the financial advisers’ regime, including breaches of the code of professional conduct for AFAs, non-registration and non-compliance.

It has identified code standards being breached, including the requirements to put a client’s interests first, act with integrity, behave professionally and provide thorough written explanations.

“Failure to maintain proper client records and to record discussions with clients is a common weakness in the types of cases that we have considered so far, even though these are simply basic requirements for good client services,” it said.

Four advisers have been referred to the Financial Advisors Disciplinary Committee and a hearing was deemed necessary for three of them.

The FMA said its focus on education and engagement with AFAs would continue. “We are, however, increasing the tempo in testing compliance and enforcing the law.”

Close to 500 complaints were passed on to the FMA’s enforcement team. Most of them became part of an existing investigation but 2% resulted in new action. Financial advisers’ money handling was one of the most complained about issues.

Just under 50 matters were concluded because compliance was achieved, the matter was closed for no breach, the participant ceased operations or a non-litigation enforcement tool was used.

The FMA said it had to focus its resources in a way that allowed it to respond quickly to changing market conditions. “Where matters involve serious misconduct, FMA will consider criminal prosecution of the offenders.”

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Comments from our readers

On 4 July 2013 at 9:09 pm Frustrated said:

I feel we will all be in breach as far as compliance is concerned in this non prescriptive world - it is non prescriptive until FMA audit you and then you have to meet their rules/regs for written advice to clients - but they haven't really told us the rules i.e. what the minimum issues/headings etc should be in a Statement of Advice - can we ever be right surely a base template would be a good idea we can always do more and personalise it.

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