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Consultation on the proposed standard conditions for financial advice provider full licences and classes of financial advice

Home Insights Consultation on the proposed standard conditions for financial advice provider full licences and classes of financial advice

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Contributed by: Ling Yan Pang, Bridgette White and Seira Shin-Clayton

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Published on: June 18, 2020

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Under the new financial advisers regime, anyone providing financial advice to retail clients will need a financial advice provider (FAP) licence. The Financial Markets Authority has now released a consultation document on the proposed standard conditions for FAP full licences and different classes of financial advice licences under the new financial advice regime. The consultation is aimed at future FAPs and their authorised bodies who will require a full licence once the new regime comes into effect (currently anticipated to be no earlier than March 2021). Submissions are due on 7 August 2020. 

Classes of financial advice

The application process for full licences will be far more comprehensive than for transitional licences (discussed here). However, in order to allow for more streamlined licence applications and assessment criteria, the FMA proposes to establish three different classes of financial advice service and corresponding licences: A, B and C. These licence classes relate to the manner in which financial advice may be provided, and are incremental (ie Class B incorporates and permits all services permitted under Class A, and Class C incorporates and permits all services permitted under Class A and Class B).

 The services that are permitted under each of these proposed licence classes are:

1. Class A covers the service of the licence holder providing regulated financial advice to retail clients:

   (a) on the licence holder's own account; and/or

   (b) through a "sole adviser practice structure".

A sole adviser practice structure is a new concept, where:

   (c) the licence holder is an entity; and

   (d) the licence holder engages only one financial adviser directly, who is either the sole director, or one of two directors, of the licence holder.

The most important distinguishing factor of the Class A licence is that the licence holder will not be permitted to provide financial advice to its retail clients through intermediaries (such as interposed persons, authorised bodies, multiple financial advisers, or nominated representatives).

2. Class B covers the services under Class A and the service of a FAP (whether the licence holder or any authorised body) providing regulated financial advice to retail clients:

   (a) on the FAP's own account; and/or

   (b) through one or more financial advisers.

Under a Class B licence, the licence holder or any authorised body will not be permitted to engage nominated representatives or other entities.

3. Class C covers the services under Class A and Class B, and the licence holder and any authorised bodies may engage any number of nominated representatives (along with any other type of structure not covered in Class A or Class B).

Full licence standard conditions

The FMA is considering imposing eight standard conditions for full licences:

  1. Record keeping: the licence holder must create in a timely manner, and maintain adequate records in relation to, its financial advice service (including, as explained in an explanatory note, a record of the regulated advice given and how financial advice duties have been complied with) and keep those records for at least seven years;

  2. Internal complaints process: the licence holder must have an internal process for resolving client complaints relating to its financial advice service;

  3. Regulatory returns: the licence holder must provide the FMA with the information needed to monitor its ongoing capability to effectively perform the financial advice service in accordance with the applicable eligibility criteria and other requirements in the FMCA;

  4. Outsourcing: if it outsources a material system or process, the licence holder must ensure that its arrangements enable it to meet its market service licensee obligations at all times;

  5. Professional indemnity insurance: the licence holder must have and maintain a level and scope of professional indemnity insurance that is adequate and appropriate for the provision of its financial advice service to retail clients in New Zealand;

  6. Business continuity and technology systems: the licence holder must have and maintain a business continuity plan that is appropriate for the scale and scope of the licence holder's financial advice service, including ensuring that cybersecurity for certain technology systems is maintained at all times;

  7. Ongoing eligibility: the licence holder must at all times meet the relevant eligibility and other requirements; and

  8. Notification of material changes: the licence holder must notify the FMA in writing within 10 working days of commencing to implement any material change to the nature of, or manner in which it provides, its financial advice service.

While the record keeping standard condition and the internal complaints process standard condition are the same as the standard conditions to transitional licences, the others are new proposed conditions from the FMA. The FMA is seeking feedback on a number of questions in respect of each of the proposed standard conditions (as set out in the consultation document).
 
Submissions will close at 5pm on 7 August 2020. Please contact us if you would like assistance with your submission, or if you would like to discuss the consultation paper or new financial advisers regime more generally.
 

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