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Prime opportunity to sort out financial advisers' regime

04 March 2015

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​The Terms of Reference for the much-anticipated review of the Financial Advisers Act 2008 (FAA) and the Financial Service Providers Act 2008 (FSPA) are now out – and seem to offer a prospect for genuine reform. 

The Ministry of Business, Innovation and Employment (MBIE) will lead the review, which will run over 18 months.  A discussion document will be released in May.

Scope of review

The review will cover the full operation of the FAA and FSPA with a view to identifying any requirements that are “unnecessary, ineffective or excessively costly”.   

MBIE’s remit extends to other legislative regimes which are “imposing undue compliance costs on the adviser sector”.   In particular, MBIE will examine the impact of the Anti-Money Laundering and Countering Financing of Terrorism (AMLCFT) Act to ensure that any feedback is fed into any future changes to this Act. 

Chapman Tripp intends raising problem areas such as beneficiary identification, reliance on third party identification and whether identification is needed for long term savings.  Hopefully, the impending ‘Managing Intermediaries’ exemption will go a long way to aligning the requirements of the AML regime with the reality of how client relationships are intermediated in the financial services industry.

Outside the scope of the review are:

  • the development of strategies to promote financial literacy, and
  • substantive changes to other legislation, unless consequential to any amendments to the FAA or FSPA.

Hot topics

Topics which we think could be usefully addressed include:

  • the definition of who is a ‘wholesale’ client – this is currently fragmented across the FAA, Financial Markets Conduct Act (FMCA), Non-Bank Deposit Takers Act and Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 (Custody Regulations)
  • the custody regime – the application of the Custody Regulations and the FAA to the provision of custody services by offshore custodians seems over-zealous and may result in New Zealanders being unable to access offshore wealth management services
  • the territorial scope of the FAA
  • the re-categorisation of certain products as either Category 1 or Category 2.

These are in addition to the issues we raised in a commentary last year that looked forward to the review.  Those areas were:

  • the alignment of FAA and FMCA - it is important that the FAA allows advisers to advise clients on the exciting new capital raising opportunities created in the FMCA through the new small offer exemption and equity crowd funding and peer to peer lending platforms
  • the porous definition of “investment planning service” in the FAA gives rise to a range of boundary issues affecting AFAs, and non-AFAs who voluntarily elect to apply AFA Code Standard 8 (which requires an up-to-date understanding of the client’s “financial situation, financial needs, financial goals and risk profile”), and
  • the boundary between personalised advice, class advice and no advice.

From here

MBIE’s indicative timeline is set out below.  It shows that there will be many opportunities for industry participants to engage with this process.  We recommend early engagement to give yourself the best chance of getting your issues and ideas included in the reform agenda.

​Key stages of the review process ​Indicative timing
Research:

• Analysis of the intervention logic
• Literature review
• Consumer focus groups
• Consumer surveying
• Adviser surveying
​First half of 2015: Consumer surveying, supplemented by consumer focus groups and adviser surveys
​Issues Identification:

• Stakeholder meetings
• Consultation on the intervention logic and issues
• Open forums on issues paper
• Engagement through stakeholder forums
• Analysis of submissions
February-April 2015: development of issues paper

May-July 2015:
public consultation on issues paper and ongoing stakeholder engagement
Report to Minister:

• Report on the results of our research and issues identification  and outlining the options identification process
• Statutory report on Part 2 of the FSP Act, with the intention of further work in this area being undertaken as part of the broader review
By 15 August 2015: statutory deadline for report on the operation of Part 2 of the FSP Act
​Options identification:

• Development of options to address key issues identified
• Discussions and workshops on options
• Release options paper for consultation
• Analysis of submissions
​November 2015: release options paper for public consultation

​Report to Minister:

• Overall findings of the review
• Recommendations on what, if any, legislative changes are needed and a plan for these changes
• Tabling of report in the House
​1 July 2016: statutory deadline for report to the Minister on the operation of the FA Act
  

For further information please contact the lawyers featured.

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