Self-reporting viewed as best practice by the FMA

Self-reporting problems to the Financial Markets Authority does not provide immunity from prosecution but will be relevant to the FMA’s enforcement response.

Friday, November 5th 2021, 11:57AM

by Matthew Martin

Karen Chang.

The Financial Markets Authority's (FMA) head of enforcement and acting general counsel Karen Chang has laid out the FMA's expectations for how firms under its supervision should deal with the regulator when day-to-day interactions evolve in the event of an enforcement process.

Chang says it’s critical the industry should not be surprised by the FMA's approach to regulation, supervision and enforcement.

"That’s why we strive to set visible expectations on how we implement the laws within our jurisdiction, our expectations for good conduct, and our enforcement strategy.”

Chang set out three key areas that should be a priority for every firm that holds a licence with the FMA or will do in the future.

- Self-reporting incidents or issues to the FMA;
- Remediation – fixing issues and errors with customers in a timely way; and
- Addressing inadvertent misconduct issues.

Financial services firms have discovered an increasing number of issues since the joint reviews of banks and life insurers by the FMA and the Reserve Bank of New Zealand in 2018/19.

Chang reiterated what the FMA considers to be best practice for informing the regulator when things go wrong.

“The right way involves promptly informing your board, self-reporting to the FMA, and ensuring timely remediation and communication with customers.

"While entities may be tempted to wait until they have fully unravelled problems before making first contact with the FMA or their customers, we urge you to prioritise early engagement and stopping the harm.

“You can be confident that the choices made by an entity after discovering the problem will be relevant to the FMA’s enforcement response and will often colour how we view the entity’s overall conduct," she says.

At the same time, self-reporting cannot provide immunity from litigation, especially if the issues are significant, systemic or have led to customer harm.

“The nature of the underlying misconduct itself will always be the driving factor in assessing the appropriate response," Chang says.

"The more serious the misconduct – to consumers or to the market - the more likely we will take strong enforcement action, irrespective of how it was reported.

"And that makes sense, for any law enforcement agency. A confession does not absolve responsibility."

She says delayed, incomplete self-reporting is considered an aggravating factor so it’s not just the self-reporting that is important, but also the manner.

Chang reminded the industry of the purpose of the relationships between financial services firms and their customers, and the relationship between those firms and the regulator.

“We all want New Zealanders to have trust and confidence in the financial services they receive. That means investing in systems that put customer interests first and showing a willingness to deal with the regulator in a way that is open, transparent and engaged."

Tags: Financial advice FMA insurance Karen Chang