Claire Bolingford, the FMA’s director of banking and insurance, says focusing on customer and investor outcomes, rather than complying with specific rules, involves a major shift in mindset for the industry.

A good start is to exercise what she calls “an empathetic focus on the customer”, viewing everything from the customer’s perspective. This should happen during the planning and design, through to distribution of a product.

“It means thinking about the customer experience throughout the life-cycle of the product,” Bolingford says.  “It also means everyone in the business thinking like this, from the board and the executive through to frontline teams, and everybody in between. It is categorically not just the job of the conduct team, or the risk management team or the compliance team.

“It means asking whether the customer needs [a particular] product and helping them to make an informed decision. Do they understand what they are getting? It means people get the financial products and services they need and when they need them and [the products] do what people reasonably expect them to do.

“We want to see that shifts have been made, not only in mind but in all firm strategies.”

These themes are emerging in conduct regulation in other jurisdictions, Bolingford says. “Governments and the public are more likely to be expecting financial regulators to give greater emphasis to issues of equity and fairness.”

Focusing on outcomes means businesses can shape regulatory change in ways that work for both the business and its customers, she says. “But if you don’t grasp that opportunity, governments have the habit of reaching for more restrictive tools. Eventually, rules may be required to protect customers and they generally have less flexibility and proportionality about how they need to be complied with.”

Bolingford says the FMA has seen some good practices from firms, particularly in the later stages of the pandemic. “But we are also finding too often that when we ask firms how they can consider customer outcomes when changes are made, the response has not been thought through. This suggests it’s actually an after-thought.

“We do expect firms to be thinking about the customer upfront when any changes are made, communicating clearly to customers and, importantly, thinking innovatively about how to mitigate any adverse impacts the change could have.

“So, of a firm says a digitisation project would offer positive outcomes for customers, we’re disappointed when they can’t articulate to us what those actually are in practice.”  Some customers, particularly the vulnerable, may struggle to access digital services.

The FMA also wants boards to think proactively about what they need to understand to assure themselves customers are treated fairly.

“We want to see them constructively challenging management on what information is provided to them on culture, conduct and customer outcomes,” Bolingford says.