FMA flags record-keeping, conflicts and clients' understanding of risks
The Financial Markets Authority (FMA) has censured Christchurch-based financial services firm Opes Group Holding Company (Opes) for multiple failures to meet obligations under its Financial Advice Provider (FAP) licence.
“We made the decision to censure Opes because there were shortcomings in its record keeping, how it ensures client understanding of the advice, its management of conflicts of interest and oversight of its advisers,” said Louise Unger, FMA executive director for response and enforcement, in a media release.
Unger said Opes’ client documentation and systems fell short of licence conditions.
“The way Opes’ client documents are completed, how they are stored, and the level of detail recorded is not consistent, and records weren’t efficiently accessible, to the extent that Opes was in breach of the requirements of Standard Condition 1 of its FAP licence," she said. "In addition, this breach made it difficult for FMA to verify whether other regulatory obligations were being met.”
The financial advice industry is in a pivotal phase, with the second round of Financial Advice Provider (FAP) regulatory returns having put a fresh spotlight on governance and reporting
Vertically integrated model heightens conflicts of interest risk
Unger said Opes’ vertically integrated model – spanning property sales, investment planning, mortgage advice, accounting and property management – raises inherent conflict of interest risks.
“While this offers integrated services, the business model creates a risk of conflict of interest between the financial advice provider and the client, making adequate policies and procedures in this area, and the implementation of them, critical to appropriately managing this risk," she said. "The FMA found that Opes did not have adequate policies or processes in place and could not be confident that all conflicts had been identified, disclosed, and managed.”
The regulator also found gaps in how Opes ensured clients fully understood the scope and limits of advice, particularly when they did not complete the full advice process.
“There were additional reasonable steps that Opes could have taken to ensure its clients who did not progress to purchase a property with Opes understood the risks and limitations of the advice provided," Unger said. "Clients who did not proceed through the full advice process with Opes, where they would have received further risk disclosures, may not have been made fully aware of the potential downsides or the implications of acting on limited advice.”
No client harm identified, but deterrence and remediation emphasised
FMA said it did not identify actual client harm but considered the contraventions increased the risk of poor outcomes.
“Censuring and naming Opes is important to ensure the transparency of FMA decision making; it informs the public and previous clients, prevents and reduces the opportunity for consumer detriment, and helps to maximise the deterrent effect on the industry," Unger said.
Opes said it accepted the regulator’s findings and is investing to lift its standards.
“While the FMA did not identify any actual client harm from its review, we hold ourselves to the highest standard and agree with its assessment that our regulatory compliance hasn’t kept up with our rapid growth,” the firm told the Australian Broker.
FMA said Opes had fully cooperated with its review, taken significant steps to address the issues raised, and put forward a voluntary remediation plan that, if fully implemented, should help ensure it meets its obligations going forward.
The regulator noted Opes’ cooperation, remedial work, and “ongoing commitment to improving policies and practices” in deciding its response.
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