Today the Financial Markets Authority (FMA) directed Kalkine New Zealand Ltd (Kalkine) to cease making outgoing sales calls to people in New Zealand following concerns that it was engaging in misleading marketing conduct.
Who needs to read it? Why?
This update is relevant to those who offer and advertise financial products or services. It highlights the FMA’s enforcement approach to communications which are misleading under Part 2 of the Financial Markets Conduct Act 2013 (FMCA).
What does it cover?
Kalkine describes itself as a “technology-enabled research firm that provides premium research and analysis on equities, commodities and other selected assets”, and holds a transitional financial advice provider licence issued by the FMA. Its sales representatives made numerous outgoing sales calls to persons in New Zealand – offering the purchase of stock analysis reports, which provide buy, sell, or hold recommendations.
Following several complaints from members of the public regarding Kalkine’s conduct, the FMA undertook a monitoring review and analysed recordings of calls made by Kalkine sales representatives to New Zealand persons. The FMA found the content of those sales calls concerning. They contained representations made by Kalkine which:
- were likely to mislead prospective clients generally in relation to Kalkine’s advice service;
- overstated the performance characteristics of its service and of certain financial products referred to during sales calls (i.e., listed stocks);
- were likely to mislead clients in relation to Kalkine’s primary place of operations; and
- were, in some instances, unsubstantiated.
The FMA considered Kalkine had materially breached various fair dealing provisions in Part 2 of the FMCA. The FMA also considered Kalkine’s marketing conduct fell short of the requirements of Code Standard 2 of the Code of Professional Conduct for Financial Advice Services (Code), which requires all persons who provide regulated financial advice to act with integrity.
Pursuant to section 414(2)(c) of the FMCA (which permits the FMA to give written directions to a licensee), the FMA directed Kalkine to cease making outgoing sales calls to persons in New Zealand until the FMA is satisfied that Kalkine’s compliance processes are sufficient for these outgoing sales calls to continue.
Furthermore, within 20 working days of the date of the Direction Order, Kalkine is required to provide the FMA with a report demonstrating how it will provide balanced information on risk and return to potential clients and will ensure all future communications do not include representations that are likely to mislead or deceive consumers, or that are unsubstantiated.
Finally, once Kalkine is permitted to resume outgoing sales calls to New Zealand persons, it must:
- make and retain recordings of all outgoing sales calls in a form that enables convenient inspection by the FMA, for a period of four months from recommencing outgoing sales calls;
- keep a written list of each outgoing sales call made during the four month period, which includes the date and time (in New Zealand) the call is made, the name of the Kalkine representative making the call, and the unique identifier of the person receiving the call;
- provide that list to the FMA within 20 working days of the end of the four month period, or earlier if requested by the FMA.
As previously flagged, we expected to see continued scrutiny in the application of the fair dealing practices in the financial services industry by the FMA and competitors. Here, the FMA specifically flagged that “[i]t is unacceptable for a financial advice provider to make misleading statements when marketing its service. Of particular concern, Kalkine’s representations could entice people who may not be aware of the risks of investing into purchasing an advice subscription, and potentially financial products that are not appropriate for them. This can lead to significant financial loss, cause distress, and undermines confidence in New Zealand’s financial advice sector.”
Market participants will be well advised to have internal procedures and policies in place to make sure that all communications in relation to financial products and services are thoroughly vetted for compliance with Part 2 of the FMCA, and the Code before going public.
If you have any questions in relation to the FMA’s Direction Order or would like any advice about what it means for your business, please contact one of our experts.
This article was co-authored by Scott Yang, a solicitor in our Financial Services team.
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