The FMA changing its lenses?

The FMA is consulting on a draft guide setting out what it means by its new outcomes-focused approach (Consultation). While the draft guide (Draft Guide) is quick to say that the seven “fair outcomes” are not new rules or regulations, it is a strong push to move away from “compliance” and address perceived harm missed by the current regulatory regime. The FMA expects regulated entities to explain how they are achieving these “fair outcomes”.

We consider this shift raises serious questions for how the financial services sector will be regulated in practice and runs a risk of enforcement by hindsight bias. While we agree that considering consumer outcomes is a beneficial lens for decision-making, we query whether it provides the necessary certainty when “non-compliance” can lead to potential liability. This is a crucial consultation for the sector. Robust and thoughtful submissions will be important.

Submissions on the Consultation close on 1 March 2024. These submissions will then be reviewed and used by the FMA to finalise the “fair outcomes” and Draft Guide.

Draft Guide

The Draft Guide is effectively a flow on from the FMA’s previous conduct and culture reviews and 2017 conduct guide.

The FMA states that a “fair outcome” is the end result it’s seeking for consumers and markets, embedding the concept of “doing what is right”. According to the FMA, this requires providers to tailor and target their products and services to identified customer groups as well as ensure customers have the right knowledge and tools to make informed decisions based on their individual preferences.

In terms of regulatory requirements, the FMA states “fair outcomes” are not rules which replace or even supplement existing legal obligations. According to the FMA, these outcomes should assist firms to meet their pre-existing obligations more easily and in a way that achieves the purpose and intent behind the regulations.

The FMA has said seven “fair outcomes” represent the FMA’s focus on a good experience for consumers when participating in New Zealand’s financial sector and the results the FMA wants to see in New Zealand’s broader capital markets.

These seven “fair outcomes” are:

Outcome 1: Consumers have access to appropriate products and services that meet their needs;

Outcome 2: Consumers receive useful information that aids good decisions;

Outcome 3: Consumers receive fair value for money (ie Value for Money);

Outcome 4: Consumers can trust providers to act in (consumers’) interests;

Outcome 5: Consumers receive quality ongoing care;

Outcome 6: Markets are trusted based on their integrity and transparency;

Outcome 7: Markets enable sustainable innovation and growth.

The Draft Guide steps through the concepts that underpin each “fair outcome” as well as providing some illustrative issues and examples relevant to each.

Consultation Paper

The Consultation Paper contains 18 questions which are notably broad in nature and invites views from the industry on:

• the shift to outcomes-focused regulation more generally;
• the substance of the Draft Guide and each “fair outcome”;
• how providers will seek to implement these “fair outcomes”;
• whether an outcomes-focused approach should influence the FMA’s:
  • monitoring and supervisory approach; and
  • regulatory methods for holding entities and individuals accountable.

Next Steps

The Consultation is an important opportunity to have your say on the FMA’s regulatory approach. We will publish further thoughts on the Draft Guide soon, including what the Draft Guide may mean when applied to different financial services providers.

If you would like more information on the Consultation and what this may mean for you, or assistance with making a submission, please get in touch with one of our contacts.

Related links:

FMA opens consultation on fair outcomes for consumers and markets.

Consultation Paper: proposed fair outcomes for consumers and markets.

Draft Guide: Fair outcomes for consumers and markets – A guide to outcomes-focused regulation.