FMA issues sales and advice monitoring report

Media release
MR No. 2015 – 53
17 November 2015

The Financial Markets Authority (FMA) today publishes its first monitoring report on practices in sales and advice within New Zealand’s financial services sector.

The report covers sales and advice practices within the main financial services providers, including the three types of professional advisers (authorised, registered, and QFE advisers).

It includes practices for category one products, these are more complex products such as managed funds (including KiwiSaver) and futures contracts; and category two products including insurance and simpler ones like term deposits and mortgages.

This monitoring report also includes findings from a completed industry review into KiwiSaver sales systems. The thematic review was based on data provided to the FMA by 10 firms this year.

The report shows the FMA has found inconsistency in the quality and maturity of systems, and the practices in use across the industry. The main issues highlighted in the report are:

• Lack of comprehensive governance systems – which allow firms to establish the right culture in sales and advice practices from the top of an organisation. Insufficient reporting to senior management on sales and advice outcomes, and inconsistent attention to managing conflicts of interest in sales and advice practices

• Inadequate attention to ensuring that consumers have access to appropriate information and advice, relative to their specific needs and the types of products on offer

• Lack of comprehensive compliance systems that can provide firms with reassurance that they are addressing all of their regulatory and conduct risks in sales and advice

The FMA’s director of regulation, Liam Mason said the FMC Act brings a new approach to financial services, where the focus of regulation was on the conduct of providers of financial services and the impact that conduct had on customers and on markets.

He said the sales and advice monitoring work undertaken by the FMA indicated a high degree of willingness among firms to meet their obligations and adjust to the demands of the new legislation. However, as previously commented upon in other areas of the new regime, the FMA believes that the full adjustment to the expectations of the regulator and of consumers would likely take a few more years in terms of sales and advice, when the FMA, the industry and consumers would see more directly the benefits of the new regulations.

“We’ll be stepping-up our efforts to accelerate the change and to ensure providers are systematically putting the interests and outcomes for consumers at the centre of their processes,” Mr Mason said. In the coming months, the FMA would ensure:

• Close attention, in FMA’s monitoring and supervision, to sales and advice practices, especially in areas that pose a higher risk to investors

• Further engagement with boards and senior management, to directly improve the quality of sales, information, and advice systems, so the interests of investors are systematically prioritised in the culture of an organisation, and ensure firms are meeting their conduct obligations

• Further guidance from the FMA, in consultation with firms, so they understand the FMA’s expectations behind the principle that customers’ should be able to access relevant information, support and advice where necessary.

“Firms and advisers are showing considerable goodwill to the spirit of the FMC Act with its focus on conduct and the interests of customers.” However, Mr Mason said, “good intentions are all very well, but firms need to hardwire into their core processes and structures the focus on the customer that we have been talking about.”

“The new regulatory system in New Zealand is designed to give the FMA more means to act, and to improve results. We recognise we are part way through a transition period to the new regime. We’ll continue engaging directly with firms, through supervision and guidance, so they implement the right systems themselves and effectively manage their new obligations.”

Ends

Media contact:
Andrew Park
09 967 1215
021 220 6770
[email protected]