FMA releases Strategic Risk Outlook

Finance Update

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The New Zealand Financial Markets Authority (FMA) has today released its Strategic Risk Outlook (SRO), expanding on the seven strategic priorities it established in 2014. You can find a copy of the SRO on the FMA's website.

The SRO outlines the FMA's view of the root causes of risk to fair, efficient and transparent financial markets, and sets out the potential risks connected to these drivers and to the FMA's related strategic priorities.

The release of the SRO is timed to coincide with the Financial Markets Conduct Act 2013

having come fully into effect and confirmation of the FMA's funding - giving FMA certainty over its mandate and resources.

In announcing the release of the SRO, FMA's Chief Executive, Rob Everett, commented that, while the seven strategic priorities remain consistent, there have been developments in the underlying risks in the market and innovations in the way financial services operate. The changes identified during the SRO review include several developing themes that will remain on the FMA's risk radar:

  • Regulating in an environment of rapid technological innovation and change
  • Retail investor uptake of more complex or risky products (for example, use of foreign exchange and trading platforms)
  • Reviewing the FMA's regulatory perimeter and establishing its response to any activities that occur outside of the perimeter (for example, in other jurisdictions)
  • Helping investor decision-making in changing market conditions.

The seven key priorities, and the regulatory outcomes FMA wants to see, are:

  1. Investor decision-making – Capable, confident and well-informed investors.
  2. Governance and culture – Boards and senior management leading organisational culture and placing customer interests at the centre of their business strategies.
  3. Conflicted conduct – Conflict management procedures designed to put customer interests first.
  4. Capital market growth and integrity – Resilient and dynamic capital markets with broad investor participation and sound infrastructure.
  5. Sales and advice – Sales and advice practices designed to meet the needs of customers.
  6. Frontline regulators – Frontline regulators (Auditors, Supervisors and the NZX) who contribute to well-regulated financial markets.
  7. FMA effectiveness and efficiency –FMA as an efficient and effective intelligence-led regulator.

There is an understandable focus in the SRO on new and emerging technologies and the risks they pose for investors in New Zealand's financial markets. FMA also recognises that, in an increasingly global environment, it needs to 'pay attention to and learn from the risks identified in overseas markets and how other regulators respond to them'.

While we applaud the FMA's recognition of the impact of technological developments on investors in financial markets, we also look forward to an increasing focus on investor education and the customer-centric approach emphasised by FMA in its recent guidance on conduct for financial service providers.

If you want to know more, or you are interested in discussing the SRO and its implications for your business, please contact one of our regulatory experts.