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Cotton talks up adviser business statement

The Securities Commission would almost certainly require all advisory firms to produce a document detailing internal business processes under coming regulations, Annabel Cotton, Commissioner for Financial Advisers, said yesterday.

Thursday, July 30th 2009, 5:51AM 2 Comments

by David Chaplin

Cotton told the Institute of Financial Advisers (IFA) conference in Auckland that advisory firms would "probably" have to produce an 'Adviser Business Statement' (ABS) once the new regulatory regime comes into force.

"I say probably because the Securities Commission hasn't decided yet but what I'm telling you today is a strong indication [that the ABS will go ahead]," she said.

The ABS would have to include all relevant information about the people, products, risks and compliance procedures inside an advisory business. Cotton told delegates all firms would have to keep an ABS on site and make it available to Securities Commission enforcmement agents.

"The ABS would show the enforcement person how [advisory firms] go about their business," she said.

It is understood the ABS system would differentiate between Qualifying Financial Entity (QFE) advisory businesses and stand-alone firms. Under the proposals, ABS documents produced by QFEs would have to be pre-approved by the Securities Commission.

Cotton said QFEs would also have to supply an annual report to the Commission showing they have followed the practices documented in the ABS.

Non-QFE firms would not require pre-approval for their ABS documents, however, they would be open to inspection by the Securities Commission at any time.

Cotton also said the adviser registration process laid out in the legislation would probably start in the middle of next year, with a website-based application system under construction.

Once registration was completed, due by the end of 2010, financial advisers should feel no hesistation in dobbing in unregistered operators, she said.

"If you see advisers operating outside [the regulatory regime] please don't have any mercy on them," Cotton said. "Report them to us. If you don't, the [unregistered advisers] could lower the standards of the industry."

 

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Comments from our readers

On 31 July 2009 at 11:53 am Murray Weatherston said:
At the risk of exposing myself as an ignoramus, have I had a "Rip van winkle" moment with respect to impending regulation? This post talks about an ABS (Adviser Business Statement) that is inevitable as I read between the lines (we haven't decided yet but it is coming...!!).
But what is it exactly? I have done a google search in both Australia and NZ and found no reference to it at all (other than the Cotton speech at IFA).
I have colleagues who believe that regulation in Australia was strongly promoted by the institutions (e.g banks insurance companies and managed funds) to increase their market share of the advice business and investor dollars, and they wonder if the same thing isn't happening here.
Where can I find more info about this new ABS approach. How big would a document need to be (500 pages?) to comply and how frequently would it need to be amended. What does it need to cover in detail (not outline). I am wondering if I should not increase my estimate of what the minimum FTE (i.e number of employees) for compliance will end up being. I hope it is not a case of "Small firms are dead. Long live the institutions!"
On 31 July 2009 at 4:07 pm James Ryan said:
It wouldn't be regulation if it didn't come with new Multi Letter Acronyms!

Murray

You won't find an 'Adviser Business Statement' in Australia, however this document sounds very much like the material that was put together by financial services firms to support their application for an Australian Financial Services License.

Companies had to demonstrate they had the policies, procedures and resources in place to manage the people who provided financial advice and nominate Responsible officers with appropriate experience and qualifications.

If I'm correct then.

500 - 100 pages would probably cover it once you get all those policies together. A significant portion of these documents would already exist in recruitment, selection, training and supervision policies.

It would be updated every time you change these policies and procedures,

Level of detail, generally you would end up with a covering document referencing other stand alone policies and procedures so the level of detail is high but they are working documents.

FTE? The Australian implementations I was involved in established project groups to document business processes and procedures either writing these documents from scratch or re-writing existing documents to comply with any new proscribed requirements.

Once this ABS is created the ongoing maintenance shouldn't be high but people need to be aware they can't change a part of a process whenever they like.

That's where you fail the audit.

Good luck

James




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