New Zealand’s Financial Markets Authority, the government agency responsible for financial regulation, on Aug. 9 set out its work plan for the year ahead, as the conduct and culture of the country’s financial services industry comes under increased scrutiny.
The priorities set out in the Annual Corporate Plan are based on the strategic risks to the FMA’s objectives and the drivers of those risks. The risks, outlined in its Strategic Risk Outlook, “represent the major sources of potential harm to customers or the integrity of New Zealand’s financial markets,” the FMA said. “The plan also breaks down the FMA’s work program by sector, outlining the areas of focus in the form of questions that we will ask and that we suggest firms ask themselves.”
In the 30-page plan, the risks that the FMA said it would like to address include:
Poor culture in financial services firms that may result in failures to manage conduct risk, and in some cases may drive conduct risk;
Ineffective governance, accountability or systems and controls that may result in harm to customers and/or market integrity; and
Ineffective governance and/or poor culture in publicly listed companies that may result in failures to manage business risks, including disclosure failure.
The FMA said in its plan that it expects boards and senior management of regulated firms to deliver a culture that places customer interests at the center of their business.
“While the FMA continues to foster a collaborative approach with industry, firms have now had sufficient time to understand their obligations and our expectations under the new regulations introduced over the last few years,” FMA chief executive Rob Everett said.
“We have become increasingly impatient with instances of a lack of attention to better customer outcomes and strong conduct frameworks from parts of the industry,” Everett added. “In the year ahead, the FMA expects firms to be able to provide concrete evidence of progress they’ve made in putting good conduct outcomes at the heart of their business.”
The plan also lists the many facets of corporate culture, including tone from the top; ethics, professionalism and capability of staff and management; governance structures; and incentives and remuneration structures.
Recent problems with New Zealand-listed companies have brought corporate governance into sharp focus, particularly as it relates to the flow of information between management and boards and boards providing inadequate oversight and financial disclosure failings. “Examples often highlight that culture and governance must begin and end with the board and senior management,” the FMA said. “This includes setting appropriate values and behaviors and ensuring these are exhibited at all levels of the organization.”
The FMA monitors regulated firms against the minimum governance standards and expectations of behavior that it sets. “We would like to see firms adopt an approach that goes beyond legal minimums and see firms focusing on investors and consumer outcomes,” the FMA said. Because governance and culture both drive and mitigate conduct risk, they are “linked closely” to the FMA’s other strategic priorities.
In 2017, the FMA released its Guide to Good Conduct and its revised handbook on corporate governance principles and guidelines. It also released a compliance assurance program and information fact sheet, which outlines guidance for testing a firm’s own compliance programs. “Work in this space will continue throughout 2018/19,” the FMA noted, “as we explore how firms have responded to these and our other stated expectations.”
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