The Financial Services Legislation Amendment Bill ( FSLAB) is expected to pass next week with most provisions to come into force in the second quarter of 2020, but with a longer transition for the qualification changes to second quarter 2022.
The Bill includes some late changes introduced through Supplementary Order Paper (SOP), the most important of which relate to financial advisers who represent more than one financial advice provider and to the new competency demonstration options.
Commerce Minister Kris Faafoi has also released a Cabinet paper providing some guidance on the proposed disclosure regulations in terms of objectives, timing and content.
SOP – technical changes
A key change would enable the Financial Markets Authority (FMA) to prohibit or restrict financial advice providers from engaging a financial adviser who is also engaged by another provider.
Faafoi is concerned that in multiple provider arrangements may cause confusion.
Other changes the SOP makes to the Financial Markets Conduct Act 2013 (the FMCA) include:
- clarifying that a person may demonstrate competence, knowledge and skills in ways that are not specifically set out in the new Code of Conduct for Financial Advice Services
- extending the expiry date of the DIMS licences automatically granted to DIMS providers authorised under the Financial Advisers Act 2008 to two years after the regime commences (rather than the date their authorisation would have expired), and
- confirming "in-house" advice is not covered by the legislation.
Amendments to the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (the FSPA) include:
- requiring registration as a financial adviser only where advice is given to retail clients (relieving wholesale advisers from registration)
- providing that, where a service is caught by two or more categories in the "financial services" definition, and where regulations permit, registration is required only for one of those categories
- providing for the deregistration of non-engaged financial advisers after three months of disengagement, or longer where expressly permitted, and
- clarifying that when an adviser is engaged by a provider through an intermediary, the provider is identified on the register.
Cabinet paper – disclosure
The Cabinet paper sets out the broad objectives for the disclosure regulations to apply to advisers giving advice to retail clients.
These are to:
- provide consumers with the key information they need
- provide consumers with the right information at the right time
- provide information in a way that is accessible for consumers
- provide consumers with effective disclosure, regardless of the channel used, and
- not impose unnecessary compliance costs on the industry.
The recommendations, which will be put out for public consultation before adoption, will cover:
- the licence held by the financial advice provider and whether there are any relevant conditions on the licence
- information about the legislative duties to which the person giving advice is subject
- the financial advice service that can be provided, the financial advice products and product providers that can be advised on, and other limitations on the advice
- the applicable fees and costs relating to the financial advice, including the basis on which they are charged
- the commissions or incentives that may be received, or any other conflicts of interest, that might materially influence the financial advice
- the complaints handling and dispute resolution arrangements
- any publicly notified Financial Adviser Disciplinary Committee proceedings within the past five years
- certain criminal convictions, civil liability findings, or adverse findings from a court or other tribunal within, at most, the last five years, if relevant to a client's ability to rely on the advice, and
- in the case of financial advisers (but not nominated representatives), any instances of being adjudicated bankrupt, or admitted to the no asset procedure, within four years of the date of discharge.
The Minister prefers that disclosure be released on a staggered basis at prescribed points in the advice process, to avoid consumers being overloaded with confusing, irrelevant or untimely information. It is proposed that:
- providers include information relating to their licence, dispute resolution arrangements, scope of advice, fees, potential commissions and conflicts of interest posted on their website, and have it available on request
- advisers provide this information to the client directly once the nature and scope of the financial advice service to be provided is known, or soon after, and
- when financial advice is given, advisers provide any material change to the already provided information, and confirm any actual fees, commissions, incentives, conflicts of interests, his/her duties and the dispute resolution arrangements.
Other proposed requirements:
- disclosure will not need to be repeated to a client within a one year period unless there has been a material change in the information or in the nature of the service being offered
- disclosure to retail clients should be clear, concise, effective and use plain language. It must be provided in writing at the client's request. Where this is not requested, the provider can determine the best delivery method, including through an interactive online tool, and
- any written disclosure should be clearly identifiable and contain the professional contact details of the person giving the financial advice.
Chapman Tripp comments
Financial advisers – including financial planners, DIMS providers, sharebrokers, banks, insurance agents and mortgage brokers – should now be at least considering how to approach the new requirements.
A key decision will be whether to be financial advice providers themselves or to come under another provider, given the FMA's proposed new ability to restrict financial advisers from engaging with multiple providers.
Small financial adviser groups will need to weigh up whether they assume financial advice provider responsibilities under a collective financial advice provider model, which should include weighing the shared statutory liability for others within the group, the anticipated additional monitoring, training and compliance obligations and the proposed licensing fees.
An exposure draft of the regulations and related commentary will be released for public submission in the second quarter of this year.
Please contact our Financial Services Regulation team if you wish to respond to these changes, or would like further information on the impact of FSLAB.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.