Transitional FAP Licence Standard Conditions Proposed

On 25 June 2019, the Financial Markets Authority (FMA) released a consultation paper on two proposed standard conditions they are considering imposing on transitional licensees under the new financial advice regime.

The FMA has asked for submissions by Friday 26 July 2019. The consultation paper and information on how to make a submission can be found here.

Who needs to read it?  Why?

Under the new financial advice regime, all providers of regulated financial advice to retail clients will need a financial advice provider (FAP) licence. Those who intend to provide such advice during the two-year transition period under a transitional licence will need to comply with these standard conditions. Furthermore, it is expected that these standard conditions (and likely others) would also apply to full licences.

The proposed conditions

The first standard condition proposed by the consultation paper is that FAPs under transitional licences must maintain adequate written records in relation to their financial advice services. These should be held for at least seven years and cover how the FAP, or any persons engaged by them to give regulated financial advice to retail clients, has complied with the Financial Markets Conduct Act 2013, the Financial Markets Conduct Regulations 2014, and the Code of Professional Conduct for Financial Advice Services (the Code).

The other standard condition proposed by the consultation papers is that FAPs under transitional licences must have an internal process for resolving complaints from clients in relation to their financial advice services. In particular, such processes should provide for:

  • retail clients to be given information about the process;
  • complaints to be acknowledged as soon as is practicable;
  • complaints to be resolved and a response given to the complainant as soon as is practicable; and
  • written records to be kept of all complaints and the actions taken to resolve them.

The licensing process

The consultation paper also provides more insight into the FMA’s intentions around the licensing application process, both for transitional and full licences.

In applying for a transitional licence, a FAP will be asked for details around its business, such as the types of services and products about which it will provide advice and who will be providing that advice under its licence. The FMA will then consider whether:

  • its directors and senior managers are fit and proper for their roles;
  • there is any reason to believe it may not meet its obligations; and
  • it will be registered on the Financial Service Providers Register.

In applying for a full licence, those same considerations will still apply but with the addition of more comprehensive criteria, as the FMA will also consider whether the FAP is capable of effectively performing its intended services. The information that a FAP will need to provide will depend on a number of factors, including:

  • the nature and size of its business and the services it provides;
  • whether it is a single adviser business or it engages financial advisers and/or nominated representatives; and
  • whether those financial advisers and/or nominated representatives will independently meet the standards of competence, knowledge and skill required by the Code.

Further details about the full licensing process, including how and when to apply, will be provided later in the year.

What next?

The transitional licensing process is expected to run from Q4 2019 until the June 2020 start of the new regime.

If you have any questions in relation to this transitional licensing process or the new financial services regulatory regime in general, are considering how these changes may affect your business, or would like assistance in making a submission, please contact one of our experts.

Who can help