BusinessNZ says FMA should shelve its fair outcomes guidelines
Business organisations and lawyers are panning the Financial Markets Authority's plan to focus its regulatory efforts on fair outcomes for consumers, with BusinessNZ calling for guidelines to be shelved altogether.
Friday, March 15th 2024, 1:02PM 
4 Comments
by Jenny Ruth
The FMA's guidelines will have unintended consequences, “will create confusion” with existing financial markets regulations and, in particular, with the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFi) which is due to come fullying into force from March 31, BusinessNZ says in its submission on the consultation document FMA published in November.
“We note the proposed fair outcomes would represent a new concept, something that is neither legislation or regulation, nor guidance for applying such a regulatory requirement,” the organisation said.
BusinessNZ is concerned the guidelines “would create a completely separate rulebook” and add to the complexity of the legislative landscape.
The guidelines should not proceed “until issues including duplication and compliance costs have been resolved through further consultation.”
The NZ Banking Association, which represents 18 registered banks, slammed the guidelines as being inconsistent with existing legislation, lacking in clarity of purpose, introduce the risk of hindsight bias and in providing examples of outcomes, create unintended prescription.
“The guide risks increasing uncertainty” and confusion, and could undermine the principles-based approach of CoFi, the NZBA said.
It pointed to the new government's stated aim of reducing the volume and duplication of regulations.
Cygnus Law noted that the definition of the word “fair” “is inherently unclear as different people will interpret fairness differently.”
“There is no reason to think that what an FSP [financial services provider] thinks is 'fair' with respect to prices will be shared by consumers,” the law firm said.
“In fact, there's almost always likely to be a divergence of view and markets operate to develop a degree on consensus.”
Cygnus said it doesn't agree that fair outcomes “are an appropriate tool in some areas to guide FMA's approach to its role.
“In our view, the guide is seeking to impose the fair outcomes as de facto legal standards. We don't consider that is permitted by law.”
It suggests rewriting the guide “to make it clear that the fair outcomes are aspirational goals and not mandatory requirements.”
Another law firm, Chapman Tripp, says the draft guidelines would impose “significant additional compliance burdens, confusion and uncertainty … without clear legislative authority.”
Chapman Tripp also warned that some of the rationale within the guide for taking regulatory intervention “could increase the risk of successful judicial review against FMA's decision making.”
Because the regulatory expectations in the guide aren't always supported by requirements in relevant legislation, this could undermine confidence in the FMA as an effective enforcement body, it said.
“Without an underpinning statutory base, some of the draft guide lacks the authority of parliament and risks being unenforceable or amenable to judicial review for being contrary to the constitutional principle of the separation of powers,” Chapman Tripp said.
“Only parliament can determine the law and where parliament devolves power to the executive arms of government under a delegated authority, there are limits on the exercise of power which are enforced by the courts.”
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It seems that successive governments seem to be concerned about the concentration of market power in a bunch of sectors - airlines, banking, supermarkets, general insurance, petrol stations, etc. Whether companies in these sectors actually have market power is a separate discussion, but it seems odd that in this context, policy settings seem to be pulling in opposite directions.
We need to be thoughtful about imposing rising compliance costs onto industry, as this invariably lessens competition. Of course, some regulation is needed but the default setting of importing “best practice” regulation from large overseas markets that can more easily absorb compliance costs must change.
@ KeepThingsSimple – excellent point made about the impact of adopting “best practice” regulation from overseas.
These new proposed guidelines from the FMA regarding fair outcomes for consumers are just the kind of thing that the new Ministry of Regulation has been charged with eliminating. Wellington bureaucrats who continue to try and add unnecessary duplication and complexity to existing regulation may very well find themselves without a job under this new Government.
Whether it’s a financial adviser providing advice to a client seeking loss of income cover or a self-employed sign writer seeking to erect a sign on an office building the amount of red tape required to accomplish both tasks now is stifling, both to the service provider and the consumer themselves. Overregulation has now hogtied many industries within New Zealand.
This new Government seems to understand that the purpose of regulation is to benefit the consumer, not the regulators themselves.
The project appeared to be a solution looking for a problem. With any problem solving wouldn't we start by clearly defining the problem? What is the problem they are trying to solve.
Once this has been clearly identified then a targeted approach could be helpful.
Embarking on some hugely broad journey to appear relevant and then to end up probably slapping rules on top of rules on top of rules... actually sounds like the purpose of a Government Department when I put it that way :). Seriously however, what is the problem that is trying to be solved? Is it using up allocated budget for projects to assist keeping people employed?
@WK, couldn't agree anymore on your 3-7 step or more process. A problem the FMA could help me and my clients solve right now is document fatigue! It almost becomes a credibility destroyer as having to constantly explain the introduction of document after document makes the engagement with insurance solutions feel like the purchase of a small country.
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the main focus should be providing sufficient unbiased and accurate information for the client/prospect to make a decision, and the professional conduct of advisers.
if the adviser couldn't make his/her presentation clear enough for the prospect to understand or not helpful, the prospect can walk away and look for another adviser, simple as that.
some clients are happy with 3-steps, while others may require more than 7/8 steps. so why, only 6-steps? every client and prospect are different and don't have the same expectation. hence, they have to be approached accordingly.