FMA thinks hard about tech disruption in strategy refresh

The Financial Markets Authority is bracing for rapid changes as a result of technology advances with automated financial advice, known as robo-advice, the most obvious candidate.

In a refresh of its strategic risk outlook, the market watchdog anticipates advances in technology will provide significant benefits to consumers through cheaper transactions, lower business costs, better product comparison and a broader range of available services. However, those will be accompanied by the risk of relying too heavily on new systems and services, which could increase exposure to complex products, create data security issues, and could operate in a regulatory vacuum.

Chief executive Rob Everett told a media briefing in Auckland the regulator will follow the same route it took in its approach to equity crowdfunding and peer-to-peer licensing, where it sat down with potential providers to see how they could operate in a potentially regulated environment. That meets the FMA's mandate to foster economic growth and deliver better outcomes for customers, a key focus for the regulator, in what is a flexible regime that can provide relief in certain cases.

"What we're trying to do is get our own internal risk appetite and our own internal ability to respond to what we believe will be some very innovative business models, probably mainly with large tech components, online components, robo-advice being an absolutely obvious example," Mr Everett said.

"The earlier we can get involved in new business models to try and work out for both ourselves and whoever's trying to create the business models where certain latitude can be given from some of the regulation that exists or where we actually just need to help people understand how those requirements will fit with their business," he said.

The FMA identified those advances as one of four developing themes in the latest strategy document. Other themes identified were reviewing the FMA's perimeter, referring to financial services that don't fall under its regulatory remit but may have an indirect effect on areas that do, a growing number of complex products that could potentially harm unwary consumers, and helping investor decision-making in changing market conditions, where interest rates appear to have bottomed out.

The seven major risks identified in the FMA's December 2014 strategic risk outlook document – investor decision-making, governance and culture, conflicted conduct, capital market growth and integrity, sales and advice, frontline regulators, and FMA effectiveness and efficiency – were still seen as the watchdog's priorities.

The regulator just completed the final stage of licensing under the Financial Markets Conduct Act late last year and is preparing for another major shift in the oversight of financial advisers, with a final decision expected to come this year.

The FMA will also get an increase in funding this year to beef up its monitoring duties, which it would have had to scale back after exhausting reserves built up in its first few years of existence.

(BusinessDesk)