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The Code v2 is a shift in thinking

A proposed code of conduct for financial advisers gives discretion to businesses in how they meet their obligations – but using it will bring consequences.

Monday, October 15th 2018, 6:00AM 1 Comment

The code working group released a draft version of the new code last week. Submissions are open until November 9 and the code should be approved by the Commerce Minister by early next year.

Group chairman Angus Dale-Jones acknowledged the draft was a significant change from the original consultation document released earlier in the year.

He said that document was designed to get a sense of where the industry’s opinion lay. “We got that. Some things we had very strong feedback on. There’s been quite a move in thinking, that’s the purpose of consultation.”

The draft code steps back from a number of things, including a degree requirement for financial planning, and detailed direction on how advice businesses should operate.

Dale-Jones said the code should cover principles and the detail of business process would be a matter for Financial Markets Authority licensing.

“A number of things we consulted on I still think are a good idea but not for the code to impose.”

The working group had waited for the select committee considering FSLAB to report back to confirm that it was only the investment planning strand that should be carved out as potentially needing different standards at this time, he said.

While the working group has imposed a level five competence standard for the whole industry for now, Dale-Jones said it was making it clear that it expected to discuss that further.

“We are not doing anything on any other streams unless regulations require it.”

Dale-Jones said advisers needed to think about how the code would work in the context of the wider regime and think about how they would structure their business to comply with the code, legislation and regulation.

He said there was discretion in the code – businesses can opt to meet their requirements in direct, or less direct, ways. If they did not want to tick the box of having level five certificates, for example, they could opt to use systems and process to backfill the competence obligation.

“If you decide you won’t use that discretion and just get level five, competence is easy to accomplish. If you decide to avoid as many conflicts of interest as possible and don’t overly narrow the scope of advice you give, meeting those standards is straightforward.

“If an adviser decides to use a lot of discretion in meeting the competence standard, or to carefully scope advice and avoid looking at the client’s [full circumstances], that discretion has consequences to it. Advisers need to understand that discretion comes with responsibility.”

Those businesses would have to be prepared to explain their processes and justification at licensing and then on an ongoing basis, he said.

Tags: Code Working Group

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Comments from our readers

On 15 October 2018 at 9:46 am Murray Weatherston said:
This explanation seems to me to upset the prevailing wisdom about the expected process of licensing.
Hitherto, every indication was that transitional licensing was going to be a doddle for persons already on FSPR - little more than showing the person could still put breath on the mirror and front up with the licensing fee. The hard yards would come in getting a full licence.

Now however, if the CWG is passing the responsibility for a lot of things that I think we all thought would be in the Code over to FMA, then the process of transitional licensing prima facie becomes a more complex and complicated process.

Doesn't this merely shift the uncertainty that has dogged this whole process to a different place?

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