Liam Mason, the Financial Markets Authority’s director of regulation, spoke at a recent INFINZ conference. 

He said the traditional approach to disclosure had been the assumption that if all information was available to them, investors would be fairly armed and react rationally.

But no account was taken of customers’ natural biases, avoidances or behaviour.

Under the Financial Markets Conduct Act that has changed to make disclosure a tool for investors, not a liability cover for service providers.

He outlined what the regulator expects from firms’ disclosure.

He said the FMA expected boards and senior management would be able to ensure conduct standards were met and would know how their products and services were being sold.

“[And know] what the overall results of that are for investors and consumers; where outcomes for investors or consumers are less than anticipated, we expect firms will act to rectify that,” he said.

“Conduct risk” is a key factor to consider – the risk that conduct might contribute to poor outcomes for customers.

“For financial services firms, embedding a strong culture that puts customer interests at the heart of the business is crucial to ensuring conduct that benefits both the business and consumers,” Mason said.

He said boards and senior management would be asked how they knew their organisation was focused on customer outcomes.

John Berry, of Pathfinder Asset Management, said it would mean that processes around staff product sales incentives became a test of what is fair to customers.

He said product disclosure would move from "disclose absolutely everything and let the investor figure it out" to "disclose to appropriately inform the audience”.

“It sounds a lot more like they are building a stronger barrier at the top of the cliff rather than being a sheriff walking round at the bottom of the cliff surveying the damage.  A focus on provider conduct and investor outcomes is the right focus.”

Most boutique fund managers were already operating in that way, he said.

David Ireland, a partner at Kensington Swan, said Mason’s message was consistent with others from the FMA. “Whether participant experience of FMA practice and the FMC Regulations themselves actually reflect this stated approach is another matter.”