UP FRONT • REGULATION
Full licence provisions: what you need to know The FMA has finally released standard conditions for a full FAP licence. But what are the fishhooks? BY DANIEL SMITH
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s March 15 grows closer, many advisers across the financial services industry are scrambling to get ready for what may well be the most significant industry shakeup in a generation. The latest and most important update over the past few months has been the release of the FMA’s full licence provisions. After much industry consulting, the FMA has finally released the standard conditions that financial advice providers (FAP) must adhere to in order to achieve a full licence. The final standard conditions for a full FAP licence include three separate classes of financial advice service, as well as seven sections which the standard conditions will cover.
The seven standard conditions for a full licence
‘We were extremely pleased to see the omission of professional indemnity insurance from the final full licensing conditions’ _ Katrina Shanks
1. Record-keeping 2. Internal complaints process 3. Regulatory returns 4. Outsourcing 5. Business continuity 6. Technology systems 7. Notification of material changes One notable omission from the conditions is professional indemnity insurance. The FMA media release says that “Professional indemnity insurance cover remains an important decision for each financial advice provider to consider, taking into account their own particular circumstances, and accordingly, the FMA decided not to include professional indemnity insurance as a standard condition.” Katrina Shanks, CEO of Financial Advice New Zealand, said “We were extremely pleased to see the omission 012
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of professional indemnity insurance from the final full licensing conditions. There was a lot of consultation with the industry around this point. The FMA listened to the concerns of the industry and as a result, have removed PI from the final conditions. “One of the big reasons for removal was the change in the market, as well as the uncertainty around the availability and affordability of PI. This was one of the key things that we advocated on behalf of advisers for as a part of our submission process. “Financial Advice NZ have worked really collaboratively with the FMA on these full licensing conditions and we appreciate the consultation process which they put in place.” The three different financial advice provider classes have changed from “A, B and C” to “1, 2 and 3”. The classes
mean financial advice provider applicants can apply for the licence that best suits their circumstances, whether they are a sole adviser business, engage multiple advisers or authorised bodies, or operate a business that has nominated representatives. John Botica, FMA director of market engagement, said the consultation received a healthy response from the industry, with 55 written responses. “Standard conditions play an important role in setting the bar for the businesses the FMA licenses. The consultation helped to ensure the standard conditions will be fit for purpose and we were pleased to see the industry was broadly very supportive of them,” Botica said. The FMA continues to process transitional licence applications, leading up to the commencement of the new financial advice regime. Anyone who still intends to apply for a transitional licence is encouraged to do so before the summer break to ensure their application can be processed before March 15, 2021. Shanks says that the full licensing conditions bring with them “a lot of new requirements which many advisers have not had to consider before. Advisers are going to have to look very carefully at those final standard conditions. To help them through this process Financial Advice NZ and the FMA are running a joint-launch of the final standard conditions guidance in Christchurch on November 17.” Murray Weatherston, principal of Financial Focus, has commented that in the full licence provisions “there are a few things that I think will prove to be fishhooks”. “The first one is record keeping. Now while everyone thinks they keep good records, these provisions are asking for ‘records relating to how you or any person engaged by you has complied with the financial advice duties’.
