Shifting the dial on good advice
Some financial advice providers are taking an overly conservative approach to meeting their regulatory obligations, the Financial Markets Authority (FMA) says.
Monday, February 10th 2025, 6:00AM 
7 Comments
by Sally Lindsay
Some financial advice providers are taking an overly conservative approach to meeting their regulatory obligations, the Financial Markets Authority (FMA) says.
FMA chief executive Samantha Barrass says it will want to understand the reasons for this, particularly to check that business models are not being skewed by an unnecessarily cautious approach to compliance thereby creating friction and restricting the availability of advice.
Speaking at the Financial Services Council Outlook 25 breakfast, she says in these cases, the FMA’s feedback isn’t focused on “doing more compliance” but working with firms to understand the roadblocks and to rethink how they are approaching their decisions for achieving the overall purpose of the financial advice regime.
“Good practices are not always about meeting regulatory requirements to the letter of the law, but also about shifting the dial on how regulation positively impacts the value of advice and the level of consumer trust and confidence in seeking financial advice.
“This is regulation with a purpose, not regulation for the sake of it.”
She says the FMA’s focus on the things that matter extends beyond just its monitoring and supervisory relationships. “We are also applying this focus to the wider work we do to support innovation and growth.”
In December it launched a pilot regulatory sandbox, opening it up to expressions of interest.
“By testing a product or service in a regulatory sandbox, we should be able to better assess the viability of innovative products and services and gain insights into the innovation’s potential impact on investors and consumers.”
It has received 14 expressions of interest already. Barrass says the regulator has been impressed by the quality and breadth of the applications.
The pilot will be done in two cohorts, and the FMA is in the final stages of confirming the first round of successful applicants who will take part in the sandbox.
In the pilot the FMA will partner with startups and established firms to test innovative products, services or business models to help spur and incubate innovation in a controlled environment.
Barrass says taking a pilot approach gives the FMA the chance to gain greater insights into the benefits and risks of financial innovation and new technologies.
“By testing a product or service in a regulatory sandbox, we should be able to better assess the viability of innovative products and services and gain insights into the innovation’s potential impact on investors and consumers.”
A key focus for the FMA this year will be the CoFI regimes, which comes into force at the end of next month. So far 67 licences have been issued.
During the implementation of CoFI, the FMA will release an insights report on fair conduct programmes. “This will highlight observations we’ve made through engagement with firms during the licence preparation and assessment period, Barrass says.
The introduction of CoFI is particularly timely, she says, when the FMA looks at some of the key priorities of the Government, namely competition in the banking sector. 
“When we think about the systemic issues that underpin low innovation and lack of consumer choice of financial products, some of the changes firms might make under CoFI will help serve to increase competition.
“This includes looking into systemic issues that reflect a lack of competition and can be dealt with as a matter of conduct regulation, such as legacy IT systems which lead to poorer outcomes for consumers.”
Barrass says how firms implement their fair conduct programmes could also inform issues relating to customers switching to competitors, impediments to innovation, and enabling distributors, such as mortgage advisers, to provide greater transparency to support decision-making by their customers.
The FMA also wants to ensure its regulation is consistent with growing the economy and enabling innovation. New Zealanders should have access to the leading edge financial services and products that will enhance their lives, Barrass says.
Monitoring of financial advice providers has continued to evolve, focusing on what compliance is actually achieving.
The introduction of CoFI is particularly timely when we look at some of the key priorities of the Government, namely competition in the banking sector.
When we think about the systemic issues that underpin low innovation and lack of consumer choice of financial products, some of the changes firms might make under CoFI will help serve to increase competition. This includes looking into systemic issues that reflect a lack of competition and can be dealt with as a matter of conduct regulation, such as legacy IT systems which lead to poorer outcomes for consumers.
How firms implement their fair conduct programmes could also inform issues relating to customers switching to competitors, impediments to innovation, and enabling distributors, such as mortgage advisers, to provide greater transparency to support decision-making by their customers.
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Comments from our readers
The very nature of a new environment based on principles and not prescriptive means that prudent operators will be more cautious and conservative with what they do.
We're all here on the playing field, except the only barriers are the hard fences around the outside; we're yet to have the lines painted on the field so that we can then really get going with playing the game.
What has shown through is a significant gap between what the rules say and the understanding of advice with the FMA communications and examples. I'm sure that the teams reviewing advice businesses have learnt a lot, but those people still have that knowledge to themselves.
What the industry has been hearing from the reviews is that not a lot is being found wrong, which doesn't help us unwind conservative positions. In fact, what it has done is reinforce that the conservative approach we're all taking is on the right side of the line, and that's just where we'll stay for the moment.
Until there are cases that clearly define the lines on the field for us to work within, we'll continue to assume that what we are doing against what is presently published is fine and dandy.
But, with only a limited number of reviews being done against the number of FAP's and advisers, we are not seeing the whole picture by a long margin. And that is the bit everyone is waiting on for the shoe to drop.
She is the CEO of the regulator and is quoted as saying "Good practices are not always about meeting regulatory requirements to the letter of the law..."
I thought obeying the law was actually all about meeting the letter of the law.
This isn't Humpty Dumpty in Alice in Wonderland words mean anything I want them to mean.
So if its not necessary to meet the letter of the law, then pray tell which parts of the law I don't have to obey.
I don't like my chances if caught speeding at 60kph in a 50 zone with the excuse "well i've been told I have to obey the letter of the law in every case...it was 3am in the morning, I haven't had a drink or drugs for 3 months it was a clear night and there was no other traffic on the road.
My observation is that advisers are acting conservatively often because their lawyers and compliance consultants have told them to do so - often to an extent higher than the bar is set by the regulation.
There seems to be 2 competing notions - the compliance consultants saying "if the bar is set at 6 inches, jump 12 inches" and now Ms Barrass seemingly saying "don't wory if the bar is set at 6 inches, 3 inches will do.
God help us and thank the Lord I am semi retired!
Yes very good. Smiles and even guffaws at this end.
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