FMA says car loans, mortgage fraud, product design and transaction accounts are areas of focus over the coming 12 months

Car loans, mortgage fraud, financial product design and transaction accounts are among the areas of focus for the Financial Markets Authority (FMA) over coming months.

This is detailed in the FMA's annual financial conduct report issued on Tuesday. It's the FMA's second such report, which aims to be transparent about its regulatory priorities for the 12 months ahead, and report on the impact of FMA activity over the past 12 months.

The FMA says conflicted remuneration structures remain a key risk in consumer debt offerings, especially when lenders  rely on third parties to originate or arrange debt.

"We will focus on ensuring that lenders, particularly motor vehicle finance providers, have effective processes and controls to manage conflicts of interest arising from commissions, and to detect and deter misconduct incentivised by commission-based relationships," the FMA says.

The financial markets conduct regulator says it'll undertake "targeted monitoring of lenders" to review processes, controls and governance arrangements designed to manage conflicts stemming from remuneration models.

"This will include reviewing agreements between lenders and intermediaries, such as motor vehicle dealers and insurers, and the expectations set out in those agreements," the FMA says.

"Where we identify specific harm arising from certain arrangements, such as unsuitable or unaffordable loans or add-on products, we will intervene using our full range of regulatory responses."

When lenders rely on intermediaries like motor vehicle dealers to arrange finance, conflicted remuneration structures may create harmful sales practices, including excessive establishment fees and interest rates, creating a heightened risk of consumer harm, the FMA says.

"We will focus on ensuring that lenders, particularly motor vehicle finance providers, conduct appropriate suitability and affordability assessments for both primary lending and any add-on products, such as insurance."

The FMA also says it'll focus on ensuring when banks, non-bank deposit takers and insurers are developing new products or redesigning existing ones, they prioritise customer needs, and consider the capabilities and limitations of their systems and processes. This is to ensure they can reliably deliver on what they promise.

The regulator also plans to support banks and non-bank deposit takers to strengthen processes and controls used to prevent and detect mortgage fraud, and wants to understand how they proactively remediate consumers when problems arise.

"Our focus is on the steps providers can take to minimise risk and improve the detection and prevention of fraud," the FMA says.

"The FMA has active investigations into alleged mortgage fraud. We are taking this action to hold bad actors to account and deter others from engaging in such conduct."

It describes mortgage fraud as a serious issue that negatively affects consumers in what will be the biggest financial commitment for most people.

Meanwhile, the FMA says it will also be working to increase its understanding of how banks and non-bank deposit takers ensure their transaction accounts comply with "the fair conduct principle and minimum fair conduct programme requirements."

"This will include engagement with banks and non-bank deposit takers, as signalled by our participation in the [parliamentary] Finance and Expenditure Committee into banking competition," the FMA says.