Most financial services businesses will need to register by 1 December 2010 under the Financial Service Providers (Registration and Dispute Resolution) Act (FSPA). Specialist financial advisers, discretionary investment managers and investment planners have until 31 March 2011.
Businesses dealing with retail clients will also need to join an approved dispute resolution scheme before registration.
The FSPA applies to a wide range of financial services, not just to businesses typically regarded as being in the financial services industry. This Brief Counsel outlines who needs to comply and what that will entail.
Who must register by 1 December?
Any entity or individual, resident or with a place of business in New Zealand, and carrying on a business of providing the following services must register:
- an issuer or promoter of securities offered to the public after 1 December 2010
- banks and non-bank deposit takers (such as a building society or finance company)
- a credit provider under a credit contract (including credit providers and credit unions, but excluding persons who offer hire purchase arrangements or deferred payment plans that are shorter than 2 months, or who do not charge interest on their loans)
- a money or value transfer service operator
- an issuer or manager of a means of payment (such as cheques, travellers’ cheques, credit or debit cards, money orders, bankers’ drafts and electronic money)
- a foreign currency exchange and forward foreign exchange contracts providers
- a financial guarantee provider
- an insurer
- a unit trustee, superannuation or KiwiSaver scheme trustee or debt securities trustee
- a manager of a unit trust or participatory security
- any individual or entity which keeps, invests, administers or manages money, securities or investment portfolios on behalf of another person (including, for example, investment managers, fund managers, registrars, custodians and trustees other than trustees of a family trust)
- any individual or entity who enters into a derivative transaction on behalf of another person, and
- a trader in money market instruments, foreign exchange, interest rate and index instruments, transferable securities (including shares), or futures contracts on behalf of another person.
Who must register by 1 April?
- a provider of financial advice (broadly a recommendation or opinion in relation to acquiring, disposing or holding a financial product)
- a discretionary investment manager (discretionary investment management is broadly financial product investment decision-making made under a granted authority)
- an investment planning services provider (an investment planning service is broadly designing a plan, based on an individual’s current and future overall financial situation and investment needs, containing recommendations or opinions on how to realise the individual’s identified investment goals), and
- a broker (who receives, holds, pays or transfers client money or property as an intermediary on behalf of a client).
Registered banks, QFEs and AFAs must register even if they are overseas-based
The FSPA also applies to any New Zealand registered bank and all Authorised Financial Advisers (AFAs) and Qualifying Financial Entities (QFEs) under the Financial Advisers Act 2008, regardless of where they are incorporated or whether they have a place of business in New Zealand.
Does not have to be the only business
It is not necessary for a financial services business to be the provider’s only business or principal business for the FSPA to apply. It also does not matter (for the registration requirement) whether the service is provided to members of the public or only at wholesale level.
Only the employer needs to register, not the employees.
Certain occupations excluded
There are several exclusions from the FSPA for occupations which provide advice in the course of their professional practice, including lawyers, chartered accountants, tax agents, real estate agents and registered valuers.
How to register
Application for registration (all financial service providers)
Annual registration confirmation fee
Criminal history check fee on application, and whenever deemed necessary by the Registrar thereafter
(per person named, and which can take several days to complete)
Consumer Dispute Resolution regime administration contribution, payable on application and annually
How to join a dispute resolution scheme
Financial service providers who provide services to “retail” clients are generally required to join an approved dispute resolution before they register. Currently the only exception is for issuers or promoters whose principal business is not issuing or promoting their securities. This will exempt, for example, listed companies which are subject to the FSPA only because they offer shares to the public.
Retail clients are easiest described in terms of what they are not. They are not large entities, persons who habitually invest money in the course of their business, other financial service providers, experienced investors and, in certain circumstances, non-public and “wealthy” investors.
There are currently four approved dispute resolution schemes:
- the government-established reserve scheme
- Financial Services Complaints Limited’s scheme
- the Insurance and Savings Ombudsman’s scheme, and
- the Banking Ombudsman’s scheme.
Dispute resolution services are free to complainants but providers must pay membership and complaint fees. These will differ from scheme to scheme.
Please contact us now if you would like any assistance with your registration or dispute resolution scheme membership.
Common misconceptions: Inaccurate reporting in some recent publications has created some common misperceptions which need to be corrected.
Retailers providing goods on credit terms: in almost all cases, retailers who provide goods on credit will not be subject to the FSPA. The FSPA specifically excludes hire purchase arrangements and layby or other deferred payment plans that require payment (without any additional charges) within 2 months. Any other credit facilities offered by retailers (for example, financing the purchase of a car) will usually be provided by a finance company rather the retailer. In this case, it is the finance company not the retailer who is subject to the FSPA.
Trustees of family trusts: trustees of family trusts are exempted from the FSPA. However, corporate trustees who are in the business of providing discretionary investment management services will not be able to use this exemption to avoid registration, as they will need to register to meet the requirements of the Financial Advisers Act.
Charitable trustees: trustees of charitable trusts (or any other trust that is not a family trust) are not exempt from the FSPA unless they are a non-profit organisation providing free financial services.
Listed companies: listed companies who completed their IPO before 1 December 2010 will not technically need to register unless they continue to issue securities (for example, if they offer a dividend reinvestment plan, an employee share purchase plan or make a rights issue). Companies which offer securities to the public and list after 1 December 2010 will have to register, even if they perform no other financial services.
Directors: directors will not have to register individually, but the company will have to name all of its directors, senior managers and controlling owners when it registers.
Services within a corporate group: currently persons providing financial services only within a company or group of companies are not exempted but an exemption is expected to be provided via regulation before 1 December 2010.
Our thanks to Pippa Tasker, Solicitor, for assisting with writing this Brief Counsel. For further information, please contact the lawyers featured.