UP FRONT • REGULATION
Avoid the logjam: just do it The Financial Markets Authority warns advisers need to get their full licence applications completed ASAP to avoid delays. BY ERIC FRYKBERG
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inancial advisers are soldiering on with getting full licences under the new industry regime, spending thousands of dollars and devoting hours, or even months, of work to get the task done. Despite this burden, some advisers think full licensing under the Financial Advice Provider (FAP) regulations is worthwhile. Others are gritting their teeth over an unavoidable necessity - and a majority have still to file their applications. The Financial Markets Authority (FMA) is worried this delay may continue and that the whole process will fall way behind schedule, creating a serious logjam later on. The authority insists it is trying to make the process as clear as possible for applicants, but admits it could do better.
More deadlines to meet Full licensing was required by the Financial Services Legislation Amendment Act 2019. As a step towards this, advisers had to obtain a transitional licence by March last year. But there are three more deadlines to meet in order to transform those transitional licences into full licences: June 30 for Class Three licences, September 30 for Class One and Class Two licences and March 16 next year, as a final do-or-die date, when transitional licences expire. At this stage, progress towards achieving those goals is slow. According to the FMA, 355 full licences had been approved as of mid-April, and another 32 were being processed. 014
TMM 02 • 2022
That was out of a total number of licences of 1861 – both transitional and fully approved – meaning four-fifths of licences still need to be dealt with. The FMA is not displeased about this low level of progress, but it is not pleased either, calling it “good, but not good enough.” Acting director of regulation John Botica told a webinar for financial advisers the authority was tracking in the right direction. “But as some of my old school report cards would often say about me, he needs to work a little bit harder, he talks too much, and he distracts others.”
Massive volume of information required One of the problems is the sheer volume of information that has to be provided. Jeff Royle, of the brokerage iLender, lists the questions that were asked when he got his full licence last October: “Do you give advice outside New Zealand? How long have you been in the market? Do you plan to appoint directors? Do you plan to apply for additional licences?” And there was more. “You have to have a business continuity plan, and say when you will review it; you need to have a cyber security policy, and say when you will review it,” Royle said. “You need to reveal any other parties to your business, you have to say whether you deal with client money, you have to have an approved document process to ensure ongoing compliance, and the list just goes on and on.” Answering all these questions took Royle 30 hours of work and incurred
many thousands of dollars in costs, but he still supports the process in principle of tightening up advisers' operating licences. “It had to happen; I am quite proregulation as long as it is fit for purpose. In my view, there are still people operating in the market who shouldn't be.” One consequence of a compliance regime weighed down by volumes of detail is that people are incentivised to find ways to do it all smarter. Royle says some of the work he had to do last year is now templated, which makes it quicker and easier.
Strength in numbers Other brokers are seeking strength in numbers. The FMA says many brokers are ditching their sole trader status and joining aggregator groups. In fact, 320 of the approvals issued by April were for authorised bodies, according to Botica. “I think it points to some of the traditional licence holders starting to operate under someone else's licence rather than going solo,” he says. “It is early days, but I suspect we are starting to see some signs of consolidation.” But this trend is not universal. Sole operators persist throughout the industry. Under the rules, they need to get a Class One licence, and the application must be in by September. According to Botica, these applications may not be proceeding as fast as they should. “The sole operators represent 31% of the applications we have received so far,
