The FMA should be told as soon as possible if a self-reporting incident takes place, but it won’t score any points if the regulator decides to prosecute.
Speaking before an audience of representative from financial service company’s the FMA’s acting General Counsel Karen Chang said the regulator has made itself clear and the industry should not be surprised by its approach to regulation, supervision and enforcement.
Chang, who took up her role in September, set out three key areas during her speech that should be a priority for every firm that holds a licence with the FMA (or will do in future, under the Conduct of Financial Institutions Bill):
- Self-reporting incidents or issues to the FMA
- Remediation – fixing issues and errors with customers in a timely way
- Addressing inadvertent misconduct issues
Chang says financial services firms have discovered an increasing number of issues since the joint reviews of banks and life insurers by the FMA and the Reserve Bank of New Zealand in 2018/19, and reiterated what the FMA considers to be best practice for informing the regulator when things go wrong.
“The right way involves promptly informing your board, self-reporting to the FMA, and ensuring timely remediation and communication with customers,” she said.
“While entities may be tempted to wait until they have fully unraveled problems before making first contact with the FMA or their customers, we urge you to prioritise early engagement and stopping the harm.
“You can be confident that the choices made by an entity after discovering the problem will be relevant to the FMA’s enforcement response and will often colour how we view the entity’s overall conduct.
…self-reporting cannot provide immunity from litigation…
“At the same time, self-reporting cannot provide immunity from litigation, especially if the issues are significant, systemic or have led to customer harm.”
Chang says the nature of the underlying misconduct itself will always be the driving factor in assessing the appropriate response.
“The more serious the misconduct – to consumers or to the market – the more likely we will take strong enforcement action, irrespective of how it was reported. And that makes sense, for any law enforcement agency.
“A confession does not absolve responsibility. Delayed, incomplete self-reporting is considered an aggravating factor.”
A confession does not absolve responsibility…
She says that given the length of time the Financial Markets Conduct Act has been in force, firms should not be surprised that the FMA will take enforcement action when there are issues that reveal egregious conduct, or system errors that should have been fixed early, or products that remained on market when they were no longer fit for purpose.
“We all want New Zealanders to have trust and confidence in the financial services they receive,” she said.
“That means investing in systems that put customer interests first and showing a willingness to deal with the regulator in a way that is open, transparent and engaged. And this doesn’t need to break down when it gets to the pointy-end of the enforcement stick. While investigations and cases will come and go – this relationship endures.”
Karen Chang spoke at an event organised by MinterEllisonRuddWatts.