The Financial Markets Authority (FMA) published today an update on Outcomes-Focused Regulation (Update) detailing its evolving approach as the conduct regulator for New Zealand’s financial services, available here. This Update also implicitly responds to some of the industry concerns from the November 2023 consultation on Fair Outcomes for Consumers and Markets. Our newsletter on the consultation is available here.
What does it cover?
The Update clarifies the FMA’s approach to outcomes-focused regulation. While the overarching intent of the approach is not new - prioritising end results for consumers and markets - the FMA has signalled elements of their approach will evolve over the next three to four years, aligned with the intentions set out in its Update of Intent and broader statutory objectives.
Industry participants can expect to see the FMA’s evolving approach in practice through:
- Supervisory engagement: Adjustments to the nature, frequency, and intensity of monitoring visits.
- Industry collaboration: Increased formal and informal engagement with firms and industry groups via guidance, roundtables and webinars.
- Sector Insights: Regulator publication of detailed reports summarising supervisory findings.
Among the most notable developments is the introduction of a Financial Conduct Report, set to launch in mid-2025 and expected to be published at least annually. This report will:
- Provide a holistic view of conduct across the industry.
- Highlight key issues, best practices and provide feedback for improvement.
- Promote transparency around the FMA’s regulatory focus and priorities.
That said, the FMA still intends to assess compliance failures, oversee remediation where required, and will continue to take formal or informal action where and if necessary. In this regard, the FMA have signalled that it intends to step up its focus on the “regulatory perimeter” – i.e. products and services that are not subject to licensing and formal supervision. This includes wholesale products and services, custody, funds administration and crypto-asset services. Providers in this space can expect more scrutiny in future.
Our view
We welcome the FMA’s clarification. The Statement, in part a response to submissions received on the Fair Outcomes consultation, helps to provide clarity and address concerns within the industry when the consultation was first released.
The FMA has signalled that it intends to be a modern conduct regulator operating more in line with international norms. The Statement delivers on that expectation but also indicates that it is willing to work constructively with the industry to smoothly deliver regulatory change – and this includes giving due regard to feedback. The outcomes-focused approach is not the “new set of rules” that the industry was concerned about, but it is very clearly the driving force behind the way the FMA intends to interact with the sector going forward and prioritise its actions. We expect this will be well-received.
Likewise, we expect the new Financial Conduct Report will be eagerly awaited, and we hope it will provide a heightened degree of transparency between the FMA and the industry. As noted by FMA Chief Executive Samantha Barrass at the FSC Outlook in February, the Report is intended to be to the FMA what the Financial Stability Report is for the RBNZ. We can expect it to cover the FMA’s assessment of the state of, and risks to, New Zealand’s financial service markets and the sectors it regulates, and (we hope) a clear link to its strategic priorities and objectives.
Of the most interest is the FMA’s intention to pay closer attention to the “regulatory perimeter.” The regulator has indicated it will take a more proactive stance in testing the limits of its remit (including Court action, like the recent case-stated proceeding on wholesale investor certificates) to deter harmful unregulated activities. It has also indicated that it will consider whether the risks posed to financial markets and consumers are such that these unregulated services and providers warrant regulation as well. This is certainly a space to watch.
This article was co-authored by Edward Kruger, Intern in our Banking and Finance team.
Key contacts
Speak with one of our experts.
