In March, the Financial Markets Authority (FMA) released its refreshed approach to outcomes-focused regulation.
50+ industry submissions
The FMA received more than 50 submissions, including from financial services firms, consumer groups and law firms.
Public Trust provided feedback under the umbrella of the Corporate Trustee Association’s submission. Public Trust’s General Manager Corporate Trustee Services (CTS) David Callanan said it was great to see the improvements.
“It is very positive to see the FMA taking on the industry’s feedback on the concerns raised by stakeholders, including Public Trust, on the previous version.”
A clearer framework for market participants
“The new guidance is helpful for market participants, including fund managers, as it provides a clearer framework for their responsibilities. It gives confidence that regulatory efforts will be well-targeted and proportionate,” Callanan says.
“We should expect the FMA to focus their resources on the end results that regulation aims to achieve for consumers and financial markets. This approach will help to ensure that regulatory efforts are proportionate and impactful, rather than getting bogged down by minor compliance matters,” he says.
“Overall, I think the new approach is explained much more clearly,” Callanan says.
Callanan says as a supervisor, Public Trust adopts a similar approach to that articulated in the guidance.
“By engaging with our clients in a proactive, risk-based manner, we are able to go beyond mere compliance. We strive to foster an environment for continuous improvement that drives better outcomes for both our clients, and their customers. Our close relationships are what really drives value from the supervisor model.”
Outcomes aren’t a guarantee where market risk is involved
One key change in the guidance is the seven key outcomes the FMA is aiming to achieve for consumers and financial markets. These are now: fair services, quality ongoing service, improved access to products and services, resilient markets and providers, market innovation and growth, well-informed investors and consumers and market integrity and transparency.
“Consumers receive fair value for money’, has been replaced with ‘Fair services… Financial products and services deliver what is promised, expected benefits reflect risk, and providers do not improperly take advantage of information or power asymmetries.”
Given the current global market volatility, the guidance is well-timed, Callanan says. Geo-political tensions, for example conflicts in the Middle East and Ukraine, risk of renewed inflationary pressures, new tariffs, and changes to economic policy pose risks to consumer and market outcomes.
Callanan says: “It is clear to us as supervisors that fund managers aren’t responsible for removing market risk for consumers. What they are responsible for is providing well designed and executed products (that include necessary and appropriate exposure to market risk) and supporting investors to make good investment decisions.”
This guidance is important for market participants in the current climate, he says.
“The guidance now recognises that investment products inherently cannot guarantee a return when they are exposed to market risk. That means that ‘outcomes’ may include a financial loss without necessarily indicating a failure of the product or the provider. Instead, it underscores the importance of transparency and proper risk management in delivering fair services to consumers.”
Looking forward to the Financial Conduct Report
The FMA's new outcomes-focused regulation provides a clearer framework for market participants, ensuring that regulatory efforts are well-targeted and impactful.
We look forward to the release of the inaugural Financial Conduct Report, expected to be published in the second quarter of 2025, as another key milestone in the rollout of the FMA’s approach.