Financial Services Legislation Amendment Bill: The quick read

On 3 August 2017, the Financial Services Legislation Amendment Bill was introduced to Parliament. This Bill will have a massive impact on all financial advisers and their employers in New Zealand.

Snapshot

  • All current financial advisers will be moving into the FMC Act regime and will need to meet the higher standards of that regime.
  • Conduct will be extremely important as will obtaining the necessary competence and meeting ongoing CPD obligations.
  • Everyone who provides financial advice will need to operate under a licensed financial advice provider.
  • Financial advice providers can employ financial advisers or nominated representatives.
  • The new Code is expected to be released in August 2018. There will be nine months (until May 2019) for companies and individuals to get organised and to apply for a transitional licence.
  • On or about May 2019, all existing industry participants will be required to be engaged by a business with a transitional licence under the FMC Act and at that point, everyone needs to be complying with the FMC Act, the new regulations and Code. The only transition conditions will be around obtaining the competency standards. Those who are already a QFE adviser or are registered on the FSPR will have a maximum of two years to meet the required competency standards.
  • A transitional licence will only apply for two years. Obtaining a transitional licence will be similar to what other organisations have had to do to obtain their existing FMCA licence.
  • All those providing financial advice will need to meet the new Code which is likely to be reasonably similar to the current Code of Professional Conduct for AFAs.

This Bill is an omnibus bill that makes amendments to the Financial Markets Conduct Act 2013 (the FMC Act) and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (the FSP Act). It also repeals the Financial Advisers Act 2008 (the FA Act) and revokes associated regulations and notices. The Bill will see financial advisers transition into the FMC Act and come under the requirements of that law.

Key points

The Bill:

  • Enables the provision of more types of financial advice. Unlike the FA Act, the Bill is technology-neutral. This means that the existing restriction that some types of advice need to be given by a natural person will be lifted. This fully enables the provision of robo-advice (online advice) and helps future-proof the regime for technological developments.
  • Removes the existing distinction between types of financial advice services (for example, class and personalised services). This will make it easier for those giving advice to tailor the advice to the client, rather than be bound by regulatory boundaries.
  • Establishes an even playing field and more proportionate conduct and competence requirements. The Bill requires all individuals and robo-advice platforms giving financial advice to place the interests of the consumer first. All those giving financial advice to retail clients will also be required to provide advice only where competent to do so, and be subject to a code of conduct that sets minimum standards of competence, knowledge, skill, ethical behaviour, and client care. [Strategi Institute believes this will logically be the New Zealand Certificate in Financial Services Level 5.]
  • Aligns the definition of a wholesale client with the FMC Act definition of wholesale investor. Wholesale clients are generally large or sophisticated clients such as banks, investment businesses, or high-net-worth individuals who do not require or benefit from the same degree of protection as retail clients. Aligning the definition in this way will reduce complexity and result in fewer individuals being classified as wholesale when they really need the protections of a retail client.
  • Requires all those giving financial advice to retail clients (rather than just some advisers, as under the FA Act) to ensure their clients understand any limitations on the nature and scope of the advice provided. For example, how many products or how many providers they have considered.
  • Requires anyone providing financial advice to retail clients to operate under a licence under Part 6 of the FMC Act. To ensure this does not impose undue costs on industry or government, licences will be able to be issued at the firm level. The specific licensing requirements will be set in regulations and by the Financial Markets Authority (the FMA). The requirements will be flexible depending on factors such as the size and nature of a firm and the services it provides, and whether a firm engages financial advisers or nominated representatives, or is a sole trader.
  • Limits who can give regulated financial advice. The Bill requires that in order to give regulated financial advice an individual must be either a financial adviser or a nominated representative both of whom must be giving advice on behalf of a financial advice provider.
  • Maintains disciplinary measures for some individuals. Financial advisers will be subject to the Financial Advisers’ Disciplinary Committee (the Disciplinary Committee). If a financial adviser is found to have contravened any obligation, the Disciplinary Committee will be able to censure, impose conditions, require the adviser to undergo training, impose a fine of up to $10,000, or direct the Registrar of Financial Service Providers (the Registrar) to deregister, or suspend the registration of, the financial adviser.
  • Requires disclosure of prescribed information to clients. The Bill requires those giving financial advice to disclose certain information to retail and wholesale clients. The content, timing, and manner of disclosure will be prescribed in regulations and may differ from the existing requirements.
  • Carries over the regulation of brokers from the FA Act, but replaces that term with people who provide a client money or property service. No additional obligations are applied to this service, nor is a market services licence required to provide this service.

Transitional licences

  • The Bill requires industry participants to be engaged by a firm with a transitional licence on a date to be set by Order in Council (expected to be approximately 9 months after the code of conduct is approved). [Strategi believes that this may be around 1 May 2019.]
  • At this point, most elements of the new regime, including the legislative duties and enforcement mechanisms, would take effect. However, existing industry participants who do not meet the competence standards in the Code of Conduct will be protected by a safe harbour, recognising that it may take time for some to meet any new competence standards.
  • The Bill provides for transitional licences and the safe harbour to expire after 2 years. At this stage, all industry participants would be required to be engaged by a firm with a full licence and everyone would be required to meet the competence standards in the Code of Conduct. [Strategi believes this will be 31 April 2021. However the Bill refers to everything needing to be completed by 1 May 2020 but this may need amendment.]
  • Under a transitional licence, individuals may be nominated as nominated representatives only if the licensee (or authorised body) was a qualifying financial entity (QFE) or a member of a QFE group under the Financial Advisers Act 2008. New competency requirements will not prevent these nominated representatives from providing certain advice during the 2-year transitional period.

Key definitions

  • A financial advice provider is a person that provides a financial advice service. A person provides the service if, in the ordinary course of its business, it engages one or more individuals to give advice on its behalf or it gives advice on its own account.
  • A financial adviser is an individual who is registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 in relation to a financial advice service (but does not include a financial advice provider).
  • A nominated representative is an individual who is nominated by a financial advice provider.
  • Client money or property service. This is the term which was previously referred to as a broking service.
  • Financial advice service. This is the provision of regulated financial advice. i.e. financial advice given in the ordinary course of business.

Duties of all those providing financial advice

  • To comply with the standards of competence, knowledge, and skill in the Code of Conduct and any prescribed eligibility criteria. [Strategi Institute believe this is likely to be the New Zealand Certificate in Financial Services Level 5.]
  • To ensure the client understands the nature and scope of the advice being given.
  • To give priority to the interests of the client. The current Code of Professional Conduct under the Financial Advisers Act 2008 provides that only an authorised financial adviser must place the interests of the client first, and must act with integrity (see standard 1 of that code).
  • To exercise care, diligence, and skill.
  • To comply with the standards of ethical behaviour, conduct, and client care required by the Code of Conduct.
  • Not to recommend certain financial products if the product’s offer contravenes the Act or regulations.
  • To make information available as and when required by the regulations.
  • Not to make false or misleading statements in, or omissions from, that information.

What is Strategi Group doing to assist financial advisers and the industry in general with this change?

Strategi Group is an end-to-end service provider focussed on assisting individuals, financial adviser firms, QFEs, adviser networks/head-groups and corporates to prepare for and obtain a financial advice provider licence. Additionally, we will train those who wish to be a financial adviser or nominated representative to meet the minimum competency standards plus provide them with the on-going CPD to remain competent.

  • We have already commenced a significant increase in capacity.
  • A team is available to advise and assist firms to obtain a FMCA licence.
  • Compliance systems and electronic compliance reporting has already been developed to meet the new regime.
  • Group pricing for the level 5 courses will be released in early August.
  • Radar has been built to be the industry online education portal. It contains approximately 300 CPD courses and more will be added.
  • We can supply new advice processes and templates.
  • We have developed and will continue to develop more templates to enable businesses to grow and transition to the new regime.

Contact us for more information. Download a PDF version of this article.