Kia ora everyone, the FMA is evolving its approach to regulation in line with international best practice and it’s just published a consultation on outcomes focused regulation. Today we’re joined by Liam Mason, who is the Executive Director of Evaluation and Oversight and the General Counsel at the FMA.
Q: Liam, outcomes focused regulation – what is it? How is this different from other types of regulation or what the FMA is doing now?
So, outcomes-focused regulation is really just a regulatory approach that focuses on the end results that we want to see for consumers and markets.
It’s an approach that acknowledges that firms are better placed than regulators to determine what processes and actions are required within their business to achieve these regulatory objectives.
So instead of prescribing the fine detail of the actions the firms must take, we’re setting out the results that regulation seeks to achieve.
Then we’ll step back – we’ll let firms find the most efficient way to achieve these outcomes.
It’s about influencing behaviour, creating the conditions and incentives to promote good conduct from the outset, rather than only after harm has been done. It’s an approach that’s consistent with global regulatory practice.
Q: So it’s more a way of a regulating?
Yeah - it’s not a replacement or a rewriting of our rule book and the outcomes don’t seek to add to any existing legislative requirements.
Ultimately, a focus on outcomes means that while providers must still comply with the law, success is measured from the viewpoint of New Zealand consumers and New Zealand’s markets.
Q: So what kind of fair outcomes will the FMA be focusing on?
You can see a list of these in the guidance that we’ve published but to give a couple of examples:
The first one is that consumers have access to appropriate products and services that meet their needs – and there’s one that says that consumers receive useful information that actually aids good decisions.
So these outcomes will inform the way we regulate and talk to firms – they don’t replace the rules, they don’t introduce new rules. This is all in line with a similar shift in focus among our international peers – it’s about thinking about what the results we want and using that as a lens through which we view behaviour. [01:55]
Q: Makes sense - can you give us an example of how this might play out in practice?
Well one of the outcomes we’ve come up with is Number Two: that Consumers receive useful information that aids good decisions – that means we’re looking for easily understood and digestible information that is material, timely and reliable.
So without access to useful information, consumers risk remaining in products that might no longer be relevant or appropriate for them – think for example of a KiwiSaver fund that’s not aligned with investing preferences or stage of life for the customer; or perhaps a Managed Investment Fund that doesn’t check in with investors on their preferences and risk tolerances to see whether they remain the same over time.
We also know that some consumers can find Product Disclosure Statements difficult to read or to engage with – so how much thought goes into what they look like? What audiences they are for and how they’re presented so consumers can engage with them.
It’s important to note that outcomes don’t mean that customers are insulated from risk in the market or that the investment product always has a positive performance.
Q: So there must still be a need for rules though - how do they fit in?
Absolutely there is – and rules are an incredibly important part of regulation, they’re really the foundation on which we regulate but we’re trying to avoid that sort of ‘checkbox’ mentality where technical compliance becomes the end goal, because that might not provide the best results for consumers and markets.
The approach we’re taking acknowledges that firms are better placed than regulators to work out the ‘how’ of achieving these outcomes.
Q: What does this kind of approach mean for how firms approach compliance going forward?
We’ll be asking providers to take ownership of these outcomes because it’s businesses that are going to achieve them.
And they should be able to demonstrate to us how they are meeting them – we’re asking firms to have the capacity and willingness to deliver.
We’ll be listening to firms. We’ll be testing and challenging that what they’re telling us is playing out in practice. We’ll also be looking to recognise substantive compliance where it is genuinely aiming to achieve these outcomes.
Q: So it also sounds like it’s a bit of a shift for the FMA. So what does it mean for the FMA as a regulator?
Well these outcomes will guide the FMA’s own approach to exercising regulatory powers and our responsibilities, including our approach to monitoring and supervision. We recognise this requires a sophisticated dialogue with providers.
We will be interested in everything that firms are doing to achieve these outcomes – where there are specific legal obligations and where there are not. And we’ll work to understand firms’ viewpoints, to understand the key risks and constraints that are on them, and the journey they are undertaking to deliver these outcomes.
Q: So what happens now that you’ve published this consultation – what are the next steps?
We’re very keen to hear from consumers and from people in the industry, so please send us your submissions or let us know if you have any questions. Consultation is running right through to March next year, so check out the document on our website, have a think and let us know how you feel.
Thanks Liam. That’s Liam Mason and that’s another Five minutes with the FMA. We’ll bring you more FMA Insights next month. Until then hei kōnā mai – bye for now.
