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Brief Counsel

FMA consults on good conduct guide

04 August 2016

​Good conduct in financial markets is a key focus of the Financial Markets Authority (FMA), now that the Financial Markets Conduct Act 2013 (FMCA) is nearly implemented.

The FMA is seeking feedback on its new ‘Guide to the FMA’s View of Conduct’, published following discussions with market participants, which highlighted a need for better understanding of how the FMA expected to approach good conduct issues.

The Guide clarifies key concepts for financial service providers the FMA regulates to focus on when considering whether their businesses are engaging in good conduct.  It shows what the FMA will be looking for when it comes to enforce the FMCA’s conduct obligations.   

The Guide should be given careful consideration by directors and senior managers of all licensed providers, as part of determining what constitutes good conduct in the context of their particular business and how they demonstrate on an ongoing basis that they meet their obligations under the FMCA.

Why good conduct matters

The conduct obligations in the FMCA are central to its operation. The FMA believes that the basic principle of putting clients first is a simple standard for which all market participants should be held to.

The Guide highlights that while compliance with regulatory obligations is necessary, it is not sufficient.  Providers are required to demonstrate how they go about meeting their regulatory obligations and what steps they take to deliver good outcomes to their customers. 

This represents a shift from previous regulations, as there is now a required focus on organisational culture, people and processes. The FMA states that good conduct obligations matter because they reflect the behaviour of providers. Customers must be confident that their interests are being properly considered and they are getting the right product.

While there are clear conduct obligations in the FMCA, the FMA has been cautious in providing prescriptive guidelines. It is left up to market participants to consider how they should meet the FMCA’s requirements in their particular circumstances. 

Good conduct profile framework

The FMA has developed a framework to demonstrate how it views the activities of those they regulate and how they interact with them. The Guide is not intended to be a checklist or manual for conduct, but instead presents principles-based guidance for directors and senior managers of FMA licensed entities to follow. 

The FMA emphasises that good conduct encompasses providers acting in the customer’s interest and participants being held accountable for their actions. The concept of good conduct includes quality, behaviours, professionalism, the standard of care and fair dealing.

The framework has outlined five key considerations:

  • Capability - the FMA considers that the purpose of the services and products should be clear, as should performance measures and the professionalism, skills and experience of the provider.  This is so the customer can see whether the provider has the necessary skills and experience to competently provide the service or product, and meet professional standards of care. 
  • Conflict - the provider should identify, manage and disclose any actual and potential conflicts to the customer and explain how the customers interests are affected or aligned with the providers business.  This is so the customer can see whether their and the provider’s interests are aligned and be aware of any arrangements with associated parties. 
  • Culture - the culture aspect requires a clear outline of what behaviour is expected from the provider’s staff (including its leaders), with the requirement also for examples of how these expectations are communicated to customers and how any breaches are identified and acted upon.  This is so the customer can see that the provider will act in the customer’s interest, treat them honestly and fairly, and fulfil its duties and obligations. 
  • Control - leaders within the business should be able to show how they know when good conduct occurs and demonstrate a transparent and effective complaints and dispute resolution processes.  This is so the customer can see the provider has checks and balances in place to support good conduct and address poor conduct. 
  • Communication - the provider should make it clear what customers are paying in fees and expenses. Communication should be proactive, frequent and clear. There should be clear and effective lines of communication internally to ensure customer focused outcomes.  This is so the customer can see the provider will listen to what they want and to make sure the customer can understand the services or products offered. 

Good conduct in practice

In practice, boards and senior leaders need to decide on the appropriate culture and conduct for their particular business, and remain accountable for it.  
The Guide sets out a number of questions that reflect topics asked during monitoring and engagement with the FMA. The questions are organised based around the framework and identify a wide range of conduct requirements and considerations for providers going forward.   

Next steps

Submissions on the Guide close on 31 October 2016.

If you have any questions in relation to the Guide or you wish to make a submission, please contact one of our experts for advice.

Our thanks to Cassandra Rea and Penny Sheerin for writing this Brief Counsel.

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