FMA targets bad KiwiSaver advice, reckless selling of financial products

Financial Markets Authority chief executive Rob Everett. Photo / Richard Robinson.

The boss of the country's market watchdog says poor KiwiSaver advice and incentives that encourage reckless or negligent selling of financial products will be key focus areas for the regulator as new legislation comes into force later this year.

Addressing the Institute of Financial Professionals New Zealand (Infinz) conference in Auckland this morning, Financial Markets Authority chief executive Rob Everett said his organisation would be setting high expectations around conduct from firms and professionals.

"Here in New Zealand we are fortunate that the naked hostility towards the finance sector -- so visible in some other jurisdictions -- does not exist," he said. "We have to work incredibly hard to keep it that way."

Read Rob's full speech here.

Everett said the regulator saw risks around the variable quality of advice being provided to consumers and shortcomings in investors' understanding of financial products.

"Areas you should anticipate us focusing on -- under this priority -- are practices that encourage churn or switching, including in KiwiSaver and insurance," he said.

Everett said the FMA was concerned about conflicted remuneration arrangements that encouraged miss-selling of financial products, such as changing KiwiSaver users into new schemes for the purpose of generating commissions.

The FMA's latest monitoring report on qualifying financial entities (QFEs), released last month, detailed questionable methods banks were allegedly using to woo customers into their KiwiSaver schemes, including staff informing customers that their credit applications would be more favourably considered if they transferred to the lender's savings scheme.

Everett told today's conference that the FMA was also concerned about poor quality disclosure around fees and risks, while the regulator would also be putting company governance, such as the skills and competencies of directors, under the microscope.

Meanwhile, he said the regulator's mandate would expand when the new Financial Markets Conduct Act -- a major overhaul of New Zealand capital markets law -- fully took effect from December 1.

The new act has introduced a licensing regime for market services providers such as fund managers and derivatives issuers. It has also made possible new financial services like equity crowdfunding and peer-to-peer lending platforms, which are also licensed by the FMA.

Everett said the number of businesses licensed by the regulator would increase by up to 500 in the coming months.

"Licensing allows us to establish minimum standards for firms and professionals who want to deliver financial services," he said. "The act also places the good conduct of professionals and firms at the heart of the FMA's remit. Conduct regulation is new to New Zealand and will deliver a step change in the way financial services are provided in the years ahead."

Given the expanded mandate and the regulator's finite resources, he said the FMA had been asking itself "tough questions" about where its attention needed to be focused.

"Indeed, we're close to publishing a summary of where we see the risks to our objectives and our medium-term priority areas," Everett said. "In coming to those decisions, we have been assessing the areas where we think the actual or potential harm -- for investors, professionals, firms and the economy -- is greatest."

Read the FMA's media release here: