New Zealand’s FMA updates strategic risk outlook and sets course for new era in conduct regulation

fma warning

The Financial Markets Authority just published its updated Strategic Risk Outlook (SRO). This is a foundation FMA document and sets out how the regulator identifies and prioritises the key risks to its overall objective of fair, efficient and transparent markets.

In 2014, the FMA established seven strategic priorities to address the main risks and potential harms to financial markets. Those priorities and the drivers of risk have been reviewed to ensure the FMA sets a clear direction at the beginning of a new era for conduct regulation in New Zealand.

Rob Everett

Rob Everett, FMA Chief Executive, said:

Since the Financial Markets Conduct Act came into full effect in December 2016, and with confirmation of our funding, we now have certainty over our mandate and resources, which means we can take a longer term view of our strategic planning.

While the seven priorities remain consistent there have been developments in the underlying risks in the market and innovations in the way financial services operate. The review of the SRO reflects on developing themes and draws on the experience of other international regulators. So while the focus of our efforts must be local, we are increasingly conscious of the global perspective in our assessment of risks.

The FMA’s analysis over the last 12-18 months confirms these seven priorities remain the best way to respond to the risks identified:

  • Governance and culture
  • Conflicted conduct
  • Capital market growth and integrity
  • Investor decision-making
  • Sales and advice
  • Effective frontline regulators
  • FMA effectiveness and efficiency.

The drivers of risk cover a broad range of factors including investor understanding and behaviour, environmental issues, such as NZ being a small, concentrated market and governance issues such as culture, conduct and conflicts of interest.

Mr Everett added:

Our approach, with the SRO, enables us to continue to address the causes of harm and therefore helps to prevent poor outcomes for consumers and New Zealand markets. This is a sign of how we can influence and affect change in providers. By giving the industry a clear view of what we want to achieve and our expectations of providers, we hope those we regulate will respond positively as they continue to adapt to the new approach to conduct regulation.

The changes identified during the SRO review include several developing themes that will remain on the FMA risk radar:

  • Regulating in an environment of rapid technological innovation and change
  • Retail investor uptake of more complex or risky products
  • Reviewing our regulatory perimeter and establishing our response to any activities that occur outside of this; and
  • Helping investor decision-making in changing market conditions.

Other developing risks identified in the SRO include cyber resilience, demographic change, wholesale market conduct and market infrastructure. This reflects an increasing reliance on technology as well as ageing populations in the developed world, who are shouldering more of the risks and responsibilities of funding their retirement.

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