In a surprise role-reversal, the Financial Markets Authority (FMA) is encouraging advisory firms to ease back on over-zealous compliance practices that could be stifling the sector.
FMA chief, Samantha Barrass, told a Financial Services Council (FSC) briefing last week that the regulator’s “monitoring of financial advice providers has continued to evolve, focusing on what compliance is actually achieving”.
“We have seen some providers take what seems to us to be overly conservative approaches to meeting their regulatory obligations. We will want to understand the reasons for this, particularly to check that business models are not being skewed by an unnecessarily cautious approach to compliance thereby creating friction and restricting the availability of advice,” Barrass said in the FSC speech.
“In these cases, our feedback isn’t focused on ‘doing more compliance’ but working with firms to understand the roadblocks and to rethink how they are approaching their decisions for achieving the overall purpose of the financial advice regime.”
The new financial advice licensing regime has been fully in force since March 2023 following a two-year transitional period. Over 9,100 ‘financial advisers’ now operate under the banner of one, or more, of the 2,650 licensed financial advice providers (FAPS) – about half of the FAP community falls under the ‘authorised body’ label.
A further 12,000 or so ‘nominated representatives’ are employed in limited advice capacities by the 66 ‘class 3’ FAPs: ‘class 2’ FAPs, which can include multiple advisers but not nominated representatives, account for about 2,000 licences while close to 460 businesses hold the sole-trader ‘class 1’ designation.
But the go-easy on compliance message for financial advisory firms reflects a new “focus on the things that matter” stance from the FMA, Barrass said, as well as the red-tape-cutting mantra of the government.
“If there are specific examples of unnecessary barriers you face when trying to comply with regulation, please do raise them with us,” she told the FSC crowd.
Aside from looking to pare back compliance overload in the advice industry, the FMA has been “pragmatic” on climate-reporting obligations (which are set to be eased this year) and Conduct of Financial Institution, or COFI, licensing exemptions, Barrass said.
The COFI regime will go live at the end of March before a raft of planned government reforms alter the legislation: to date some 67 companies have been licensed to operate under the conduct rules.
Furthermore, the FMA chief said 14 fintech firms had lodged applications to play in the new “pilot regulatory sandbox” announced by Commerce Minister Andrew Bayly late last year.
The regulator had been “impressed by the quality and breadth of the applications”, Barrass said, with successful sandbox playmates due to revealed shortly.
Despite the apparent lighter-touch regulation style, she said the FMA plans to engage with the industry this year on “our approach to enforcement and the outcomes that we are seeking from our work”.
The regulator is also currently pondering the fate of its so-called ‘outcomes-focused’ regulatory model that was almost universally panned in feedback to a consultation first floated in November 2023.