FSLAB Update

On 12 March 2019, the Minister of Commerce and Consumer Affairs, Kris Faafoi, released a new supplementary order paper (SOP) to the upcoming Financial Services Legislation Amendment Bill (FSLAB). Links to the SOP and Cabinet paper are available here and here.

The Ministry of Business, Innovation and Employment (MBIE) also published on 12 March 2019 updated factsheets in relation to FSLAB. The updates summarise the minor changes being made to FSLAB under the SOP and the disclosure requirements that will apply to the new financial advice regime.

Who needs to read it?  Why?

FSLAB will establish a new regulatory regime for financial advice and financial advisers in New Zealand. All involved in the provision of financial advice, financial services or financial products will want to stay up to date with the latest developments.

What does it cover?

SOP changes

The SOP makes a number of technical changes. These include (among other things):

FMCA/Adviser regime

  • providing for licence conditions (under new section 403(4) of the FMCA) to specify circumstances where a financial advice provider (FAP) cannot engage an individual financial adviser that is engaged by another FAP. The intention is that where MBIE or the Financial Markets Authority (FMA) considers that the FAP’s duties and obligations may be impaired, this can be mitigated through the FAP’s licence;
  • amending new clause 32 of new Schedule 5 of the FMCA, to clarify that a person may demonstrate competence, knowledge and skills in ways that are not specifically set out in the Financial Advice Code;
  • clarifying that the financial advice duties apply where regulated financial advice is provided “to clients” and do not apply where advice is given internally within a business in the course of and for the purpose of that business;
  • anyone authorised to provide a discretionary investment management service under the Financial Advisers Act 2008 is deemed to hold a licence to provide this under the Financial Markets Conduct Act 2013 until 2 years after the commencement date of the new regime (changed from the expiry date of that licence);
  • the longstop date at which all provisions of FSLAB must come into force by Order in Council is now 1 May 2021 (extended from 1 May 2020). The intention remains that the new regime will begin in the second quarter of 2020. However, the date has been changed so that if there was an unforeseen delay in commencement, there is not a need to go back to Parliament;

FSP Act registrations

  • clarifying that a financial adviser may be deregistered from the Financial Service Providers Register if the adviser is not engaged by a provider for a continuous period of at least 3 months; and
  • amending the Financial Service Providers (Registration and Dispute Resolution) Act 2008 so that regulations can prescribe additional information to be collected from providers and to allow for regulations to prescribe that providers do not need to register for more than one category of financial service where there are overlaps between different services.

Disclosure requirements

The Cabinet paper provides that detailed requirements in relation to disclosure will be set out in regulations. MBIE expects to consult on draft regulations in Q2 of this year. In general:

  • any firm or individual who gives regulated financial advice to retail clients will need to disclose information relating to; licensing, conduct and client care duties, nature and scope of advice, fees, commissions and incentives, other conflicts of interest, complaints handling, disciplinary history, convictions or other proceedings, and bankruptcy proceedings;
  • full up-front disclosure is not required. Rather information will be given as it becomes relevant to the client; and
  • because of flexibility for when disclosure needs to be provided, the requirements for how disclosure will be provided will also be more flexible, provided it is clear, concise and effective (and provided in writing if requested by the client).

Our view

The changes signalled to the financial advice regime are mainly expected tidy ups. The inclusion of a mechanism to regulate advisers acting for multiple FAPs reflects, however, a genuine concern to ensure clients are clear on whom they are dealing with and that FAPs and advisers have a clear chain of responsibility.

In relation to disclosure, the Cabinet paper signals a clear desire to move away from the prescriptive approach of the Financial Advisers Act 2008. Businesses will be able to determine the best delivery method for them and their clients, whether in writing, verbally or through online tools. Adviser businesses should expect to be rigorously supervised, however, to ensure their disclosure remains fit for purpose.

What next

FSLAB is now moving through its final stages in Parliament and MBIE are hoping those will be completed in the coming weeks.

The other work streams (fees and levies, registration processes and regulations, and other regulations) are also continuing to progress. MBIE’s indicative timeframes are for transitional licensing to open in Q4 of this year and the new regime to begin in Q2 of 2020.

If you have any questions on how FSLAB may affect your business, please contact one of our experts.

Who can help