Cultural shift in financial services underway as once-in-a-generation Financial Markets Conduct Act takes effect

News release
MR no. 2014 – 014
1 May 2014

The Chief Executive of the Financial Markets Authority, Rob Everett, says a long-term cultural shift – for the better – is underway in New Zealand financial services as the new Financial Markets Conduct Act 2013 takes effect.

Mr Everett was speaking in Wellington, New Zealand, today to parliamentary and industry Ombudsmen, from Australia and New Zealand, at their biennial conference.

There are positive signs that public confidence in New Zealand’s financial markets is improving, said Mr Everett. “However, service providers and regulators need to work harder to improve consumers’ understanding of how complaints are heard and resolved by industry ombudsmen or alternative dispute resolution schemes.

“Consumers need to know what they are entitled to and what recourse they have through dispute resolution schemes, if they feel things have gone wrong.”

Culture change in behaviour

Mr Everett said the FMA was anticipating a shift in the way providers conducted themselves.

“The Financial Market Conduct Act brings in a new fair dealing provision – a catch-all provision that applies across all financial services – that prohibits misleading or deceptive conduct, and false or misleading representations.

“I anticipate over the next five years this will promote a major cultural shift in financial services. These fair dealing provisions will transform the conduct of professionals. We’re saying to the industry, ‘The bottom line is, this act requires you to put the concerns of the consumer first. Always.’

“That doesn’t just require truthfulness. We’d expect that as a minimum requirement. The act requires financial services professionals to go much further, and ask themselves questions like:

‘Is this really the right product or service for this client?’

‘Does this client really understand the downside risk and what that might mean to them in a material sense if that risk comes to book?’

‘Should I be advising this client on other actions they can take, such as risk mitigation?’

“In future, in New Zealand, you’ll have to be able to answer a resounding ‘yes’ to those questions – and others - in order to make the cultural shift we anticipate,” said Mr Everett.

Improving providers’ and consumers’ understanding of Alternative Dispute Resolution Schemes (ADRs)

Alternative Dispute Resolution schemes can help resolve customer complaints, particularly where modest sums are involved. Membership of ADRs has been mandatory in New Zealand since 2010, but many financial services providers doubt the value of the schemes.

According to a survey by the Ministry of Business, Innovation and Employment,  60 per cent of financial services providers were unsure of the value that ADR membership brings.

“More than half of those surveyed were unsure whether ADR schemes produced fair outcomes for complainants or for providers – these numbers are too high,” said Mr Everett.

 “We have to build confidence in the ADR schemes among providers so that consumers can enjoy their benefits.”

Co-operation between regulators and ADRs

Mr Everett told the conference that regulators and ADRs – such as Ombudsmen - would work closely together, especially to identify less obvious instances of consumer harm that can be resolved without the need to take enforcement action.


Ends

Contact: 
Andrew Park on 021 220 6770 or andrew.park@fma.govt.nz