FMA: No excuses for shoddy conduct

After 18 months supervision of the financial sector, the FMA is calling for improvements to governance and compliance.

Friday, September 25th 2020, 5:44AM

Rob Everett

An FMA report on its supervision activities over the past 18 months says that large parts of the financial services sector are working hard to meet the FMA’s expectations, but called for widespread improvements to governance and compliance.

Rob Everett, FMA chief executive, said that the issues identified in its monitoring were concerning and he anticipated the regulator would take strong action where deficiencies are not remedied in a timely manner.

“We are at a point now where the volume of FMA guidance, level of engagement and maturity of the regulatory regime mean there are no excuses for conduct that presents the risk of harm to investors, customers and the integrity of the markets,” he said.

“While we have seen positive evidence of genuine customer focus during Covid-19, there is more work to be done to build a sustainable customer-centric culture.”

The FMA has found weaknesses across its regulated sectors in four main areas: governance and oversight; conduct and culture; compliance assurance programmes; and compliance and controls

“Firms need to constantly assess their conduct and culture to ensure good customer outcomes are core to their compliance systems and their overall strategy,” Everett said.

“We saw much good progress over the last year but were unimpressed by attitudes from one or two firms that suggested to us that they saw good conduct as something that only needs to be demonstrated when we visit. This is not a box-ticking exercise, it needs to be woven into the culture of providers.”

A compliance assurance programme (CAP) is required by certain entities regulated by the FMA and entity boards are expected to seek assurances that CAPs are up to standard and to challenge management when needed. Notwithstanding this, the FMA found examples of CAPs that were poorly designed or implemented.

A questionnaire completed by derivatives issuers indicated significant weaknesses in the way many issuers assessed customers’ knowledge, experience and understanding of derivatives, which are complex financial products. In some cases, issuers had insufficient processes or policies to support their compliance with client money handling obligations. The FMA will be applying targeted monitoring to follow up on the questionnaire responses.

Weaknesses were found in some AFA's and QFE's financial advice disclosure practices. The FMA said it will increase its focus on these two sectors and expects improvements, especially given the new financial advice regime, which begins in 2021.

The FMA regards confidence in financial advice as a critical component in the health of New Zealand’s financial sector and will be working hard with the advice sector to ensure considerable efforts applied by most AFAs and QFEs are matched by all advisers and firms. The report was based on monitoring engagements, complaints and other information received from January 2019-June 2020.

Tags: compliance conduct Disclosure FMA