Where the FMA is headed
Over the next year the Financial Markets Authority has four strategic priorities aimed at embedding the new CoFI, financial advice, financial market infrastructure and CRD regimes.
Wednesday, August 30th 2023, 6:35AM 
4 Comments
by Andrea Malcolm
Clare Bolingford, FMA executive director of regulatory delivery who is responsible for licensing and monitoring outlined the regulator’s near term strategy at the Financial Services Council Conference recenty.
With the Financial Markets Conduct Act coming up to its 10th year, the last decade has seen real signs of growing confidence and maturity in the investment management sector, she said.
There has been a 500% growth in KiwiSaver funds, surging interest in retail investment, and investor confidence has reached 75% according to the watchdog’s latest investment sentiment survey. Having CoFI and the new financial markets infrastructure in place, brings New Zealand more in line with international jurisdictions, said Bolingford.
With CoFI licensing now open she invited firms to begin considering applications now and get them in as early as possible.
Next on the agenda
The first key priority is to develop a more outcomes-focused approach to supervision and monitoring. Later this year the FMA will share a proposed set of consumer and market outcomes for consultation and feedback.
Bolingford said a review of the 2017 conduct guide found it is still fit for purpose and the principals of culture, controls, capability, conflicts, and communication should still be a consistent compass for financial services providers.
The second strategic priority is to better understand market drivers, and provider and consumer behaviour. Bolingford said the FMA needs evidence, insights and data from firms, and other regulators.
“We will then have an evidence base to decide where to focus our discretionary effort; a feedback loop to evaluate the impact of those actions; and core intelligence data to improve our practice.”
Responding to threats and harms on the FMA’s perimeter - the borderline of its formal powers - is the third strategic priority.
“Most obviously this perimeter boundary is where we see criminal activity that causes harm to the public and erodes confidence in the system – this is why we are so alert to scams and frauds.”
Bolingford said ensuring it is rigorously policed, supports confidence across the board and recognises the efforts firms have invested in complying with their obligations. “No-one wants to see scammers undermining public confidence in a system designed to protect them.”
Bolingford said harm that originates overseas stretches the FMA to the limits of its domestic powers and jurisdiction. “Our recent stop order against Validus shows, I hope, that we will do all we can to meet this challenge. We were not surprised that Validus appealed against our decision. We were prepared for this and have welcomed the court’s judgement on the use of our powers. We hope our action sends a signal here and abroad.”
Bolingford says enforcement alone will not be enough and the industry can expect to hear more from the FMA in the months ahead. She asked for the sector to share its alerts and warnings, and promote FMA resources to help raise awareness among the public.
Back inside the perimeter, deterring misleading value propositions – the FMA’s fourth strategic priority – will see it continue to assess inappropriate advertising, value for money, poor disclosure, and increasingly under CoFI, the design and distribution of everyday financial products.
Meanwhile National’s Commerce and Consumer Affairs spokesman Andrew Bayly has said he will scrap CoFI if his party is voted into Government in the October election.
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Comments from our readers
It’s worth considering the reasons that advocates of the unilateral rights of insurers to amend policy wording, might raise in defence of that right. I think these reasons can be questioned.
The first reason goes something like this:
“Guaranteed wording means the insurer can’t add new benefits for existing clients”.
It is my understanding that insurance contracts are not set in stone, never able to be changed. They can be changed if the parties to the contract agree. Insurers that do not have unilateral right to make amendments (guaranteed wording), can still make changes which are wholly beneficial to the policy owner, they just can’t enforce them against existing clients who don’t want them. Any client who is not happy with wholly beneficial enhancements to their policy is free to ignore the improvements and not utilise them – I’ve never met a client unhappy about their benefits being improved!
The second reason goes something like this (for medical insurance):
“If insurers can’t remove benefits for procedures that become expensive the only option is to put up price and the product becomes unaffordable”.
As I see it (and I think JP mentioned this too), if a particular medical treatment or procedure rises dramatically in cost and its claims incidence is common enough to put significant upward pressure on premiums, then isn’t this precisely the thing clients need their insurance for? The certainty of knowing the benefit cannot be pulled out from under them is very important for existing clients, particularly because poor health history may make changing providers impossible.
As far as premium affordability goes, rising unaffordability of premium is not the inevitable outcome of guaranteed wording. If a particular procedure or treatment causes significant premium pressure for providers with guarantees, the insurer can always create an optional benefit or product and give clients the choice to either keep their benefits and pay a bit more, or to accept the removal of the benefit to keep premiums lower. Allowing clients the right to keep their existing cover, and pay a little more for it, is fundamental to the concept of guaranteed renewable, ‘long-term’, life and medical insurance!
This ‘option’ approach might require many policy versions if ‘the need to remove benefits’ becomes frequent. This might be inconvenient for the insurer but to my mind this doesn’t justify denying policyholders the certainty that the policy they buy, and pay a premium for, will be there for them when they need it at claim time.
All of these things are open to insurers to do better with, and the idea of options is an appropriate way to handle it.
AIA's old Slogans system has had significant challenges in this regard over the years, and they have still bent it into shape to provide just that, options for clients when cover needs protecting.
ING/OnePath did this with Major Medical, creating the Deluxe version to accommodate loss of guarantees and non-Pharmac on the standard product
Partners Life has done similar with the recent specific injuries and critical conditions options on disability products.
Fidelity Life, for a long time, has had similar disability options as the approach.
Asteron Life has done the same with continuous trauma and disability extras.
nib does it with the Ultimate Health and Ultimate Health Max policies.
And Accuro does as well with both the SmartCare/SmartCare+ and StaffCare/StaffCare+ policies.
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“We will then have an evidence base to decide where to focus our discretionary effort..."
and
"deterring misleading value propositions – the FMA’s fourth strategic priority – will see it continue to assess inappropriate advertising, value for money, poor disclosure, and increasingly under CoFI, the design and distribution of everyday financial products."
Good.
So back to the headline... Where is the FMA headed....
Straight to the offices of Southern Cross?