(Notes may differ slightly from speech as delivered)
Tēnā koutou, tēnā koutou, tēnā koutou katoa.
I'm delighted to be here with you today. It's also great to be back in Christchurch - it's the city where I grew up, so it's nice to be home.
Can I thank the team at FANZ for all their work in putting this conference together. From our perspective, Michael and Romil enjoyed contributing to yesterday's sessions - thank you very much for providing the FMA with the opportunity to take part in your Day 1 Masterclass.
For us to be an effective and engaged regulator, we need a strong working relationship with firms, as well as their representatives. I want to thank Nick for leading the charge here. One year into your time as Chief Executive and we are already making good progress on working together to help deliver better outcomes for New Zealanders.
Now, down to business. There is, as always, much to discuss.
Review of access to advice
I'm sure I don't have to tell you that there has been a high level of regulatory change in recent years. Much of this change has been pretty fundamental to the regulatory landscape of the financial sector.
From the introduction of conduct legislation, to the upcoming transfer of CCCFA responsibility from the Commerce Commission to the FMA, there have been a series of changes to financial regulation from Governments across the political spectrum.
Amidst all this change, it is strange to think that the 'new' financial advice regime is probably one of the older, more established parts of the financial regulatory system. I know it's well and truly part of our own supervisory framework, and I'm sure (and hope) the obligations under the regime are very much baked into your own ways of doing business.
Four years on from the law's passage, and two years into the full regulatory regime commencing, it seems like an opportune time to reflect on whether the regime is delivering on the goals it had set out to achieve. Availability and quality of financial advice are cornerstones of the regime, and indeed written into the legislation's purpose. Our view is that quality and availability are complementary, but they can also result in trade-offs.
I know I'm preaching to the converted when I say that there are many positive impacts for consumers who receive good quality financial advice. In fact, research completed by your own industry body in 2022 confirmed that 'advised' New Zealanders exhibit good financial behaviour more often than 'unadvised' New Zealanders.
But we know that many New Zealanders do not access financial advice in the first place. We want to understand why that is.
That's why today I'm pleased to announce the FMA will be reviewing accessibility of advice, and that we are seeking feedback on the focus areas for this review.
Currently, we plan to focus our review on four key areas:
- Consumer preferences and demographics,
- Industry business models and market dynamics,
- Digital advice and innovation, and
- Ease of provision of financial advice.
These are the areas we've identified in the course of our monitoring of providers under the new regime. But they are also informed by some of the intelligence we have gathered from other areas. Data from the first set of regulatory returns found that currently, less than three percent of licensed providers offer digital financial advice, but that over 86,000 retail clients had received such advice over the reporting period. As a regulator focused on enabling innovation and growth, we want to better understand these trends and what they mean for accessibility of advice.
You may be wondering what might change following our review. While we don't want to pre-empt any of the findings, broadly our work on access to advice will first and foremost inform our approach to regulating financial advice. The review will look to see what may be preventing access, and consider any unnecessary regulatory burden that needs to be addressed by us.
Ultimately, this review is about ensuring we are delivering on the promise of the new financial advice regime, which seeks to enable greater access to quality advice for all New Zealanders. We appreciate the support from FANZ thus far in shaping this review. We look forward to working closely with you all as we conduct this important work.
Understanding business models and remuneration structures
Alongside this review, we will also begin work to deepen our understanding of business models in the advice sector, which will help us identify our future focus areas. Our ongoing monitoring and supervision of the sector has identified that some key drivers of certain behaviours and poor conduct are closely linked to these business and remuneration models. By looking under the bonnet of these structures, we will be able to better understand where to focus our regulatory efforts, and have more deep and meaningful compliance conversations with advisers. It will also inform our review of access to advice.
What does this mean for you? While we are in the early stages of scoping this second review, we anticipate being able to reduce the regulatory burden on providers with lower risk models as we look to focus on those with greater risks.
Outcomes-focused regulation
I trust you all read cover to cover our Monitoring Insights Report for the advice sector that we released last year. The Report outlined how good practices are not always about strictly following word for word the letter of the law, but about shifting the dial on how regulation positively impacts the value of advice and the level of consumer trust and confidence to seek financial advice.
Focusing on the end results for New Zealanders will be a regular theme you will see from the FMA going forward. Just two weeks ago, we released a document explaining what outcomes-focused regulation means in practice for the firms we regulate, and the New Zealanders we serve.
Outcomes-focused regulation was developed on the premise that, like any organisation, the FMA must make choices about where to focus its limited resources to best achieve its purpose. We've decided to focus this effort on what will have the greatest impact for New Zealand businesses, consumers and investors.
It's not about regulating for the sake of regulating. Nor is it about doing something because it has always been done a certain way. In fact, it is quite the opposite. Outcomes-focused regulation means we are clear eyed in targeting the end results that regulation is seeking to achieve.
So, what will outcomes-focused regulation mean for you?
- It will mean you will have a regulator that is focused on the greatest risks and opportunities facing businesses, investors and consumers. In other words, a regulator focused on the things that matter.
- It will mean well-targeted and proportionate regulatory interventions which reduce unnecessary regulatory burden on firms.
- And, it will mean greater flexibility for financial service providers to determine how best to meet their regulatory obligations. For financial advice providers, you will already be experiencing this with the principles-based nature of the advice regime.
You will also see ongoing engagement with firms and industry groups focused on supporting good practice and reducing the risk of poor outcomes. That means, when you receive a feedback letter from the FMA, what it will look like is a letter focused on issues that support better outcomes, rather than a laundry list of more minor and non-systemic compliance issues. As always, of course, this feedback will continue to be grounded in the law.
We are also stepping up the use of our informal tools such as industry roundtables, webinars and meetings with boards and senior management. These engagements will allow firms to have a better understanding of our approach as a regulator, and will allow us to better understand how you conduct your business to support better outcomes.
And to add some further colour to what we expect, by the end of June, you will see the release of our regulatory priorities for the year ahead, as part of our inaugural Financial Conduct Report.
Regulatory returns data
Last year, all of you will have completed regulatory returns - the first under the new regime. This was no small feat, and I'd like to acknowledge the cooperation of FAPs, aggregators and industry bodies for their work in completing the returns. Today we are pleased to be releasing the data that has come out of those regulatory returns. This data paints a picture of the state of the sector. They show that there are 1410 licensed financial advice providers, with 8,472 advisers operating in the market. They also show that life and health insurance are the most common financial products advice is provided on.
The over 57,000 KiwiSaver provider switches suggest that New Zealanders are active in shopping around to find the KiwiSaver fund that best addresses their preferences and needs, as a result of financial advice.
There is a treasure trove of insights across the regulatory returns we received. Data-driven decisions are informed decisions, and we look forward to applying the insights we've gained to drive our regulatory approach, and improve our overall understanding of the financial advice sector. The aggregated data will also be available on our website.
Market study recommendations on mortgage advice
I know that Anne Callinan from the Commerce Commission will be speaking with you shortly, so I won't steal her thunder by saying too much about the recent market study into banking competition.
You will be aware that banking competition is a particular focus for the Government. It's also something the FMA has been thinking about, particularly with our conduct legislation now in force, albeit just three days old. When we think about the systemic issues that underpin low innovation and lack of consumer choice of financial products, some of the changes firms might make under CoFI will help serve to mitigate the impact on consumer outcomes of insufficient competition. This includes looking into systemic issues that reflect a lack of competition and can be dealt with as a matter of conduct regulation, such as legacy IT systems which lead to poorer outcomes for consumers.
We've been asked by the Government to consider the Commission's recommendations, specifically as they relate to mortgage advisers. We've been engaging regularly with the Commission, and have been actively considering the tools and levers we have to give effect to the outcomes in the report. For CoFI, we will look to update our guidance on intermediated distribution. This will also cover sales incentives and the key points made by the Commission's report regarding the use of mortgage advisers by banks and other lenders. This will likely take place following the finalisation of the Government's amendments to CoFI.
We look forward to continuing our work with industry and the Commission to support the delivery of the market study's desired outcomes.
CoFI and FSLAA
It would be remiss of me not to make specific mention of CoFI and how it intersects with advice. CoFI ensures banks, insurers and non-bank deposit takers comply with the fair conduct principle when providing relevant services to consumers. Fair conduct is the overarching principle of CoFI, and means a financial institution must treat consumers fairly. It is important that consumers get the financial products and services they need throughout their life, when they need them, and have trust and confidence these will do what they should.
One of the changes with CoFI is the introduction of regulations setting out prohibited incentives. I am pleased to see the broader industry has made changes to ensure consumers are not disadvantaged by production-based offers.
Can I re-emphasise this is where you - as consumer representatives - continue to have a leading role. I encourage you to continue your lead role in supporting consumers with fact-based advice.
Conclusion
I'd like to finish how I started by acknowledging how a strong and constructive relationship between the regulator and industry delivers better outcomes for New Zealanders. As the financial advice regime matures, we are building a better understanding of the sector which in turn informs our regulatory approach.
We look forward to working with you as we embark on our review of access to advice.
Thanks again for having me, and I am happy to take your questions.
