The Financial Markets Authority (FMA) is looking to road-test its proposed ‘outcomes’ style of regulation with a selection of industry guinea-pigs.
Samantha Barrass, FMA chief, told a Financial Services Council (FSC) gathering last week that the regulator plans to “pilot” the outcomes-based policing methods “with a small number of firms”.
“Participation will be entirely voluntary,” Barrass said.
Last year the FMA issued draft guidance on the new regulatory approach framed around seven consumer-centric outcomes such as offering value-for-money and “appropriate” products.
“We need to instil confidence in the approach, and the best way to do that is by demonstrating it to you, so you experience it,” she said. “It’s our intention that your engagement with our monitoring teams will begin to see a palpable shift to outcomes rather than rules and compliance with rules. In so doing we want to shift the focus to outcomes for consumers and markets and innovation for firms.”
As per the draft guidance, Barrass confirmed that outcomes proposals “are not new rules” but principles supported by existing legislation.
“The law also provides the mechanisms, where they’re needed, for us to enforce the legal obligations that support the outcomes we are seeking,” she said.
Indeed, while the guidance is yet to be formalised, the regulator has already stepped-up oversight of the financial services sector with outcomes in mind.
“We made it clear last year that we are alert to any practices by providers that lead to high pressure sales, not just commissions, not just sales-based remuneration,” Barrass said. “We acted following a review of the classification of wholesale customers. These are good examples of us beginning to consider how outcomes-focused regulation will work in practice. We weren’t simply focused on a narrow range of practices. We were looking at risks to the outcome that ‘consumers can trust providers to act in their interests’.”
Consultation on the outcomes-focused compliance framework closes on March 1.
Meanwhile, the FMA regulatory footprint is poised to go up a shoe-size again following government reform proposals also unveiled at the FSC shindig by Commerce Minister Andrew Bayly.
Bayly said the FMA would likely emerge as the dedicated ‘conduct regulator’, taking on some responsibilities from the Commerce Commission, for example.
He confirmed the government has also ditched plans to repeal the COFI legislation – formally known as the Financial Markets (Conduct of Institutions) Amendment Act – in lieu of ‘streamlining’ the law.
COFI licensing is due to begin next March with the FMA budget ballooning in kind to accommodate new duties under the act.
In recent years the regulatory ambit has expanded to include full licensing of the financial advisory sector, new climate-reporting rules for over 200 entities such as licensed fund managers as well as COFI.
“Whenever a funding and levy review of the FMA has taken place in the last few years, the sector has been largely clear that it is this approach – of being flexible, engagement-led, that is preferred over a rules-based, enforcement-led approach,” Barrass told the FSC symposium. “Yes, this means greater costs for the FMA – that industry largely pays for – but critically firms benefit from a more efficient regulatory regime.”
The regulator finished almost $6 million in surplus over the previous financial year as spending hit $67.3 million.
However, the largely industry levy-funded FMA budget has more than doubled from $30 million a few years ago to $73 million over the 2022/23 financial period with further increases on the cards.