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The Financial Markets Authority (FMA) has published a document setting out its reframed approach to outcomes focused regulation, in response to feedback received on its November 2023 draft guide to outcomes focused regulation.
The new approach aims to clarify what fair outcomes are for consumers and markets, and to better show how they align with the FMA’s main statutory objective and the purposes of its governing legislation.
Outcomes focused approach
The FMA interprets an ‘outcomes focused approach’ as a focus on the end results that the relevant regulation aims to achieve for consumers and financial markets. In this context, the FMA notes that:
- its main statutory objective is to promote and facilitate the development of fair, efficient, and transparent financial markets,
- the main purpose of New Zealand’s financial markets legislation is to achieve this, and to promote confident and informed participation in financial markets by New Zealand businesses, investors, and consumers, and
- the key outcomes the FMA seeks to support, which are aligned with this main statutory objective and legislative purposes, encompass:
- the provision of 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.
Outcomes focused regulation in practice
Over the term of its 2024-2028 Statement of Intent, the FMA intends to integrate its focus on better outcomes across its regulatory functions, including policy and guidance, strategy development and data analysis, research and risk assessments.
In practice, industry participants will experience the FMA's evolving approach when engaging with the FMA on matters such as licensing, supervision, exemptions, and its response and enforcement functions.
Key developments include:
- Financial Conduct Report: A new annual report which will outline the FMA's regulatory priorities and identified key risks to outcomes, and provide insights from supervisory work to stimulate industry discussions and better identify emerging risks.
- Supervisory approach: From 2025, the FMA will roll out a new supervisory approach that aligns with regulatory priorities and sector risks. This approach will involve more forward-looking supervision, and ongoing engagement with firms and industry groups to support good practices. The FMA is clear that it wants firms to have the flexibility to determine how best to meet regulatory obligations in the context of their own business. The FMA has also noted that it will engage with firms where they think an overly conservative view of legal obligations is being taken which detracts from good outcomes.
- Response and enforcement: The use of a range of tools to address harm, focusing on conduct likely to result in poor outcomes. This includes a particular emphasis on the FMA’s regulatory perimeter, including areas not subject to formal supervision, with wholesale products and services, custody, funds administration and crypto-asset services called out specifically as areas that account for many of the complaints received by the FMA. The FMA will use informal tools where feasible to influence perimeter conduct, and will continue to raise potential areas for law reform. The FMA’s designation powers will also be considered and the fair dealing provisions in Part 2 of the Financial Markets Conduct Act 2013 also provide an avenue for addressing misleading or deceptive conduct.
- Market access: The use of licensing and exemptions (including appropriate conditions) to tailor legal obligations and facilitate market access. The FMA’s regulatory sandbox pilot will also facilitate and support innovation in a controlled environment, and to bring products to market more quickly than would otherwise be the case, while minimising risks of poor outcomes.
Assessing progress
The FMA considers that focusing on the end results that regulation is aiming to achieve for consumers and markets will allow it to better to evaluate the efficiency and impact of its efforts, and it welcomes constructive feedback on its evolving outcomes focused approach.
Chapman Tripp comments
It is encouraging to see that the FMA has incorporated the feedback it received on its original proposed guidance.
In our view, the FMA’s revised approach to outcomes focused regulation is more appropriately framed and provides useful guidance as to the FMA’s intentions for its evolving approach to its regulatory role.
Clients offering wholesale products and services, custody services, funds administration and crypto-asset services should be conscious of the likely additional FMA scrutiny arising from being sectors from where many of the complaints are received by the FMA.
