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Implementation of the Financial Advisers Act and Financial Service Providers Act


[ Last Updated 23 June 2009 ]
Short Description The discussion document seeks feedback on proposals for regulations under the Financial Advisers Act 2008. The regulations will specify the form and content of disclosure requirements for financial advisers.

Within this section…

Financial Advisers Act 2008

The purpose of the Financial Advisers Act 2008 is to promote the sound and efficient delivery of financial advice, and to encourage public confidence in the professionalism and integrity of financial advisers, by:

  1. requiring disclosure by financial advisers- so ensuring that investors and consumers can make informed decisions about whether to use a financial adviser and whether to follow a financial adviser's advice;
  2. requiring competency of financial advisers- so ensuring that there are available to investors and consumers financial advisers who have the experience, expertise and integrity to match effectively a person to a financial product that best meets that person's need and risk profile; and
  3. ensuring that financial advisers are held accountable for any financial advice that they give and that there are incentives for financial advisers to manage conflicts of interest appropriately.

The Act specifies who may perform a financial adviser service and the financial products and services on which they may advise.

The Act establishes different tiers of disclosure and conduct obligations according to the complexity and risk posed by the advice given. Those who wish to provide advice on securities, futures contracts, or an interest in land, or who provide a financial planning service, will be required to be authorised by the Securities Commission1 and will also need to register as a financial service provider2.

Those who wish to provide advice on a call debt security, a bank term deposit, an insurance product (excluding a life insurance product issued after 31 December 2008) or a consumer credit contract will be required to be registered but not authorised.

The Act also provides for an entity licensing model, under which advisers who operate as part of a qualifying financial entity may provide certain financial adviser services without being registered or authorised in their personal capacity. In this case, the entity takes on the responsibility of ensuring that the individual advisers within its organisation comply with the requirements of the Act. To become a qualifying financial entity, the entity must obtain approval from the Securities Commission.

The Act will replace the existing obligations for investment advisers, brokers and sharebrokers. At present, investment advisers and brokers are regulated by Part 4 of the Securities Markets Act 1988 and Securities Markets (Investment Advisers and Brokers) Regulations 2007. This existing legislation will be repealed and revoked respectively once the Act comes into force. In addition the Sharebrokers Act 1908 will be repealed and use of the name ‘sharebroker' will be restricted to authorised financial advisers who are members of a registered exchange. Once the current legislation is repealed, the Financial Advisers Act will govern both these areas.

Financial Sector Reform

Last year three pieces of legislation were passed to improve the regulation of financial institutions, financial products and financial providers:

  1. The Financial Service Providers (Registration and Dispute Resolution) Act 2008;
  2. The Financial Advisers Act 2008; and
  3. The Reserve Bank Amendment Act 2008.

Full implementation of these Acts is scheduled to be completed by December 2010.

The main requirements arising from this new legislation are:

  1. Registration of all financial service providers to provide a means of identifying and monitoring financial service providers;
  2. Prudential regulation by the Reserve Bank of non-bank deposit takers;
  3. Regulation by the Securities Commission of financial advisers to encourage professionalism and public confidence in the sector; and
  4. Providing for comprehensive consumer dispute resolution and redress mechanisms.

New and existing regulation of the financial sector seeks to achieve the following outcomes:

  1. A sound and efficient financial sector;
  2. Investment that encourages growth and innovation;
  3. An environment that facilitates wealth accumulation; and
  4. Confidence in the sector to encourage participation by consumers and market participants.

The need for sound regulation of the finance sector has been heightened by both the recent collapse of numerous New Zealand finance companies and the current global financial crisis.

Implementation of the Financial Advisers Act 2008 and Financial Service Providers (Registration and Dispute Resolution) Act 2008

The mechanisms to implement the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 are currently being developed, with the aim of full implementation of both regimes by December 2010. The implementation process contains numerous components, with several government agencies participating. Although both Acts are scheduled to come into force in December 2010, our intention is to have the various components of the regime in place well ahead of this date so that industry has sufficient time to adapt and become compliant. The main projects are as follows:

  1. Companies Office – Building the register for financial service providers.
  2. Minister of Consumer Affairs - developing the dispute resolution framework. The Ministry of Consumer Affairs is currently seeking feedback on the dispute resolution framework.
  3. Code Committee - drafting the Code of Professional Conduct for authorised financial advisers. The Committee will be made up of both industry and consumer representatives and will be appointed by the Commissioner for Financial Advisers. The appointment process is currently underway.
  4. Securities Commission - preparing the processes for the approval and supervision of financial advisers. Feedback is currently being sought on this area.
  5. Minister of Commerce - developing the disclosure regulations. The Ministry of Economic Development is leading this process. These regulations are the topic of this discussion document.

Current work at the Ministry of Economic Development

July 2009: Disclosure regulations discussion document [105 kB PDF]

The Ministry is seeking submissions from the public on a recently released discussion document. These submissions will help inform the new disclosure regulations under the Financial Advisers Act 2008.

The regulations will identify the information financial advisers will have to disclose to potential clients and the way in which this disclosure must be made.

The closing date for submissions is 12 August 2009.

Work by other government agencies

The Securities Commission and the Ministry of Consumer Affairs are also seeking feedback on their areas of responsibility.

Securities Commission

The Securities Commission is seeking feedback on a staff paper representing the preliminary thinking of Commission staff on how the Commission might regulate and supervise financial advisers under the Financial Advisers Act 2008. The Commission seeks comments from financial advisers and their employers, consumers, and other interested parties before finalising recommendations to Members of the Commission.

Submissions should be sent to the Commission by 5.30pm on Thursday 30 July 2009

The staff paper is available at:
http://www.sec-com.govt.nz/publications/documents/current-discussion-doc.shtml

The Commission also posts related news at the following web address:
http://www.seccom.govt.nz/invest/financial/index.shtml

Ministry of Consumer Affairs

These two discussion papers relate to the implementation of the financial service providers dispute resolution framework as required by the Financial Service Providers (Registration and Dispute Resolution) Act 2008. The Financial Service Providers Act requires that financial service providers must be registered and those who provide financial services to the public must be members of either an approved dispute resolution scheme or the reserve (dispute resolution) scheme.

The discussion papers seek feedback on the:

  • draft guidelines to assist schemes applying to become an approved dispute resolution scheme; and the
  • proposed operating rules and governance arrangements of the reserve dispute resolution scheme.

Submissions on these discussion documents close on Friday 31 July and are available at:
http://www.consumeraffairs.govt.nz/businessinfo/dr/index.html

Reserve Bank of New Zealand

In December 2005, the government agreed that the Reserve Bank should be the sole regulator of the New Zealand financial system, including the non-bank deposit taking sector. In September 2008, the Reserve Bank Amendment Act was passed, laying the foundation for the prudential regulations for non-bank deposit takers’ that are currently being developed by the Reserve Bank.

Information on the regulation of non-bank deposit takers by the RBNZ can be found at:
http://www.rbnz.govt.nz/finstab/nbdt/

1 Except where the individual adviser is an employee of a qualifying financial entity and the advisory service they are providing is in regard to a product issued by the qualifying financial entity (section 17(2) of the FAA).

2 The register is established and maintained under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. Financial advisers are one type of financial service provider covered by this Act.



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