Today, the Financial Markets Authority (FMA) released an open consultation on its approach to outcomes focused regulation with a specific target on fair outcomes for consumers and markets by financial service providers.
Today’s release does not replace or introduce new rules or regulations, but follows on from the FMA’s conduct guidance from 2017 which can be found here.
Who should read this? Why?
Providers of financial products and services should ensure they read the consultation document as they are expected to deliver these outcomes and to demonstrate good conduct.
What does it cover?
The FMA is consulting on the following seven “fair outcomes” for consumers and markets:
- Consumers have access to appropriate products and services that meet their need: As consumers have different needs due to different personal circumstances, goals, risk tolerance and values, they should have access to financial products that meet their wide range of needs, however they should only have access to financial products and services which are suitable to them.
- Consumers receive useful information that aids good decisions: Consumers receive information from a wide range of channels which influence their decision making and this needs to be easily understood, accessible and reliable.
- Consumers receive fair value for money: The price that consumers pay for a product or service needs to be reasonable in relation to the overall benefits they can expect to receive.
- Consumers can trust providers to act in their interests: Providers should ensure that their actions safeguard consumer assets and data and be operationally resilient.
- Consumers receive quality ongoing care: Even after consumers have acquired financial products or services, they should continuously be treated with fairness, and any alterations consumers wish to make on a product should not be met with unreasonable barriers.
- Markets are trusted based on their integrity and transparency: There should be widespread availability and disclosure of corporate and investor information to support a more efficient market. Providers will need to adhere to high standards of market conduct, to ensure that markets work to prevent any misconduct and crime.
- Markets enable sustainable innovation and growth: This outcome focuses on the goal of the markets to ensure that they are well equipped to deal with the capital requirements in the short and long term of new market developments which are often supported by technology adoption.
Most will agree that a focus on avoiding consumer harm, rather than ticking boxes for compliance, is a good outcome for industry so long as it is accompanied by clarity as to the FMA’s expectations and a balanced approach to enforcement.
However, we must acknowledge that the letter of the law, particularly as set out in the Financial Markets Conduct Act 2013 and Regulations, is important. That regime is carefully designed to strike a balance, as set out in the main and additional purposes of that regime. The main purposes are to:
- promote the confident and informed participation of businesses, investors, and consumers in the financial markets; and
- promote and facilitate the development of fair, efficient, and transparent financial markets.
The additional purposes are to:
- provide for timely, accurate, and understandable information to be provided to persons to assist those persons to make decisions relating to financial products or the provision of financial services;
- ensure that appropriate governance arrangements apply to financial products and certain financial services that allow for effective monitoring and reduce governance risks;
- to avoid unnecessary compliance costs;
- to promote innovation and flexibility in the financial markets.
It is hard to argue that the seven outcomes proposed by the FMA are not desirable and appropriate. But care will need to be taken that they do not have the unintended consequences, for example, of stifling innovation and flexibility, or imposing unnecessary compliance costs, contrary to those purposes. The key for providers of financial services will be how these are used by the FMA in their interactions with industry, whether in the context of guidance, monitoring or enforcement.
The consultation is open from 15 November 2023 to 1 March 2024. It will be important that financial services providers provide their input. If you have any questions or need help with the consultation, please contact one of our experts.
This article was co-authored by William Ma, a Solicitor in our Banking and Financial Services team.
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