The Financial Services Legislation Amendment Act 2019 (FSLAA):
There is some transitional relief up to 15 March 2023 for meeting competency requirements and obtaining a full (rather than transitional) licence.
Financial Advisers Act Regime
The FAA regulates persons engaging in:
The FAA regime is complicated and the compliance obligations depend on:
Advisers providing personalised advice to retail clients on complex products require Financial Markets Authority authorisation under the FAA. Other advisers require only registration.
There are also requirements relating to dispute resolution scheme membership, conduct and education standards, and disclosure.
Licensing Under FSLAA
FSLAA repeals the standalone FAA and inserts the new financial advice regulatory regime in the Financial Markets Conduct Act 2013 (FMCA), which is the key financial markets regulatory legislation in New Zealand.
When FSLAA comes into force, advisers will be either a Financial Advice Provider (FAP), a Financial Adviser (FA), or a Nominated Representative (NR) engaged by a FAP. There is also allowance for interposed persons (who will themselves be FAPs) and authorised bodies in business structures.
There will be two phases of licensing: transitional and full.
All those providing financial advice should have a transitional FAP licence, or be operating under another FAP’s transitional licence by 15 March 2021.
A transitional licence enables FAs and NRs to continue providing the advice they were legally able to provide under the FAA before FSLAA came into effect. It is valid for up to two years, to 15 March 2023. All FAPs must have obtained a full licence by this time, and all FAs and NRs will need to be engaged by a FAP with a full licence.
A transitional licence can be obtained through a short, online application process, allowing the FMA to collate and consider limited information on FAPs.
There are two standard transitional licence conditions, relating to record keeping and having an internal dispute resolution process.
A full licence entails a more demanding application process, requiring detailed business information to be provided to the FMA.
There are three classes of full licence, depending on the manner in which regulated financial advice may be provided by the FAP. The classes do not limit the types of financial advice that may be provided under the licence, as this is addressed by the competency requirements in the new Code of Professional Conduct for Financial Advice Services (Code).
The FMA has released the standard conditions it will impose on full financial advice provider licences. These relate to:
New Financial Advice Duties And Obligations
Where advice is provided to either retail or wholesale clients, the adviser must:
Where advice is provided to retail clients, the adviser must also:
(There are also competency requirements in the Code which will apply from 15 March 2023.)
Financial advice providers must also:
New Code Of Professional Conduct
From 15 March 2021, anyone providing financial advice to retail clients will be required to comply with the new Code of Professional Conduct for Financial Advice Services (the Code).
The Code is divided into two parts:
The Code comprises nine standards that are generally principles-based in nature. In order to assist compliance, the Code provides commentary for each standard and, in Part 2, ways of demonstrating the standards.
Existing advisers have a two year exemption in which to meet the competency requirements under the Code. This expires on 15 March 2023. Until then, financial advisers under a transitional licence will be able to continue to provide the regulated financial advice they provided under the previous regime.
FSLAA provides for new disclosure requirements by way of regulations which apply from 15 March 2021. The Financial Markets Conduct (Regulated Financial Advice Disclosure) Amendment Regulations 2020 set out the information that must be disclosed and when that information must be disclosed.
They require disclosure at four key points in the financial advice process:
Financial Service Providers (Registration and Dispute Resolution) Act 2008
The Financial Service Providers (Registration) Regulations 2020 and the Financial Service Providers (Exemptions) Amendment Regulations 2020 (the Regulations) also apply from 15 March 2021.
The Regulations are designed to prevent misuse of the Financial Service Providers Register (FSPR) by including a minimum threshold that must be met by certain entities to register on the FSPR. The Regulations also require certain providers to include a warning statement that registration on the FSPR does not mean active regulation in New Zealand.
Persons who have been in the business of providing a financial service in New Zealand for at least 12 months, will not meet the prescribed threshold if:
The changes resulting from FSLAA affect all financial advisers and those providing financial advice services to clients in New Zealand. They represent a significant progression for the industry and are expected to lift service standards and improve customer outcomes.
An expert in financial services laws, Chapman Tripp Partner Penny Sheerin advises extensively on the full range of legislation affecting financial service providers, including financial advisers under the new Financial Services Legislation Amendment Act. Penny also advises fund managers, insurers, brokers, discretionary investment management scheme providers, derivatives issuers, non-bank deposit takers and payments system providers. She counsels clients on the establishment, restructuring, distribution and compliance of financial products, including KiwiSaver. She is experienced in obtaining licences, and has managed numerous applications to, and negotiations with supervisors and regulators, including the Financial Markets Authority, NZX, Companies Office and Reserve Bank of New Zealand.