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Adviser legislation enters final stretch

The Finance and Expenditure Committee (FEC) filed its long-delayed final report on the Financial Advisers Bill (FAB) yesterday clearing the way for its passage through Parliament.

Tuesday, September 9th 2008, 5:47AM

by David Chaplin

Commerce Minister Lianne Dalziel was reported yesterday as saying the FAB had a 50/50 chance of passing into law before Parliament rises later this month in time for the general election.

If accepted by Parliament, the latest FEC recommendations would see the establishment of a two-tiered regulatory structure for the financial advisory industry under the control of the Securities Commission.

The proposed bill splits the regulation of the industry based on the complexity of the product an adviser deals in. Category 1, or “complex” products “could be delivered only by financial advisers who were specially authorised under the bill”.

“Financial advisers dealing with category 2 products (simple products such as a call debt security, a bank term deposit, an insurance product that is not a security, and a consumer credit contract), which expose consumers to less risk, would not require specific authorisation, but would be subject to generic conduct and disclosure obligations,” the FEC report says.

As well, the bill would allow “qualifying financial entities” (QFE) to assume responsibility for advisers under their control who give advice on Category 2 products.

“We are concerned that otherwise the new regime might impose excessive compliance requirements and costs on firms with large numbers of employees who give financial advice,” the report says.

QFEs would also have limited responsibilities for their advisers who give Category 1 advice including: ensuring that such staff are authorised to provide these services; provide a list to the Securities Commission of their advisers who are authorised, and; keep that list up to date.

At the same time the FEC has published its final report on FAB’s companion legislation, the Financial Services Providers (Registration and Disputes) Bill (FSP), which would exempt “lawyers, chartered accountants, tax agents, and real estate agents” from the regime.

According to the FEC, the FSP/FAB regime would create “three types of financial adviser, with corresponding restrictions on their activities”:

  • Those both registered under the FSP legislation and authorised by the Securities Commission who would be allowed to provide financial advice on either a category 1 or category 2 product;
  • those not authorised by the Securities Commission, who would be allowed to provide financial advice on a category 2 product only; and,
  • those who are neither registered nor authorised, but worked for a qualifying financial entity, who would be allowed to provide financial advice on a category 2 product.
The FEC report also defines the responsibilities of the proposed ‘Commissioner for Financial Advisers’ to include: appointing a code of conduct committee; recommending changes to the code; chairing the disciplinary committee; and, overseeing the Securities Commission in its work with financial advisers.

“We are recommending that members of the code committee be appointed from industry representatives, with one person to represent consumer interests,” the FEC report says.

Dalziel is scheduled to present both the FAB and FSP reports to Parliament today.

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