FMA Outlines Key Risks for Sales, Advice and Distribution Sector


The Financial Markets Authority has published its medium-term view of the most significant risks to deliver its mission of fair, efficient and transparent financial markets, in its Strategic Risk Outlook.

FMA Chief Executive, Rob Everett, said: “We have introduced a sector-based approach to provide a clear indication to stakeholders of the priority risks we want to address and the activities we will undertake to achieve our goals in the specific sectors we regulate.

FMA Chief Executive, Rob Everett …the new regime for financial advisers is a significant piece of work in the coming year

“Our new approach reflects the maturity of the Financial Markets Conduct Act regime and our broadening focus on the treatment of investors and customers,” he added.

The regulator listed the following sector risks for sales, advice and distribution:

  • Governance and culture – weak governance and poor culture increasing the likelihood of misselling and harm to customers.
  • Sales and advice processes and practices – sales and advice processes and practices are not aligned to the needs of customers.
  • Incentives and conflicted conduct – inappropriate incentive structures and/or practices, poor disclosure of incentives to customers, and ineffective management of associated conflicts.
  • AML/CFT – entities fail to meet AML/CFT obligations, undermining confidence in New Zealand markets.
  • Perimeter – risks associated with unlicensed entities undertaking regulated activity; entities registering on the FSPR without intending to offer services here; or entities offering services into foreign jurisdictions illegally.
  • Investor and customer engagement and capability – low investor engagement and understanding may result in the uptake of unsuitable products or inappropriate investment decisions.
  • Scams and fraud – investors are subject to frauds and scams.

The FMA also published its Annual Corporate Plan (ACP), which outlines its work plan for the next financial year and sets objectives for raising standards of behaviour across financial services.

Everett noted the implementation of the new regime for financial advisers as a significant piece of work in the year ahead.

“We will also work closely with the Government and industry to prepare for and implement any changes to the conduct regulation regime for banks and insurers,” he said.

“Our ongoing work with the Reserve Bank of New Zealand on the conduct and culture reviews of the banking and life insurance sectors reflects our overall objective to improve standards of behaviour and ensure all providers are serving the needs of their customers.”

Everett added that the FMA expects all market participants to review the risks it has identified in the sectors that impact them, to assess the relevance of these risks and what they are doing to mitigate them.

“Market participants should not be waiting for legislative changes, or the regulator to come knocking, to do the right thing.”

The FMA’s Outlook also included sector risks for:

  • Capital Markets
  • Investment Management
  • Banking and Insurance

Click here to read the Sector Risk Outlook in full.

Click here to read the Annual Corporate Plan.