Capital Markets report: Getting closer to the clients

FMA boss Rob Everett.

The FMA has taken a more relaxed stance to ensure customers' financial needs are taken care of, writes Graham Skellern.

Over the past year or so banks and insurance companies have been under the cosh for mistreating customers as disclosed in the regulators' conduct and culture reviews and commissions both here and in Australia.

The Covid-19 crisis, ironically, has provided the financial services firms the opportunity to get closer to their customers, understand their personal circumstances and provide support.

"In difficult times like these we want financial services providers to pro-actively engage with their customers," said Rob Everett, chief executive of the Financial Markets Authority (FMA).

"The providers could say 'well (this time), it's not our fault' but we are stressing that they should own the customer relationship. From what I've heard that message has got through. We've seen a change of attitude to customer relationship."

One bank, for instance, called all their customers aged 70 years and over and told them how their insurance policy responded to the Covid disruption, and if they needed help to get in touch.

If you have carefully thought through your investment risk appetite or taken advice, then stick to it.

Rob Everett

"The provider was not sitting around and waiting for customers to get into a financial hole. The provider has the data, can spot early signs of financial difficulty, and can proactively reach out to customers." said Everett.

At this time of the year the FMA normally publishes its workplan for the year ahead but it's on hold until there is greater economic certainty. Instead, the FMA has released its priorities for the next three to six months to promote trust and confidence in the financial markets.

The priorities include:

●Supporting investors and customers by helping them make good decisions, and highlight risks and issues.

●Working with firms to help them respond to the impacts of Covid-19.

●Swiftly responding to market disruptions and significant events.

●Setting out expectations on good conduct, particularly in relation to the treatment of customers in vulnerable circumstances.

●Looking for irregularities in trading, company disclosure, financial reporting and audits.

●Taking quick action on reports of scams that seek to exploit the pandemic.

●Progressing the new financial advice regime which requires all financial advisers to be registered and begins on March 15 next year.

Everett said "our priorities are aimed at monitoring changing regulatory risks and ensuring we respond to them appropriately. This will let us take necessary steps to reduce the likelihood and impact of harm to investors, customers and financial markets."

He said the FMA will use its risk-based monitoring to identify firms at high-risk of mistreating customers and investors through practices such as mis-selling products and poor claims management.

Everett warned: "Where we identify misconduct, particularly those seeking to take advantage of the Covid-19 pandemic, we will quickly address and deter misconduct. This includes enforcing the fair dealing provisions of the Financial Markets Conduct Act 2013 relating to misleading and deceptive conduct."

During the Covid crisis the FMA has relaxed some of the regulatory reporting requirements in favour of giving the licensed financial services more space to deal with the surge in calls from worried customers.

"We can't change the law, but we have discretion to waive or delay the date for reporting. Our primary purpose is to enable the firms to help their customers," Everett said.

"We want to make sure that front-line, call centre staff is trained to deal with customers by looking for (early) signs of financial difficulty. Normally people make a bunch of decisions of what to pay and what not to pay and contact the provider as a last resort."

The FMA will be calling for responses from financial services providers about how they are "selling themselves" to customers. Everett said "we will be looking for examples of materials provided for the front-line staff and the emails sent out to customers.

"We understand that this is a very difficult period, customers are stressed and providers can't operate the same as they did pre-Covid.

"When the wage subsidy comes off and the unemployment rate goes up, there will be an unexpected number of people facing financial difficulty."

The FMA also has some patience about company disclosures in capital raisings.

"We want companies to be upfront with what information they are certain about and what is uncertain because of the future. People will understand that in these uncertain times — if companies have a caveat, that's better than nothing at all."

Everett said that so far there have been few instances of financial scams. "We've seen some adverts about great returns on crypto assets and currency. People should not send money and not know where it's going. When a scam comes to our attention, we will be onto it quickly."

He expected the incidences of scams to increase.

"Covid is causing stress in a low interest environment and some people do panic to get a return on their investment. This is fertile ground for the con artist, and people should not click on an email link they don't recognise or take a cold call to send money for a fantastic IPO in United States."

Everett encouraged investors to understand that volatile markets do happen and they should not overact, as seen in the KiwiSaver market with some switching from growth to conservative funds and in between the sharemarkets have rebounded.

"If you have carefully thought through your investment risk appetite or taken advice, then stick to it," he said.