FMA publishes 2019 Annual Report

Today, the Financial Markets Authority (FMA) published its Annual Report for the year to June 2019.

It covers the FMA’s highlights from the past year, activities in key sectors of the industry, and information about the FMA and its performance. Unsurprisingly, the FMA’s work on the Conduct and Culture reviews was a major focus for the past year.

Links to the Annual Report and the FMA’s media release are available.

Who needs to read the Report and why?

The Annual Report is relevant to all financial market participants as it provides insight into the key milestones and strategic priorities of a key regulator of the financial services market.

What does it cover?

Some of the FMA’s key highlights over the past year include:

  • Conduct and Culture reviews
    • The FMA and Reserve Bank of New Zealand completed a joint review of conduct and culture within retail banks and life insurers. This was the largest thematic review the FMA has ever completed, and it dominated the FMA’s agenda for the year.
    • While the reviews did not identify evidence of widespread misconduct or breaches of the law, they did find weaknesses in governance, conduct risk management and remediation and risks associated with sales incentives.
    • As a result of the reviews, a number of high-level recommendations were made. The FMA notes that these are not specific to banks and insurance companies; the recommendations are equally applicable to all financial market participants to help promote fair treatment of customers. The focus is on: greater board and senior management ownership and accountability; prioritising issue identification and remediation; prioritising investment in systems and frameworks; focusing on longer-term customer outcomes; strengthening staff reporting channels; and removing incentives linked to sales measures (or managing associated risks).
    • The FMA has also this year refined what it means by ‘good customer outcomes', that will form the basis for their expectations going forward:
At its core, delivering good customer outcomes means serving the needs of customers by:
  • treating customers fairly in all interactions
  • recognising and prioritising the interests of customers and effectively managing the conflicts of interest that arise
  • giving customers clear, concise and effective information
  • designing and distributing products that are suitable, work as expected and as represented, and are targeted at appropriate customer groups
  • ensuring adequate after-sales care, including complaints and claims handling, and not imposing unnecessary barriers to switching or exiting a product or service
  • effectively monitoring their own conduct and, where relevant, the conduct of suppliers and distributors, to ensure they can identify, rectify and learn from mistakes. 

(FMA Annual Report, p6)

  • Credible deterrence of misconduct
    • The FMA reports it's had a busy year in terms of enforcement action. This involved addressing misconduct in a number of ways, including civil and criminal court proceedings, an enforceable undertaking (settling an insider-trading case) and public warnings. The FMA counted as a major success its proceedings against ANZ to allow it to share information with investors about ANZ’s role as banker to Ross Asset Management during the period it was operated as a Ponzi scheme.
    • The FMA will continue to take a risk-based and proportionate approach to enforcement, using more robust statutory tools where education, guidance and engagement are not effectively lifting standards, or where an issue warrants a more serious response.
    • The FMA notes that those who have not improved behaviour in areas they have previously signaled – including continuous disclosure, financial advice, anti-money laundering processes and audit – can expect significant consequences.
    • The FMA far exceeded its litigation budget for the year, and sought further funding. On 29 October 2019, the Government announced an increase in the FMA’s litigation fund of $4 million for 2019/20, giving the FMA $6 million over that period for its legal proceedings.

The Annual Report also highlights the FMA’s work to improve audit quality, build investor capability, and prepare the financial advice industry for the new regime in 2020 through guidance and lifted engagement.

The passing of the Financial Services Legislation Amendment Act 2019 gave the FMA the remit to license and monitor obligations under the new financial advice regime.

The FMA has acknowledged that the focus on, and resources devoted to, the Conduct and Culture reviews meant that over the last financial year five areas of activity (out of 40) fell behind, such as planned deeper analysis of misconduct and intelligence reports. However, with the Conduct and Culture reviews of banks and life insurers now completed (though progress will continue to be monitored), the FMA says it got “back to full strength” in most functions by the end of the financial year.

What next?

If you have any questions on the Annual Report, or the FMA’s regulation of the financial services market, please contact one of our experts.

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