UP FRONT • REGULATION
Thousands unprepared for new regime While most advisers have heeded the call of the FMA, some have been slow to react. BY DANIEL SMITH
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arch 15, 2021, should be marked in the calendar of any adviser worth their salt. It is the date that the new financial advice regime kicks into gear. It marks a massive shift in the entire financial services industry. A shift that some are concerned many advisers are not prepared for. The essence of the change is that all financial advisers will need to be connected to a licensed financial advice provider (FAP), enabling the FMA to monitor licensed entities and act where conduct falls short of the required standards. All advisers will need to comply with a new code of conduct when providing financial advice to retail clients. The code includes standards for conduct, client care, competence, knowledge and skill. The disclosure regulations for FSLAA include expectations for providing information on the material limitations of advice given, disciplinary history of the person giving advice, and the fees, commissions or conflicts of interest that may apply. These are new obligations that all advisers must adhere to, and are designed to support good client outcomes. A recent FMA Supervision Insight report shows that the changes are both necessary and needed for an industry that has progress to make in certain sectors. After supervision activities from January 2019 to June 2020, the FMA found that while large parts of the financial services sector are working hard to meet the FMA’s expectations, widespread improvements to governance and compliance are needed. Rob Everett, FMA chief executive, said the issues identified in its monitoring were concerning, and he anticipated the regulator would take strong action where deficiencies are not remedied in a timely manner. “We are at a point now where the
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‘This is not a boxticking exercise; it needs to be woven into the culture of providers.’ _ Rob Everett, FMA
volume of FMA guidance, level of engagement and maturity of the regulatory regime mean there are no excuses for conduct that presents the risk of harm to investors, customers and the integrity of the markets,” Everett said. “While we have seen positive evidence of genuine customer focus during Covid-19, there is more work to be done to build a sustainable customer-centric culture,” he added. The FMA found weaknesses across its regulated sectors in four main areas: governance and oversight; conduct and culture; compliance assurance programmes; and compliance and controls. “Firms need to constantly assess their conduct and culture to ensure good customer outcomes are core to their compliance systems and their overall strategy,” Everett said. “We saw much good progress over the last year but were unimpressed by attitudes from one or two firms that suggested to us that they saw good conduct as something that only needs to be demonstrated when we visit. This is not a box-ticking
exercise; it needs to be woven into the culture of providers.” The surveillance report showed evidence as to why sweeping regulation changes were needed. The Financial Services Council welcomed the FMA’s surveillance report with open arms. FSC CEO Richard Klipin told TMM that “the sector collectively has worked really hard to ensure that this transition is effective, orderly. It’s encouraging to see the numbers of advisers growing. But for the people who have not yet made a call, the clock is ticking.” Klipin stated that although the regulation changes will substantially affect the sector, particularly around the tiers of accountability, “we’ve also had a lot of time to get used to it”. Ryan Edwards of The Adviser Platform (TAP) is in a position to see a different side of the story. TAP provides services to help raise advisers up to the standard of the new regulations, so interacts with advisers who might be most affected by the changes. Edwards said that he sees “large sections of the industry aren’t taking the change in regulation as seriously as they need to be”. While Edwards agrees with the FSC that there is positivity in the report’s showing a large number of advisers embracing change, he is concerned that “there is an equally large section of the market that is hanging out pretending that these changes aren’t going to happen”. “We are very happy with the incoming changes, but there is more of the market that needs to draw a line in the sand and decide that they need to make some changes for the better,” Edwards added. An FMA spokesperson told Good Returns that “our monitoring has shown areas of concern in the advice process, record keeping and continuing professional
