Financial Markets Good Conduct Guide ‘Fuzzy Law’

Financial Markets Good Conduct Guide ‘Fuzzy Law’

4 August 2016

Guidelines released by the Financial Markets Authority (FMA) around conduct in financial markets were created without clear relevant statutory basis and are open to subjective interpretation, a Chapman Tripp partner says.

The FMA is seeking feedback on its new ‘Guide to the FMA’s View of Conduct’, published last week following discussions with market participants – which highlighted a need for better understanding of how the FMA expected to approach good conduct issues.

“While the Guide brings the topic of good conduct in financial markets to the fore, the rules are somewhat ‘fuzzy law’ in that they have been created without a clear and relevant statutory standard,” said Chapman Tripp partner Ross Pennington.

“The guidelines are open to subjective interpretation – similar to the NZX’s ‘Good Broking Practice’ – and vulnerable to swing with the mood of the FMA, as is happening in Australia with the Australian Securities and Investments Commission (ASIC) targeting banks in its crackdown on financial misconduct.”

The Guide is also at odds with the Government’s response to the Securities Law Review discussion paper that expressly rejected a statutory duty to ‘treat customers fairly’, Pennington said.

“Instead, the basic Fair Dealing standard is essentially an 'anti-fraud' one to avoid misleading or deceptive statements or conduct. It also bears some resemblance to the controversial MiFID regulations in the EU.”

Despite the Guide’s shortcomings, it does identify key concepts for financial service providers the FMA regulates to focus on when considering whether their businesses are engaging in good conduct, he said.

“It’s starting the conversation in this area and attempting to clarify what the FMA will be looking for when it comes to enforce the FMCA’s conduct obligations.”

The Guide should be given careful consideration by directors and senior managers of all licensed providers, as part of determining what constitutes good conduct in the context of their particular business and how they demonstrate on an ongoing basis that they meet their obligations under the FMCA, he said.

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