The Financial Markets Authority (FMA) has toned-down its ‘outcomes-focused’ policies following largely negative industry feedback to draft proposals and pressure from a newly installed government.
According to documents obtained under an Official Information Act (OIA) request, Commerce Minister Andrew Bayly queried the outcomes-focused regulation approach mooted in a FMA draft guide last November.
Bayly was appointed Commerce Minister on November 27 last year post the National-led coalition formed government – just a couple of weeks after the FMA published a consultation on the proposed outcomes-focused regulatory shift.
In reply to an April 30 letter from Bayly, the regulator notes: “… the Minister describes OFR [outcomes-focused regulation] as a ‘novel’ approach and questions whether now is the appropriate time for the FMA to embrace this approach given the need to prepare and implement a number of new regulatory regimes.”
Ultimately, the FMA made a few changes to its ‘statement of intent’ a few months later, restating an aim of “embedding an outcomes-focused approach” to “evolving an outcomes focused approach”.
The FMA edit also saw the addition of a phrase that its actions would be “grounded in law” – a response to a common refrain in industry submissions suggesting the draft outcomes-focused guide strayed into uncertain legal territory.
Despite closing the feedback window on March 1, the regulator has yet to formally publish the 50 or so submissions more than a year after the consultation first opened. However, the OIA release includes the bulk of industry responses – available here – with most agreeing that while the seven ‘fair outcomes’ principles were laudable, the FMA guide was confusing and conflicted with other legislation, especially the Conduct of Financial Institutions (COFI) regime due to go live next March before facing further amendments.
For example, submissions released individually by a couple of legal firms earlier this year questioned the statutory basis of the proposed regulatory lens.
Another response from the Boutique Investment Group (BIG) – an industry body representing compliance experts from about 20 NZ fund managers – reports almost 70 per cent of members expressed a “6 out of 10 or less understanding of what is being proposed” in a survey.
BIG says in its feedback that a few members indicated “almost no understanding of what the focus on outcomes will mean, there is clearly more work to be done in terms of either conveying expectations or recasting the outcomes”.
In an early take on the outcomes submissions, the FMA says: “There is general support for why fair outcomes are important and respondents can see the intent behind our proposed fair outcomes.
“From an initial reading, there appears to be a case to explain more clearly how this fits with existing legislation (including COFI), what outcomes focused regulation means, and – importantly – what this means for us as a regulator and how it shapes our engagement with firms…”
Later meeting notes show Bayly requested “concrete examples” from the FMA on how the outcomes-focused regulating would work.
FMA chief, Samantha Barrass, “acknowledged that [outcomes-focused regulatory model] could have been communicated more clearly, and that we will publish what we are seeing and how tracking against risks and outcomes”, the notes reveal.
“This approach is aligned to the Ministers approach to regulation – not compliance for the sake of it.”
In line with broader government policy, Bayly also requested the FMA identify regulations that could be cut.