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FMA tells finance firms to up their game

FMA tells finance firms to up their game

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The Financial Markets Authority is running out of patience with some firms, telling them they’ve had long enough to sort out governance and compliance issues.

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The regulator released a report on its supervision of the sector between January 2019 and June this year.

It found a large number of entities were working hard to meet expectations, but there were still a number lagging behind.

FMA chief executive Rob Everett said firms could expect a crackdown if effort was not made soon.

“We have signalled over the last couple of years increasing impatience where things aren’t being done to the standards that we require.

“With AML [anti-money laundering] we’ve begun taking some fairly severe action with players who aren’t getting it quite right. In the financial advice and the QFE [qualified financial entities] environment… again that regime’s been in place for some time so our patience levels are thinner.”

Everett said a review into firms’ culture and conduct in 2018 and 2019 had resulted in improvement but there was plenty still to be done.

“We saw much good progress over the last year but were unimpressed by attitudes from one or two firms that suggested to us that they saw good conduct as something that only needs to be demonstrated when we visit. This is not a box-ticking exercise, it needs to be woven into the culture of providers.

He said more was expected from boards, executives and managers.

“Good conduct comes from the top. We expect boards and senior leadership to champion customers’ interests, and to demand the systems and processes required to deliver strong governance of these issues.”

He also said the FMA had concerns over so-called independent board members.

“If some of the members of the board are performing the role of an independent director, i.e. from outside of the business and they’ve been on that board for 10 or 15 years, that would raise questions about whether they are truly independent of the business that they’re supposed to be overseeing.

“Someone who’s been three 10 or 15 years is going to struggle to have the appropriate amount of distance.”

During the year the FMA assessed and responded to 180 reports about alleged misconduct by the entities it supervised. This resulted in 11 cases resulting in formal warnings or the cancellation of the market participants’ authorisation.

Everett said the derivatives sector, authorised financial advisers and qualifying financial entities all were identified as having weaknesses.

“A questionnaire completed by derivatives issuers indicated significant weaknesses in the way many issuers assessed customers’ knowledge, experience and understanding of derivatives, which are complex financial products. In some cases, issuers had insufficient processes or policies to support their compliance with client money handling obligations.

“Weaknesses were [also] found in some AFAs’ and QFEs’ financial advice disclosure practices.”

He said the FMA would be focused on looking out for scams and ‘get-rich-quick’ schemes given the economic environment. He said scams such as Ponzi schemes would be likely to become more common, as people sought higher returns for their money than what they could get through legitimate investments.

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