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Brief Counsel

Anomalies corrected in the financial regulation regime

21 December 2009

The Financial Service Providers (Pre-Implementation Adjustments) Bill (the Bill) was introduced to Parliament last week.  The Bill makes technical amendments to the Financial Advisers Act 2008 (FAA) and Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA). 

Outside of any modifications to the regime which may emerge from the Capital Markets Development Taskforce report, submitting on the Bill may provide the last opportunity to seek changes to these Acts.

Key changes

The amendments focus primarily on the Qualifying Financial Entity (QFE) model (for our article on Commerce Minister Simon Power's October announcement, click here).  The Bill also corrects a number of anomalies in the Acts, including some of those previously raised by Chapman Tripp partner Tim Williams (see here).

The proposed changes will:

  • remove the ban on listed companies giving market guidance by excluding statements prepared for a registered exchange in accordance with listing requirements from the meaning of financial advice.  Annual reports, statements prepared for general meetings of issuers and the records that companies are required to keep for public inspection will also be excluded

  • clarify the definitions and different classifications of insurance products in the FAA

  • clarify the territorial scope of the FSPA and extend it to cover Authorised Financial Advisers (AFAs), QFEs and banks - even when they are outside New Zealand

  • prescribe bonus bonds, call building society shares, call debt securities and term life insurance policies as Category 2 financial products

  • exempt employers from registration and the requirement to belong to a dispute resolution scheme under the FSPA when they provide services in relation to offering a superannuation or KiwiSaver scheme to their employees, and

  • enable different provisions of the Code of Conduct for AFAs to be brought into force on different dates.

The proposed changes to the QFE model include:

  • enabling a QFE to name the individual agents for whom it will take responsibility (nominated representatives), instead of automatically being responsible for all of its agents

  • allowing a QFE's nominated representatives to provide financial adviser services in respect of the QFE's category 1 products, without being individually authorised (currently this is permitted only for the QFE's employees), and

  • permitting the QFE’s employees and nominated representatives to provide financial adviser services for products for which the QFE is a promoter under the Securities Act (currently, the FAA allows this only if the QFE is the issuer of the product).

The Commerce Minister has also acknowledged that there is an unresolved issue in the FAA concerning investment transactions undertaken by entities (as opposed to individuals) and will be addressing this in due course.

Other developments - certainty for QFEs

At a recent presentation on the Code Committee’s second consultation paper,1 Ross Butler of the Code Committee promised QFEs will know exactly what will be required of them within the next few days, following the release of a paper by the Securities Commission. 

Among other things, the paper will set out the guidelines for QFE “Adviser Business Statements”, a new concept intended to replace a detailed licensing system.  AFAs not under a QFE will also have to prepare Adviser Business Statements, but these documents will be much shorter (approximately 10 pages) and their requirements will be detailed in the Code.

The Adviser Business Statement will be a two part document, outlining the QFE or adviser’s business structure and documenting their compliance and governance practices.  QFEs will have to submit their Adviser Business Statements to the Securities Commission before negotiating the terms and conditions of their QFE status. 

The Code Committee also gave some indicative timelines and outlined a three stage “ready, set, go” process as detailed in the table below.  

Stage

Timeline

Event

 

Before Christmas

Paper clarifying obligations for QFEs and wholesale advisersGeneral paper on what the Code Committee anticipates will be in the Code on competence

 

February

General paper on what the Code Committee anticipates will be in the Code on ethical standards

 

Late February - early March

Draft Code made public

Ready

December 2009 - June 2010

Advisers should ensure their competence satisfies the relevant requirements proposed Tool on ETITO website to help advisers determine gaps in their knowledge, the training required to remedy those gaps and the evidence they will need to produce to get authorised

Set

Monday 31 May - November 2010

ETITO formal assessment capacity for competence (including an online exam) will openCompanies Office register will open, as will an integrated online system for authorisation applications and applications for QFE status

Go

December 2010 onwards

Intended implementation of the regime

Footnote

  1. The paper outlines the proposed minimum standards of ethical behaviour and client care for Authorised Financial Advisers.  A copy of our article on the paper is available here.

Contacts