New FMA report warns of customer protection gaps

The FMA has released its latest Financial Conduct Report, revealing issues with fraud, fee transparency and product design across financial services

The Financial Markets Authority (FMA) has identified weaknesses in how New Zealand's insurance sector protects consumers, with regulators warning of "gaps" that leave customers vulnerable.

Despite recent licensing reforms, the FMA's latest Financial Conduct Report has revealed ongoing issues with product design, fee transparency, and customer service delivery across the financial services industry. The FMA found that while some good practices are emerging, "gaps remain, and further improvements can be made to prevent harm occurring.”

The concerns are particularly acute given that 86% of New Zealanders hold at least one insurance product.

"It's important that consumers receive clear communications about service offerings, product exclusions, disclosures, fees, and premiums," said Jane Brown, FMA head of insurance. "We're particularly concerned about situations where consumers don't receive the products or services they were promised."

Vulnerable customers targeted

The FMA has identified troubling patterns of advice firms targeting vulnerable consumers, particularly in mortgage and insurance advice areas. FMA head of financial advice Romil Ghelani noted that some cases have involved outright fraudulent activity. The FMA says that while these are “the exception rather than the norm”, the severity of the conduct has still made this area a priority.

“We’ll focus on identifying and swiftly intervening in such cases, and more broadly helping advisers improve their controls and support for vulnerable customers,” Ghelani said.

Commissions and fees in financial advice are another key area of focus. The FMA's 2024 Monitoring Insights Report found that while many FAPs demonstrated “good practices”, there were still lingering problems with how advisers disclose their payment structures to customers.

“This is really important,” Ghelani said. “In our 2024 FAP Monitoring Insights Report, we reported that we found gaps like unclear information, or missing or inconsistent details about fees, commissions and incentives connected with giving financial advice in disclosure materials.”

Timeliness of disclosure was also an issue - in some cases, it was offered weeks after the advice was provided.

Systems under scrutiny

Technology problems remain a major concern. The FMA identified persistent issues with "reliance on legacy technology systems and manual controls and processes, as well as inadequate staff training" that result in poor experiences.

The FMA will also focus on ensuring insurance companies proactively review existing products, particularly legacy offerings inherited through the sector's "numerous mergers and acquisitions." Companies must confirm these products align with consumer needs and that staff understand extensive product suites.

Insurance companies can expect proactive reviews. The FMA says it will prioritise companies that fail to self-report customer harm, and will also take tougher enforcement action against insurers who don't proactively identify problems with their products and services.