FAA review begins

Terms of reference for the Financial Advisers Act review have been released.

Tuesday, March 3rd 2015, 11:20AM

It signals the start of an 18-month review process.

The terms of reference say the objective of the review is to analyse the role of financial advice and financial service provider registration and dispute resolution in improving financial outcomes for New Zealanders and to assess and update the objectives of, and rationale for, regulatory intervention.

It says regulation was put in place with the intention of promoting sound and efficient delivery of financial adviser services and to encourage public confidence in the professionalism and integrity of advisers.

MBIE said: "An effective and well-functioning system of regulation for financial advice is important because a healthy financial advice sector requires a level of public trust. This trust was undermined by real and perceived issues with financial advice prior to the implementation of the FA Act. Clients expect a level of care, skill and diligence from financial advisers. Where advisers do not meet these expectations, or where they do not act in the client’s best interests, this can lead to significant financial detriment to those clients. The costs imposed by regulation can make advice more costly and less attractive to consumers, reducing the number of people receiving advice about financial matters."

It said since the FAA was introduced, there had been a number of changes in the market such as the introduction of the Financial Markets Conduct Act, the creation of the FMA and the commencement of AML regulation.

MBIE said it planned to run the review in an open, transparent way and seek input from stakeholders throughout the process.

"We plan to provide a number of different types of opportunities for input into the process, beyond formal consultation processes. We expect that this will include targeted focus groups and workshops, open forums and active engagement through online channels."

The initial focus of the review will be to updated MBIE’s understanding of the role of financial advice and financial service provider registration and dispute resolution in improving financial outcomes for New Zealanders.

“Our analysis will include consideration of changes to the regulatory environment, to consumer needs and expectations and to government priorities. This understanding will help us to test and update the objectives of, and rationale for, government intervention in this area. Current regulatory settings will then be considered in light of this intervention logic in order to identify key issues for consideration. Our analysis of these issues will focus on areas where the FA Act and FSP Act may not be meeting the needs of consumers and where the benefits of their requirements may not be justifying their costs. This analysis will be informed by the government’s best practice regulation guidelines.”

In August, a report will be given to Commerce Minister Paul Goldsmith providing detail on the options identification process. A final report will be provided by July next year. "The full operation of both Acts will be considered during the review, with consideration given to the impact of other related legislation. We will seek to understand the impact of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 on the adviser sector and will work with the Ministry of Justice and FMA to ensure that any feedback is fed into any future changes to this Act. If there are areas where this legislation is imposing undue compliance costs on the adviser sector, we may recommend that amendments or exemptions be considered."

Strategies to promote financial literacy will not be considered and the review ill not propose substantive changes to other financial markets legislation.

Liam Mason, FMA’s General Counsel, said the review of the financial advice laws provides an opportunity to find out what is working well in practice and identify areas that could work better for consumers and advisers.

“This is a chance to examine whether the current regulation is delivering the right outcomes for New Zealanders. We want to find ways of ensuring that regulation in this area can adapt to the changing ways that consumers and investors access information and advice to help them make decisions about financial products,” said Mr Mason.

 

READ the Terms of Reference here

 

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