How the FMA's focus on good conduct will affect your business

This article originally appeared on STUFF on 7 August 2018

Financial services providers in New Zealand need to be prepared to deal with changes in the way their conduct is observed, to ensure they are complying with industry regulations and serving the interests of their customers.

Misconduct in the financial services sector in Australia has been in the headlines, but the New Zealand Financial Markets Authority (FMA), is also taking a closer look at businesses operating within the financial sector, to ensure they are complying with regulations and taking a principled approach to standards of conduct.

"From a legal perspective, this is not a change to the regulations, it's a change in how FMA monitors the way businesses comply with the regulations," says Nick Summerfield, financial services partner with law firm Anthony Harper.

"There's no change to the underlying law. That happened five years ago, when minimum standards were introduced. This is about the FMA focusing on good conduct by monitoring and supervising businesses to make sure they're acting in accordance with the law and doing the right thing by their customers."

Summerfield says businesses in the financial services sector need not be unduly worried, as the FMA's motivation is to ensure fair and transparent markets, which will benefit businesses, their customers and investors as well as the New Zealand economy.

"Businesses are always nervous when something like this comes along because every business in the financial services sector is worried about falling foul of the FMA, just as businesses in other sectors are worried about upsetting their regulator."

Summerfield says what the FMA will be looking for from financial service providers, is a philosophy of putting customers at the core of their business, rather than simply ticking boxes to make sure they're complying with the law. This might require a cultural change which comes from the top of the business.

"It can be difficult when you can't point to a specific rule which says you must do X or Y. Good conduct can seem like a rather fluffy concept of just 'doing the right thing,' which isn't going to be the same for every business. However, if you strip down the principles of good conduct, businesses probably won't have much to worry about."

"If there's any uncertainty, businesses may need to seek legal help to understand how to apply principles of good conduct and to get some strategies. It can be a good idea to get an independent, objective, arms-length view, which they might not be able to do themselves because they're embedded in it."

Summerfield offers a cautious reminder: Good conduct doesn't necessarily mean people aren't going to lose money.

"In investment markets, returns can always go down. Investments are inherently risky and a focus on conduct will never prevent that. If you're preventing risk, no one could make any money at all. The possibility of losing money always exists. The purpose of regulation is to put processes and controls in place, to make sure financial service providers meet their responsibilities. Even then, things can always go wrong."

If you'd like to discuss the potential impacts of the conduct focus, get in touch with Nick Summerfield at Anthony Harper.

 

 

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Nick Summerfield

Partner

E: nick.summerfield@ah.co.nz

P: +61 9 984 4234

M: +64 21 242 7686

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