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FMA finally shows what full licensing looks like

Adviser firms will be licensed under FSLAA according to the size and scope of their businesses, it has been revealed.

Wednesday, June 17th 2020, 10:21AM 4 Comments

The Financial Markets Authority (FMA) has opened consultation on the proposed full licence standard conditions for financial advice providers, as part of the new financial advice regime.

It said that it was proposing three licence classes for financial advice providers.

Class A licences will apply to advisers who give advice on their own, as part of a one-adviser business.

Class B licences will be for firms that have multiple advisers but no nominated representatives.

Class C licences permit the holder to engage nominated representatives or another entity.

"Licence classes apply to the manner in which regulated financial advice may be provided but do not limit the types of financial advice that may be provided under the licence, as the latter is addressed by the competency requirements in the new code. Licence classes are incremental from A to C. Each incremental class of licence incorporates and permits all service classes below it."

The FMA is considering eight standard conditions for full licences: record keeping, internal complaints process, regulatory returns, outsourcing, professional indemnity insurance, business continuity and technology systems, ongoing capability, and notification of material changes.

Record-keeping and internal complaints are the same conditions as will apply to transitional licences.

FAPs will be required to have appropriate professional indemnity insurance, ensure outsourcing agreements allow them to meet their market service licencee obligations at all times, and have a business continuity plan that is appropriate for the business.

"If you use any technology systems, which if disrupted, would materially affect the continued provision of your financial advice service (or any other market services licensee obligation), you must at all times ensure that cybersecurity for those systems – being the preservation of confidentiality, integrity and availability of information and/or information systems – is maintained."

The FMA said the criteria in full licensing would be more comprehensive than for transitional licencing.

"In addition to the matters considered for transitional licensing, we will consider whether applicants and authorised bodies are capable of effectively performing the financial advice service. The capabilities that we will assess at full licensing will depend upon the scope of financial advice service of each financial advice provider included in the application."

John Botica, FMA director of market engagement, said: "We’re pleased to open this consultation as it will give financial advisers further clarity on their obligations under the new regime.

"Our proposal to specify three classes of financial advice recognises the diversity of business structures in the industry and will allow advisers to apply for the class that’s most appropriate for them."

Botica said the three classes – along with the tailored questions and assessments based on the complexity of the financial advice provider structure – will ensure the application process is straightforward, particularly for small advice businesses.

The consultation is open until August 7.

The FMA will start accepting full licence applications when the new legislation takes effect, which is anticipated to be no earlier than March 2021. Once a specific date is known this will be communicated.

Meanwhile, the FMA continues to process and grant applications for transitional licenses, which have now passed 800 in total. They include an estimated 5,800 financial advisers – representing well over half the current number of authorised and registered financial advisers in New Zealand.

DOWNLOAD CONSULTATION DOCUMENT HERE

Tags: FMA FSLAA licensing

« 'At some point someone needs to be allowed to lose some money'Licence classes welcomed, more clarity needed on some criteria: Shanks »

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Comments from our readers

On 18 June 2020 at 1:07 pm Andy the adviser said:
Is it just me, or does this whole new regulation process seem to be getting far more complicated than necessary.

As an adviser pointed out yesterday - it seems to be far easier (and 20 times cheaper) to get a firearms licence than a licence to continue doing what we have been doing successfully for the last 30 plus years. Yet let's compare the damage caused by both.

The cost to the industry and participants has rapidly exceeded any benefit to our clients, with the inherent risk that quality advisers will leave the industry, thereby defeating the intention of improving the financial literacy of New Zealanders.

Or was this the intention?

While most prudent advisers are advising their clients to put money aside for a rainy day or emergency (eg Covid 19), and pay off debt, the government is dishing out cash, urging people to get out there and spend every last penny. And the Reserve Bank governor has been recorded telling people to buy shares rather than save money in a bank.

It makes me wonder why an adviser would want to spend another $10000 every year just to comply with bureaucracy, only to fight the cogs of consumerism, promoted by the very body that wrote the regulations!
On 18 June 2020 at 4:58 pm dcwhyte said:
Entity licensing.........
On 19 June 2020 at 4:45 pm Amused said:
Hi Andy, no it’s not just you. Regulation was supposed to be focussed squarely on the consumer. Instead it seems the FMA and every other organisation who will benefit financially from it now has an agenda seeing things dragged out to become unnecessarily complicated and at maximum cost to advisers both in terms of our time and money. Good luck educating consumers as to what a class A, B or C licence means. I thought we were trying to simplify things now when it came to people accessing financial advice?

As an industry advisers have but a handful of serious complaints laid against them each year. The annual dispute resolution provider stats make this fact abundantly clear. So when did financial advisers start becoming the bad guys? Most of us are doing an important job of keeping the banks and insurance companies honest. Without advisers consumers would be at a severe disadvantage. Perhaps the FMA need to be reminded of this. Their focus is supposed to be on the consumer to!

There will always be people in any industry who do dishonest and fraudulent things. No matter how much additional compliance and education you introduce this will never eradicated. You simply cannot teach ethics to someone who doesn’t have them in the first place. The real risk though is that good honest advisers who are always putting their client’s interest first now unfairly get tarred. I haven’t heard too many people wthin the industry i.e. dealer groups and associations speaking up for advisers over the last 2 years which is disappointing but not unexpected.

If this Government wants to make a real difference to consumers been protected then they should have a good hard look at the state of the real estate industry in New Zealand. That’s where the current focus needs to be. It’s not financial advisers.



On 20 June 2020 at 11:31 am w k said:
@andy & amused: trust me, you guys are not alone.

will advisers who are crystal clear please put up your hands?

since fma is collecting fees from advisers, can we be considered their customers? if yes, is this considered good customer outcome? hope we are not treated like the gravy train?

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Last updated: 21 September 2020 10:48am

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