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FMA tackling poor drivers of culture

Monday 26 March 2018

The Financial Market Authority (FMA) has released its follow-up report to their 2016 review of the advice being given to customers from the insurance replacement sector and the impact of conflict of interest.

In this report, the Update on the FMA’s ongoing review of insurance replacement business and conflicted conduct, the FMA identified several key areas that could be considered drivers of poor conduct.

“The failure to exercise care, diligence and skill for their clients was a consistent finding in our review of 24 advisers. Among the 24 advisers who were subjects of this round of inquiries, it was both striking and concerning that many of them did not even recognise that conflicts of interests can arise from incentives and commission,” said Liam Mason, FMA Director of Regulation.

The current regulatory regime is expected to change, with the anticipated Financial Services Legislation Amendment Bill.

According to the FMA, “Proposed changes to the FA Act would discard the RFA model and require all financial advisers to meet minimum standards of competence and conduct.”

One of the findings identified by the FMA is that ‘half of the advisers’ were unaware of or breached their obligations under section 33 of the Financial Advisers Act 2008, which requires them to show due care, diligence and skill. In addition, poor records were taken of the advice given to clients.

There was also recognition that incentives create a conflict of interest, and as a result, the industry needs to take care with sales incentives and ensure these do not negatively impact conduct or outcomes for clients receiving the advice.

Mason indicated that many of the advisers were RFAs and, as such, have little to no contact with the market regulator.

“We used the tools available to us to respond to the conduct issues we found in the most proportionate way. While the focus of our inquiries was the conduct of financial advisers, we have also been reviewing the practices of providers and qualifying financial entities that produce and sell insurance products.”