The country’s financial markets conduct regulator is reminding the financial services sector it's watching after noticing an increase in the number of people being sold mortgages and insurance through misleading or fraudulent activities.
The Financial Markets Authority (FMA) has also reported new migrants and people in “vulnerable circumstances” have been taken advantage of by advisers, exposing them to “unnecessary costs and/or unsuitable products”.
These are some of the priorities of focus for the FMA as it releases its Financial Conduct Report. The report highlights conduct problems the FMA has noticed and sets out its areas of regulatory focus over the next 12 months.
“We’re taking a no-surprises approach to enable the financial sector - including banks, insurers, investment managers, capital markets and financial advisers - to make sure they’re doing the right thing by their customers,” FMA chief executive Samantha Barrass says.
“This report shows that we value transparency, accountability and engagement.”
Below are some of the things the FMA will be targeting:
Customers not getting what they’re promised
Through monitoring, the FMA will look at insurance companies and any conduct that leads to customers not getting products or services they were promised.
The report says the FMA wants to make sure companies will “proactively review existing products and services to confirm they align with consumers’ requirements and objectives, and that staff understand the suite of products within the business”.
The FMA also expected insurers to “consider legacy products and the learnings from fair dealing proceedings taken against insurers by the FMA, as these cases have shown common trends and failures”.
“We will prioritise engagement with firms who have not self-reported material issues related to the fair treatment of their customers, as an absence of self-reporting can be a heightened indicator of conduct risk.”
The FMA is making this a focus because it could be hard for consumers to understand insurance pricing and discounting.
“Unclear presentation makes it difficult for consumers to assess for themselves whether discounts have been appropriately applied.”
People in ‘vulnerable circumstances’ being taken advantage of
The FMA says it will be focusing on adviser behaviour that “adversely impacts people in vulnerable circumstances” such as exposing them to unsuitable and/or unnecessary products.
The report says the FMA will be prioritising mortgage, health and life insurance products “including such products being sold through misleading or fraudulent activities”.
This comes as the regulator has seen increasing fraudulent activity, especially when it comes to mortgages and insurance. Alongside this, the FMA says it has seen “advisers taking advantage of new migrants’ lack of understanding of what products they need, including advisers from within their own communities”.
“While these instances are exceptions rather than the norm, the severity of the conduct, exacerbated by the current economic environment, makes this a priority.”
Making sure people know how to complain
The FMA’s recent consumer confidence survey found only 29% of respondents were confident about knowing what to do if they were treated unfairly by a financial service provider, while 40% said they lacked confidence in knowing what to do.
One of the focuses would be on looking at how firms provide information to people on what to do if things go wrong, and how easy it is for people to raise complaints and have them addressed.
The FMA would also be focusing on ensuring consumers and investors understood what fees, incentives or commissions there were when it comes to Managed Investment Schemes and financial advice providers.
Wholesale offers and misleading advertising
The FMA is also focused on making sure wholesale offer disclosure is not misleading.
This comes as the regulator has noticed a “significant number of wholesale offers that contain false, misleading or unsubstantiated information, particularly in their advertising”.
Wholesale offers are usually aimed at people with “sufficient previous investing experience” who have large amounts of money to invest.
But with these offers being advertised widely on traditional and social media platforms, this has raised concerns as there is potential for people with limited investing experience to “be attracted to offers that are unsuitable for their needs”.
“There is a heightened risk that investors cannot make well-informed decisions and obtain suitable investment products because of false, misleading or unsubstantiated disclosure.”
Ethical investment disclosures
Research published in May from ethical investment charity Mindful Money and the Responsible Investment Association of Australasia found New Zealanders have a strong appetite for ethical investments and want their fund managers to get on board as well.
The FMA plans to continue to provide guidance when it comes to issuers disclosing and advertising their products, in turn allowing investors to understand any ethical claims made.
“We have seen cases of poor disclosure, including where ethical labels were used but there was no detail about what ethical strategy was applied, or about what steps the manager would take if investments no longer met prior ethical claims.”
This could lead to “uninformed investor decision-making and damages trust and confidence in ethical products”, the FMA said.
The regulator would be taking action if they saw claims that were “materially misleading, deceptive or unsubstantiated”.
Emerging risks and opportunities
The FMA will monitor the development of private markets as they grow.
“Internationally, regulators are reviewing settings to strengthen public markets and address vulnerabilities in private markets. The FMA is similarly focused.”
The regulator also wants to see how it can take a more “active role” when it comes to companies providing virtual asset services in New Zealand. Virtual assets are digital representations of value - they can be traded, transferred, and used for investments and payments. Examples of this are cryptocurrencies like Bitcoin plus non-fungible tokens (NFTs).
It will continue to raise to the Ministry for Business, Innovation and Employment that laws are needed to “establish a legal framework for regulating virtual assets, to provide greater consumer and investor protection”.
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