A guide to the FMA's view of conduct

Finance Update

With the transition to the Financial Markets Conduct Act 2013 (FMCA) now complete, the Financial Markets Authority (FMA) has shifted its focus to monitoring and supervising the conduct of financial service providers. As a first step, FMA has released the final version of its principles-based guidance note (Guide) on how it will interpret and exercise its powers under the FMCA and other financial markets legislation, such as the Financial Advisers Act 2008, with respect to the conduct of financial service providers.

The Guide is relevant to directors and senior managers of financial service providers, as well as to auditors, trustees, supervisors and other regulators such as NZX. Broadly, the Guide sets out FMA’s views on: 
  • the importance of having a customer focused organisation; 
  • FMA’s focuses when regulating conduct; 
  • the principles underlying FMA’s approach; and 
  • good conduct in practice, which includes questions that FMA may cover when monitoring and engaging with financial service providers (see the Good Conduct in Practice section of the Guide). 
FMA considers ‘good conduct’ to mean ‘focusing on customers’.  The Guide has identified five fundamental qualities that a financial service provider should embody for it to have the right profile for demonstrating good conduct (the ‘Five Cs’):
  1. Capability: The provider has the skills and experience to competently provide a suitable service or product, and can meet professional standards of care. 
  2. Conflict: Both the provider’s customers’ interests as well as the provider's business interests are served, with any related party arrangements made transparent. 
  3. Culture: The provider acts in the customer’s interest, treats them honestly, fairly and fulfils its duties and obligations. 
  4. Control: The provider has checks and balances in place to support good conduct and to identify and address poor conduct, including complaints and disputes resolution. 
  5. Communication: The provider listens to what its customers want, and its customers can easily understand its services or products. 
Importantly, and in response to submissions on the consultation paper, FMA has clarified that while the Guide does not create, replace, or supplement existing legal obligations, it signals how FMA will use conduct as a ‘lens’ for looking at how financial service providers behave when meeting their existing obligations to their customers, and for shaping how FMA will interact with them. Using the following links, you can read FMA’s summary of submissions on its July 2016 consultation paper.

We are happy to talk to you about ensuring that you have in place everything your business needs to meet the ‘Five Cs'. Please feel free to contact us at any time.

You may also be interested in attending one of our sessions we are running this month in conjunction with FMA on its plans for monitoring and supervision.  For further information, please contact us.