Snapshot of the financial advice regulatory reforms

Wednesday 22 March 2017

Author: Katie Dow

​​​​​​​​​​An exposure draft of the Financial Services Legislation Amendment Bill (the Draft Bill) and an accompanying consultation paper has been released. The consultation documents can be found here.​

​The Draft Bill effectively introduces a new financial advice regime.​

Key changes

New licensing requirements
Anyone providing financial advice to retail clients (including robo-advice) will need to be licensed by the FMA. Licensing will be at the firm level (i.e. financial advice firms and sole traders, being "financial advice providers") and conditions may be imposed restricting the type of financial advice able to be provided under a licence. 

Simplification
The requirement for tailored advice to be given by a natural person will be removed, which enables robo-advice. The distinctions drawn between class and personalised advice and category 1 products versus category 2 products will also be removed. ​

New adviser designations
The terms "AFAs", "registered financial advisers" and "QFEs" will be replaced with the concepts of a "financial advice provider" (firms/sole traders) and two classes of individual adviser, "financial adviser" and "financial advice representative", who will need to be engaged by a "financial advice provider". A "financial adviser" must be individually registered on the Financial Service Providers Register (FSPR) and will be responsible for complying with conduct and disclosure obligations. A "financial advice representative" will not need to register and will not be individually accountable (except in limited circumstances).

Conduct obligations
Anyone providing financial advice will be required to place the interests of the consumer first, only provide advice where competent to do so, and will be subject to a new Code of Conduct (which will set specific standards of knowledge, competence and skill).

Disclosure obligations
Disclosure obligations will be improved to ensure consumers receive core information such as remuneration (including commissions) at the time most relevant to their decision making.  These obligations will sit in regulations yet to be released. 

Compliance and enforcement
Financial advice providers will be subject to the Financial Markets Conduct Act's civil and criminal liability for breaches. Financial advice providers may also be civilly liable for their financial advice representatives and their financial advisers. The Financial Advisers Disciplinary Committee will be retained for breaches by financial advisers only. Financial advisers and financial advice representatives may still have limited civil liability and may also have criminal liability for knowing or reckless acts and omissions.

FSPA
The territorial scope of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 will be amended to address misuse of the FSPR. 

Key dates​​

31 March 2017, 5.00pm

Submissions due on the Draft Bill.

Throughout 2017

MBIE will engage with consumers and industry to develop disclosure regulations.

First half of 2017

Code Working Group to be appointed to develop a new Code of Conduct.

31 August 2018

New Code of Conduct expected to be approved.

February 2019

Proposed date that the new regime will take effect (six months after the new Code of Conduct's proposed approval date), with a staged transitional licensing process.

28 February 2019 – transitional licence required

Existing industry participants will need to be transitionally licensed (or engaged by a firm with a transitional licence). Participants who do not meet the new Code of Conduct standards by this time will be protected by a "safe harbour".

February 2021 – full licence required

Transitional licences expire and all industry participants will need to be fully licensed (or engaged by a firm with a full licence). All participants must meet the standards under the new Code of Conduct from this date.

​​​
The Draft Bill follows the Government's decision last year to effectively introduce a new financial advice regime by:  

  • repealing the Financial Advisers Act 2008,
  • amending the Financial Markets Conduct Act 2013 so that financial advice and broker regulation will sit in that Act, and
  • amending the Financial Service Providers (Registration and Dispute Resolution) Act 2008 so that entities require a greater connection to New Zealand in order to be registered on the FSPR. 
The Ministry of Business, Innovation and Employment (MBIE) is seeking feedback on the proposed transitional arrangements a​nd whether the Draft Bill achieves the policy intent. 

Key information still t​​​o come

  • A new Code of Conduct is yet ​to be developed. 
  • Regulations, including disclosure and licensing requirements, are yet to be released.
  • The proposed transitional arrangements are set out in the consultation paper but are not included in the Draft Bill. The legislative drafting of the transitional arrangements is expected to be released once MBIE has received feedbac​k on the consultation paper.
  • Consequential amendments to the Financial Markets Conduct Regulations 2014 are also still to be released.​

​​Please contact a member of our team for more detailed advice on the Draft Bill and how it may affect your business. We would also be happy to assist with any submissions you wish to make on the Draft Bill.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Haydn Wong

    Partner Auckland
  • Rachel Paris

    Partner Auckland
  • Sarah McQueen

    Special Counsel Auckland
  • Katie Dow

    Senior Associate Auckland
Related areas of expertise
  • Banking and finance
  • Financial sector regulation