New Zealand: FMA releases final conduct guide

Brief Counsel

A Guide to the FMA's view of Conduct (the Guide) identifies a set of customer-focused expectations which leaders of licensed financial service providers should reflect in their governance and compliance processes and behaviour.

Overview of the Guide

As we outlined in our earlier Brief Counsel, the Guide sets out what the FMA will focus on when determining whether financial service providers are demonstrating good conduct and satisfying their governance and management responsibilities.

The FMA is using its influence to seek a step change in how financial service providers discharge their legal obligations and interact with customers. The FMA acknowledges the Guide goes beyond mere compliance.

Guidance of this type is helpful for the market and an effective way for the FMA to achieve one of its key purposes – to promote fair, efficient and transparent financial markets.

The Guide summarises the FMA's expectations under five key categories.

  • Capability – providers are expected to have the expertise, customer knowledge, internal training programmes and assessment processes so they provide suitable services or products that meet customer needs and satisfy their professional standards of care.
  • Conflicts – business strategies and incentives are expected to be aligned with customers' interests. Any incentives or arrangements with related parties are expected to be transparent.
  • Culture – clear standards of good behaviour are expected to be imposed on staff to ensure that the provider acts in the customer's interests, treats customers honestly and fairly, and fulfils its duties and obligations.
  • Controls – checks should be in place to support good conduct and to identify and address poor conduct, including complaints, dispute resolution and customer feedback gathering processes.
  • Communication – providers are expected to listen to what customers want, ensure customers are able to easily understand their services or products, and confirm their fees are reasonable.

Chapman Tripp was one of 29 organisations – and the only law firm – which provided feedback on the Guide. Our submission can be found here.

Who should read the Guide?

The Guide will assist directors, senior managers and compliance officers within financial service providers to demonstrate their businesses meet the FMA's expectations in relation to conduct.

The Guide reflects a compliance step change

Financial service providers will need to demonstrate a range of additional customer-focused behaviours if they are to meet the FMA's expectations.

The incentives for doing so are better overall customer outcomes, improved regulatory compliance, more favourable licence renewals and reviews, and the prospect of greater understanding if compliance issues arise.

The FMA emphasises that the Guide is not a checklist - indeed its goal is to elevate providers' attention above mere compliance or box-ticking, to establishing and maintaining behaviours that focus on delivering good customer outcomes.

With this in mind, licensed or authorised providers should consider taking steps to ensure that they can demonstrate at least the following:

  • Alignment of incentives with customer interests – The FMA expects providers to be able to demonstrate the alignment of staff incentives and related party compensation with good customer outcomes. For financial advisers and sales teams, this might involve verifying and recording the reasons why incentives and compensation are consistent with good customer outcomes.
  • Reasonableness of fees – The FMA expects providers to disclose how fees and costs are calculated and to explain why they believe the cost and calculation methods are reasonable for all products. This expectation appears to extend to all financial products and services the current rule that KiwiSaver scheme providers must set reasonable fees.
  • Top down leadership of honesty, fairness, integrity and compliance – The FMA expects leaders to promote a culture which encourages good conduct, and in particular a customer-centric focus. A Code of Conduct that sets standards of behaviour for the business, and processes to recognise good conduct and respond to breaches, would assist in meeting this expectation.
  • Suitable training processes – The FMA expects providers to demonstrate that they are providing internal training which reflects the need for good customer outcomes and compliance. To this end, it may be helpful to be able to evidence training assessment processes which evaluate current and future staff training against the objectives of the Guide.
  • Suitable dispute resolution processes – The FMA expects providers to demonstrate that they have a transparent and effective complaint and dispute resolution process that shows lessons learned are integrated into business practices. Providers may benefit if they can provide examples of where changes have arisen from complaints and their dispute resolution processes have delivered good outcomes for customers.
  • Suitable compliance assurance programme – Providers could meet the FMA's control expectations through a compliance assurance programme that challenges and tests the effectiveness of controls, and the adequacy of governance and management information, to ensure the business meets its regulatory obligations. Standards for such a programme are set out in the licensing guide for managed investment schemes.
  • Clear internal and external communication processes – The FMA expects providers to communicate with customers in plain language, pro-actively and often, especially if something goes wrong. Internal communications from directors to front-line staff are also expected to focus on customer outcomes. Providers should ensure that their communications programme and principles are understood throughout the business.
  • Customer feedback is sought – The FMA expects providers to be able to show – potentially via direct customer feedback – how they know good conduct is occurring and customer needs are being met. The FMA mentions customer satisfaction surveys, call-backs, and mystery shopping as possible tools to determine whether customer outcomes are being achieved.
  • Performance is assessed – The FMA expects providers to review product performance to ensure the return is appropriate for the risks involved. It may be desirable for an investment committee to undertake and record an assessment of a product's potential performance against the risks involved when evaluating a product for market and to undertake regular product review sessions.
  • Desirable to conduct due diligence of all customer communications – The FMA expects providers to ensure that disclosure to customers is accurate, clear, concise, effective and timely. Providers should also have a clear plan for when communications go wrong, and ensure that customers understand the range of expected outcomes of a particular product. Providers might demonstrate this by ensuring that they conduct due diligence on all customer communications (including websites, advertisements, telephone and other channels).
  • A statement summarising conduct compliance steps – The FMA expects providers to demonstrate that they are delivering good customer outcomes through the recommendations in the Guide. We recommend that providers record the steps they have taken, and outcomes they have delivered, which align with the FMA's expectations.

Conclusion

While the FMA does not see the Guide as a checklist or manual, it does provide a steer on the questions that directors and senior managers of providers should be asking themselves when assessing if they can demonstrate that their practices align with the FMA's expectations.

The Guide contains a list of specific questions which cover far more than the general topics discussed above and enables leaders to assess their preparedness for an FMCA review.

Providers who ensure that their governance structures, control mechanisms and organisational culture can be shown to align with the Guide, will be well prepared for the FMA's proposed visits and will likely be better treated if breaches occur.

How we can help

Our Financial Services Team has assisted our clients to transition to the FMCA, and in so doing, has built the compliance frameworks, governance plans, product disclosure and due diligence systems that are expected by the FMA in the Guide.

The FMA's expectations in the Guide go beyond mere compliance and process changes, and instead ask providers to focus on changing expected behaviour. We can help you work out how best to demonstrate to the FMA and your customers that your business is listening and responding to the FMA's messages.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Roger Wallis
Penny Sheerin
Bradley Kidd
Mike Woodbury
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions