Industry players, regulators and consumers could gain clearer insight on ‘fairness’ in finance from the results of a new study, according to Financial Markets Authority (FMA) chief economist, Stuart Johnson.
Johnson said the findings from a novel FMA survey of almost 3,000 New Zealanders should prove useful to financial service providers as they ready for the imminent Conduct of Financial Institutions (COFI) regime.
But he said the results resonate beyond the COFI-regulated cohort to all firms in the sector as they design products or handle customer complaints, for example.
Furthermore, Johnson said the survey offers some strong pointers for complaints bodies, supervisors and the regulator itself in how they incorporate fairness in day-to-day operations.
“But the report is useful for consumers, too,” he said, “in helping them distinguish between what is unfair versus a disappointing outcome.”
The study – a first-of-its-kind for the FMA – asked respondents to consider 29 detailed scenarios and rate the outcomes on a ‘fairness’ scale.
“Of the unfair risk scenarios, 26 of the 29 were more likely to be seen as unfair by New Zealanders, whereas the four neutral scenarios were likely to be evaluated as fair,” the FMA report says. “While results were not absolute, these two key findings suggest that in most situations many New Zealanders agree on what is fair or unfair.”
For instance, about half of those surveyed rated a scenario where a bank failed to advise someone close to retirement to shift to a lower-risk KiwiSaver fund as unfair after the member suffered losses in a subsequent market drawdown.
“A KiwiSaver member can decide what fund they should be in and will have access to information about the different funds available,” the FMA says in the report. “However, the customer was negatively impacted by ending up in the wrong fund for their situation – the result of inaction or inertia by both the provider and the customer.”
While not surprising, Johnson said the overall results of the study add some statistical weight to the general assumption that New Zealanders share a common view of fairness.
“It’s always good when your hypothesis is confirmed by research,” he said.
The FMA is shifting to an ‘outcomes-focused’ regulation model under to-be-finalised guidelines.
Late last year the regulator opened consultation on seven ‘fair outcomes’ principles with submission closed off at the beginning of March.
“Setting out our expectations of what fairness means practically to consumers and markets is a necessary part of our work to ensure firms and markets achieve the right outcomes for New Zealanders,” the FMA said at the time. “It is an essential part of our move towards outcomes-focused regulation.”
However, the regulator has yet to publish industry submissions nor final draft fair outcomes proposals.