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FMA Financial Conduct Report: Key priorities for boards and senior executives
The Financial Markets Authority (FMA) has released its second annual Financial Conduct Report (Report), outlining its assessment of conduct across New Zealand’s financial sector over the past 12 months and identifying its priorities for the year ahead.
The Report provides a clear statement of where the FMA sees the most significant risks to consumer and market outcomes, together with the standards it expects of regulated entities. For boards and executives, it is a practical guide to the FMA’s evolving expectations, highlighting the areas that will attract the greatest regulatory focus and signalling where businesses should prioritise attention to ensure they are delivering fair outcomes and meeting governance and conduct obligations.
Read the full Report here.
Key takeaways
Boards are expected to actively govern conduct risk, give particular focus to high impact themes, and demonstrate real customer outcomes, not just compliant processes.
- Conduct risk is a core governance responsibility: The FMA is clear that conduct is not just a compliance issue, it is a board level responsibility. Boards are expected to actively oversee how their business delivers fair customer outcomes, with clear accountability, robust challenge of management, and decision making that consistently prioritises customers.
- Focus will centre on recurring risk themes: The report highlights four cross sector risk areas, incentives/conflicts, product governance, complaints/remediation, and fraud/scams, as the key drivers of regulatory scrutiny. Boards should assume these are the areas the FMA will test most closely and ensure they are embedded across governance, reporting, and strategy.
- Outcomes matter: The FMA’s shift to outcomes focused regulation is now firmly embedded. It is no longer sufficient to show policies and frameworks exist. Businesses must be able to evidence that customers are actually receiving fair outcomes in practice.
FMA's themes and priorities for next 12 months
The FMA has identified four cross sector themes that present significant risks to consumer and market outcomes. While these themes apply across all regulated sectors, the way they arise and are addressed will differ depending on sector specific business models, services, and products:
- Managing conflicts from remuneration structures (consumer credit, financial advice and insurance)
- Product design for new and redesigned products (banks and non-bank deposit takers, and insurance)
- Complaints, specifically the use of complaints data to drive improvements (financial advice, banks and non-bank deposit takers, insurance, investment management), and complaints processes and handling (consumer credit)
- Fraud detection and prevention, specifically in relation to mortgage fraud, insurance fraud, and fraudulent use of KiwiSaver first-home withdrawals (financial advice, insurance, banks and non-bank deposit takers, and investment management).
Those themes have translated into the following priorities by sector:
| Sector | Priorities |
|---|---|
| Financial advice | Managing conflicts from remuneration structures, fraud detection and prevention, use of complaints data to drive improvements, and digitisation opportunities (such as AI) in financial advice |
| Consumer credit | Managing conflicts from remuneration structures, complaints processes and handling, and unsuitable or unaffordable lending |
| Banks, non-bank deposit takers, and insurers | Product design for new and redesigned products, use of complaints data to drive improvements, and fraud detection and prevention |
| Capital markets | Misleading disclosure by wholesale issuers, insider conduct by directors and senior managers, and supporting policy change for capital markets settings |
| Investment management | Use of complaints data to drive improvements, operational resilience of MIS fund administration providers, and fraud detection and prevention |
| Other | Disrupting scams |
Key questions for boards and executives
The FMA expects boards and executives to actively interrogate how their business delivers fair customer outcomes in practice, with a particular focus on incentives, product governance, complaints intelligence, and proactive identification of conduct risk.
The Report identifies a range of questions for boards and executives to consider in relation to each of the priority areas, but the key cross-sector considerations are:
- Conduct and customer outcomes: how do we know our products and services are delivering fair customer outcomes in practice (not just in design), what evidence do we rely on at board level to assess customer outcomes, and where are the biggest risks of poor outcomes in our business model?
- Governance and accountability: is there clear ownership of conduct risk at executive and board level, do we receive sufficiently robust reporting to challenge management on conduct issues, and how are conduct considerations integrated into strategy, risk, and remuneration decisions?
- Conflicts and incentives: how do remuneration and incentive structures influence frontline behaviour, what controls are in place to identify and mitigate conflicts of interest, and can we demonstrate that outcomes are consistent with the management of conflicts of interest?
- Product design and lifecycle governance: how do we ensure products are designed with the target customer in mind, what processes test whether products deliver on their intended value over time, and how do we identify and respond to products that are no longer delivering fair outcomes?
- Complaints and remediation: What is our complaints data telling us about systemic issues or harm, how quickly and effectively do we identify and remediate customer harm, and are we using complaints insights to drive meaningful business improvements?
- Fraud, scams and financial crime: how effective are our systems and controls for detecting and preventing fraud and scams, where are our key vulnerabilities (eg onboarding, transactions, third parties), and how well do we respond when fraud risks or incidents arise?
- Proactive risk identification: how do we identify emerging conduct risks (including from new products, channels, or technologies), are we sufficiently proactive or overly reliant on issues surfacing through complaints and incidents, and what early warning indicators do we monitor?
- Customer vulnerability and market conditions: how are we identifying and supporting customers in vulnerable circumstances, how do economic or market conditions affect customer outcomes in our products, and are we adapting our approach as customer risk profiles change?
- Data and systems: do we have the right data to monitor conduct risk and customer outcomes effectively, is management information sufficiently forward-looking and decision-useful, and how do we ensure data is actually driving action?
- Change, innovation and technology (including AI): how do new technologies change our conduct risk profile, what governance is in place around AI, automation and digital channels, and are innovation initiatives aligned with fair customer outcomes?
Why the Report matters
The Report sets out the FMA’s regulatory priorities, expectations, and areas of scrutiny, effectively signalling where the regulator will focus its supervision and enforcement efforts over the coming year. As an annual statement of conduct risk and regulatory intent, it requires boards to assess whether their governance, incentives, products, and customer outcomes align with those expectations, and to take proactive steps where gaps exist.
In practical terms, it is not just guidance, it is a roadmap for how the FMA will judge performance, meaning that failure to engage with it can translate directly into heightened regulatory risk, reputational exposure, and potential enforcement action, while effective engagement supports stronger customer outcomes and more resilient business practices.
For further information please contact one of our experts.
