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When financial service providers act in their customers’ interests, it builds confidence in individual providers and the market as a whole, the Financial Markets Authority (FMA) says.
Good conduct leads to healthier financial markets, as well as increased investor participation in them, the FMA noted in its’ 2017 Conduct Outcomes Report which was released yesterday.
“Customer knowledge of financial markets and products varies widely. Providers should be particularly sensitive to this and show how they have taken steps to minimise the risk of misunderstandings and poor customer outcomes,” the FMA stated in its ‘a guide to the FMA’s view on conduct’.
The regulator highlighted its main focus would be ensuring that providers:
In 2017, the FMA conducted 72 authorised monitoring visits of Authorised Financial Advisers (AFAs) – the largest group it supervises. Its monitoring action sought to understand how AFAs provide advice and how they comply with legislation and the AFA code of conduct. The FMA also reviewed disclosure documents and professional development logs.
The proposed changes to the financial advice regime, beginning this year, will transform the size and scale of this work for the FMA.
“We were most concerned about AFAs’ disclosure statements that did not comply with the regulations, and an absence of signed client acknowledgements on client files,” it explained. “It is critical that AFAs can demonstrate they have disclosed all appropriate matters to their clients and can show why they provided the advice they did.
“Without records of this information, we cannot properly assess their conduct when dealing with clients.
“We also took the opportunity to understand from AFAs the pressures in their businesses, and their thoughts about the Financial Services Legislation Bill. This provided a great source of intelligence for future monitoring activities and valuable feedback for us about how we should interact with such a vital part of our financial services sector.”
The FMA took a number of cases to court in 2017, one of which was against Anthony Norman Wilson who pleaded guilty to four charges under the Crimes Act (1961) for forging clients’ initials and amending insurance applications while working as a registered financial adviser.
The FMA noted that, in one case, Wilson removed a page that disclosed pre-existing conditions, and replaced it with a blank page, which he initialled. When the client made a claim, the insurer declined it on the basis of non-disclosure of the pre-existing conditions.
The FMA said it took action against Wilson because the relationship between clients and advisers is based on trust. Any erosion of that trust has an impact on the overall integrity of the sector.
“This case is important as it highlights there are criminal consequences when financial advisers abuse the trust of their clients,” it explained. “It also highlights the high personal cost to individuals affected by this type of behaviour.”
Judge Black said this of the case the FMA took against Wilson: “The whole industry operates on a model of trust between brokers and insurers, and advisers and insured persons; the whole system relies on the integrity of its participants.”
