Regulation

Forwards to March 15

Transitional licensing figures look promising, and the FMA are ‘very pleased to see advisers taking the transition seriously’.

BY DANIEL SMITH

As summer draws to a close, and we move further in to 2021, the new regime will be a priority focus. Before the holiday break the FMA released their latest tally of licensing numbers which told a positive story for an industry where advisers were poised for change.

Back in September 2020, things were looking shaky with over 2,000 financial advisers yet to apply for transitional licences. The end of year data shows a pre-holiday surge which saw 97% of advisers covered by a transitional licence.

As of December 20 1,356 licences have been approved alongside 715 authorised bodies, meaning that well over 2,000 advisers have made the decision to engage with the new regime. Individual financial advisers covered by a transitional licence now number 9,157, giving some leeway for double-ups on the FSPR.

Speaking late last year, FMA director of market engagement John Botica said he was happy with the results. “I am very pleased to see advisers taking the transition seriously and engaging [with us] in the process. With everything else that has been going on this year, all of the stresses and strains that 2020 has thrown up, advisers have really answered the call to be part of a regime designed to provide even better customer outcomes.

“Up and down the country advisers make life better for their clients. They should rightly be proud. Licensing numbers show that the overwhelming majority are well on the way to being ready for the new regime.”

Those 3% of advisers yet to gain their transitional licence have until March 15 to do so.

Updates to FSLAA regulations

December 2020 saw a slew of supporting updates to FSLAA.

Penny Sheerin, partner at Chapman Tripp says that advisers needn’t worry too much about these updates if they are on top of the changes for the new regime.

“Really these updates are just the finer details. Tidy-ups to some of the wording of the regulation. Updating terminology to reflect the new regime and a number of other quite administrative points. A lot of it is not ground-breaking new content.”

But Sheerin notes that there is one area which advisers need to be mindful of.

“One thing to note are the changes to the FSP Register, specifically around limitations that have been put in place to limit the misuse of the register. These changes have been talked about for a while but now they are manifesting in the upcoming regulations.”

At the top of the changes to the FSLAA, are updates to the Financial Markets Conduct Amendment Regulations 2020. The key changes to this set of regulations are detailed below.

• Replacing terminology from the Financial Advisers Act 2008 (FAA).

• Replacing references to financial advisers with references to financial advice providers and including transitional provisions to give affected providers time to update documents.

• Prescribing eligibility criteria for an entity that wants to be an authorised body under a licence that covers a financial advice service.

• Carrying over the effect of the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 but with some updates and clarifications, and clarifying when assurance reports for assurance engagements must be obtained by custodians.

• Prescribing limited circumstances in which a provider of a client money or property service is not required to hold client money and property separate from firm money or property including duties to protect the interests of clients.

• Prescribing when firm money that is held together with client money is to be treated as client money.

• Prescribing requirements for the record of nominated representatives that must be maintained by providers.

• Prescribing the statement that lenders can give to make clear to consumers that the limited exclusion from the financial advice regime relating to lender responsibilities applies.

• Continuing duties imposed under the FAA for former authorised financial advisers and qualifying financial entities to retain records.

• Carrying over exemptions contained in regulations under the FAA.

• Updating a cross-reference in the financial advice disclosure regulations so that financial advice providers are able to refer to their website for information about their legal duties.

• Enabling financial advice providers to provide contingency discretionary investment management services (DIMS) without being subject to DIMS licensing requirements (and providing for transitional arrangements). This carries over and updates an existing licensing exemption for contingency DIMS provided by authorised financial advisers.

• Dis-applying certain provisions of the Trusts Act 2019 to trusts relating to portfolio investment entity (PIE) call fund units and PIE term fund units.

• Updating the information that must be disclosed to investors about the tax consequences of investing in managed investment schemes that are PIEs.

• Amending the Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019, including a new exemption from the licensing requirement for financial advice services.

Other released FSLAA regulations include:

Financial Markets Authority (Levies) Amendment Regulations (No 2) 2020

• The Regulations set levies for the new financial advice regime as well as for the 2021/22 and 2022/23 years reflecting decisions made earlier this year.

Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Amendment Regulations 2020

• The Regulations replace the now redundant terminology from the Financial Advisers Act 2008. No substantive changes to the AML obligations have resulted.

Financial Service Providers (Registration) Regulations 2020

• A requirement for additional information to be displayed on the Register.

• New measures to address misuse of the Financial Service Providers Register.

Financial Service Providers (Exemptions) Amendment Regulations 2020

• The Regulations exempt certain providers without a place of business in New Zealand from registration on the Financial Service Providers Register if they do not promote services to New Zealand clients.

With the new regime just around the corner it is important that adviser processes are robust enough to handle any difficulties brought about by the change.

Client complaint resolution numbers positive

The levels of resolved client complaints against financial service providers show that systems are currently working, but this could change with the tide of the markets, says Financial Focus principal Murray Weatherston.

Weatherston says that the levels of complaints seen in New Zealand is actually relatively low. During 2020 FSCL only investigated 298 – 91 of which were settled, 103 discontinued and 44 resolved early by the participant. Only 42 cases went all the way through to the end of the process.

He believes that these numbers reflect the health of the DRS systems and of the industry as a whole. “The situation is clear. If the client has a complaint that the provider cannot deal with, then the consumer has the right to go free of charge to a dispute resolution scheme. The fact that the numbers are low means that the adviser industry is in good health.”

One caveat that Weatherston adds: “Given the way the investment markets have been performing it is very hard to see why any consumer would have anything to complain about regarding investment advice.”

When analysing the performance of the DRS Weatherston believes that it is important to remember that the markets have largely been kind. “It’s hard to complain when you are not losing money. It will be interesting to see, if markets turn, if that will lead to an increase in disputes.”

The confusion around what the numbers of complaints means for the industry stems from a misunderstanding of the way the systems work, Weatherson says.

“Some people think that the consumer can go straight to the DRS to make their complaint, which is not the case. The consumer has to go to the adviser first, and only if they can’t get a solution there can they then approach the scheme.

“Many people don’t understand that to even get to the DRS there has to be a complaint that has not been settled through the adviser-client channels.” ✚

‘One thing to note are the changes to the FSP Register, specifically around limitations that have been put in place to limit the misuse of the register’

Penny Sheerin