Fair outcomes could be another CCCFA fiasco

The FMA’s proposed fair outcomes guidance risks becoming another Credit Contracts and Consumer Finance Act situation, says the Boutique Investment Group.

In its submission to the FMA, BIG, representing most of the non-bank fund managers, says rather than a blanket set of outcomes for all, specifics agreed to by the different sectors would be more workable.

The most important outcomes for a bank are probably not the same as for a fintech startup which are different again from the NZX, a MIS manager or a financial adviser, it says in the submission.

It points to the current process of unwinding provisions of the CCCFA where applying one set of lending principles to all types of lending led to unintended consequences.

“Forcing mortgage lending and truck shop lending into the same regulatory box when clearly the policy considerations of those two activities are very different has caused significant harm which needs to be reversed,” says BIG chair Simon Haines.

“Here the FMA seems to be going much further than what the CCCFA tried to do by trying to squeeze the entire financial universe into one tiny ball of outcomes.”

Failing a more specific approach, outcomes could be based on the Financial Markets Conduct Act purpose statement, says BIG.

Balancing act

While the proposed guidelines are weighted heavily towards consumers, parliament clearly recognised the need to balance the interests of industry, investors and consumers under the FMC Act, says BIG.

“If the industry is not healthy then consumers will lose out in the long run. Some of the greatest risks that are currently in our financial system stem from the fact that parts of our industry are unhealthy.”

This includes the shallow nature of NZX and lack of competition in administration. In line with other submissions, BIG says the draft guidelines contain numerous vague statements that are highly subjective and therefore difficult for market participants to apply or respond to.

A survey of BIG members found that 40% of respondents estimated the cost of responding to the proposed guidance at more than $100,000.

“We want an ability to focus most of our resources and time on our core reason for being, rather than compliance. We understand that we operate in a regulated environment, but very little consideration seems to be given to what level of regulatory resource is reasonable to ask of a New Zealand scale business.”

It comes down to whether regulatory efforts are yielding good value for money for New Zealand,  says Haines. When surveyed, 65% of BIG members said they are spending $100-500,000 on AML/CFT compliance.

“That’s an awful lot of money when in total the FMA receives around 20-30 unusual transactions a year. Is that really the best use of our time when we could be combating fraud for example?”

The group also wants the guidelines to address how they would apply to bad actors e.g. scammers and other persons setting out to commit crimes and harm customers and markets.

This would include the FMA being seen to take timely and effective enforcement against such people “including those that sit in the grey areas of the law taking advantage of legal loopholes to do things that are detrimental to customers)”.

Haines says, currently good actors stand to be the ones who are punished. “If you adopt all the guidelines and procedures, it often puts you at a competitive disadvantage to someone who doesn’t. And those who don’t can’t be punished because they’re not breaking the law.”

BIG also wants more clarity on the role of supervisors in the new approach. “Are they expected to create their own monitoring framework, and if so, what does that involve?”

Haines says he will raise these matters when he meets with Andrew Bayly, the Minister of Commerce, on May 1.

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