The Financial Markets Authority (FMA) has released its annual Conduct Outcomes Report (the Report) for 2017. The Report explains how the FMA responded to cases of misconduct in 2017, identifies emerging themes and sets out where the FMA will focus its energies during 2018.
Focus for 2018
FMA’s focus for 2018 will be:
- strengthening and building on intelligence gathering
- issues on the regulatory perimeter
- non-compliance with licence conditions
- improving knowledge about market conduct, and
- continuing to communicate and engage with those it regulates.
FMA intends to continue to use the full range of enforcement tools available to it to address misconduct faster and more efficiently.
FMA surveyed 899 investors on financial service providers (FSPs) and found that the majority of respondents felt that FSPs treated them fairly, were knowledgeable about their products and services, and the information they provided was easy to understand.
However, the survey also exposed areas of weakness:
- only 53% of those surveyed agreed that FSPs explained fees to them, and
- only 52% agreed that FSPs helped them understand why the product was appropriate for them.
FMA expects to see improvements in these areas in 2018, and plans to run these surveys each year.
Perimeter activities and regulating for rapid technological change
The Report identifies two emerging themes which the FMA is keeping on its radar.
The first is the “perimeter” issues that are outside the FMA’s scope, but still pose potential risks. Examples are the misuse of the Financial Service Providers Register to create the misleading impression that firms are licensed or regulated by FMA and conduct in the wholesale markets.
The second theme is regulating for rapid technological change. 2017 saw a spike in consumer interest in cryptocurrencies and initial coin offerings (ICOs) which FMA responded to by providing advice on the associated risks and advising those planning an ICO to engage with FMA as soon as possible.
Thematic reviews to continue with results shared
Thematic reviews are where FMA assesses an issue or risk across a sample of market participants in a sector or industry. FMA uses them to provide insights into the group, rather than undertaking detailed investigations into individual firms.
FMA plans to share the results from past thematic reviews this year to further educate and inform the market.
FMA applies a conduct lens to issues
FSPs should be aware that the FMA applies what it calls a “conduct lens” to any conduct issues it identifies, with a focus on five key performance areas:
- Communication: FSPs should listen to customers, help customers understand their products and services, and ensure a good quality of communication.
- Capability: FSPs should meet professional standards of care, undertake professional development and training, and ensure they have the skills and experience to provide the right products and services.
- Conflict: FSPs should disclose conflicts, explain related party arrangements and serve business and customer interests.
- Control: FSPs should maintain systems that support good conduct, continuous improvement and effective and transparent management of complaints.
- Culture: FSPs should act in the interests of customers and treat them honestly and fairly. Managers should communicate conduct expectations and address poor conduct by staff.
FMA’s actions during 2017
FMA’s key actions in relation to misconduct in 2017 included:
- enforcing against and investigating market manipulation and insider trading
- using the licensing process to set and improve standards, and declining licences where standards were not met
- monitoring licensed entities, particularly those with special conditions
- monitoring authorised financial advisers, with 72 monitoring visits undertaken
- addressing misuse of the Financial Service Providers Register
- taking action on behalf of investors against a supervisor who had failed to discharge its responsibilities, and
- responding to a large number of investment scams.
If you would like to know more about the FMA’s Report or need advice on conduct matters, please contact any of the people listed.