[The Code] Draft Code adds momentum to financial adviser regulation
Wednesday, March 31st 2010, 6:01PM
The release today for public consultation of the draft Code of Professional Conduct is a significant step towards having the financial adviser regime in place, according to David Mayhew, the Commissioner for Financial Advisers. The Code specifies the minimum standards of professionalism that investors can expect of their financial advisers including competence, knowledge and skills, client care, ethical behaviour and continuing professional training.
The Commissioner expects to receive the final draft Code prepared by the Code Committee in June for his approval and subsequent recommendation to the Minister of Commerce.
“Completing the Code is critical to the regime as it will stipulate the requirements for advisers to be authorised,” Mr Mayhew says. “The draft Code is the best indication of what the final requirements are likely to be, so advisers who are a long way off that mark should take remedial steps immediately. Failure to do so means risking having their business shut down when the regime commences,” he warns.
Mayhew says the Commission understands that advisers who have to be authorised – those providing a financial planning service or advice on more complex products – need sufficient time to have their competence assessed and undertake training if required. But he emphasises, “While the Commission will monitor the demand for adviser training and assessment resources, we expect advisers to act now to meet their competence requirements”. From mid-April advisers will be able to book with ETITO, the training organisation, to have their competence assessed to ensure they meet the minimum standards proposed in the draft Code.
“Release of the draft Code will also assist businesses that employ financial advisers to decide whether they have the capacity to be qualifying financial entities (QFEs),” Mr Mayhew says. “QFEs are eligible for streamlined regulatory arrangements but must ensure their advisers operate professionally by reference to standards equivalent to those contained in the draft Code.”
Mayhew says the draft Code is a significant milestone on the road to lifting the professionalism of the financial adviser industry and notes that the Code Committee has done a huge amount of work in getting it to this stage.
He adds, “The Code will impose professional demands which will be new to many advisers and will impact directly on their business practices”.
“As this is the final opportunity to participate in the development of the Code, I strongly urge the adviser industry to get involved and provide comment.”
The adviser industry has until 7 May to provide feedback on the draft Code.
Background
Categories of advisers
There are three categories of financial advisers under the new regime:
§ Registered Financial Advisers (RFAs)
These are registered only. RFAs can advise only on a narrow range of financial products called ‘category 2 products’. They include bank term deposits, call debt securities, credit card products and insurance products excluding life insurance products issued since 31 December 2008. RFAs are not bound by the Code of Professional Conduct but like all financial advisers they are required to act with care, diligence and skill and not to mislead clients. They must belong to an approved dispute resolution scheme.
§ Authorised Financial Advisers (AFAs)
In addition to being registered these advisers need to be authorised by the Securities Commission. AFAs can provide a financial planning service for clients and advise on more complex investments or ‘category 1 products’ including securities such as shares and managed funds, any estate or interest in land and futures contracts. To become authorised they must demonstrate that they meet minimum standards of professionalism including competence, knowledge and skills, client care, ethical behaviour and continuing professional training. AFAs have to comply with the Code of Professional Conduct.
§ Qualifying Financial Entities (QFEs)
These are businesses that have been registered and granted QFE status by the Securities Commission. They must have the capacity to take responsibility for the conduct of the financial advisers they employ. Advisers who work as employees or ‘nominated representatives’ of a QFE can advise on the company’s own products – subject to Parliament passing the Financial Service Providers (Pre-implementation Adjustments) Bill currently before the select committee – or ‘category two’ products from other providers without being individually registered and authorised.
Competence assessment
The competence assessment process for authorisation of financial advisers will be managed by ETITO, an independent multi-industry training organisation that is recognised by government and industry as the national standards setting body for the financial services industry under the Industry Training Act 1992.
From mid-April, advisers will be able to make reservations for competency assessment with ETITO to ensure they meet the minimum standards proposed in the draft Code. Assessment itself will be available through ETITO from 1 June with the exception of assessment for Standard Set B, which will not be available until after the Code has been approved by the Minister of Commerce.
Registration and authorization
The Registrar of Companies is developing a new website www.fspr.govt.nz where all financial service providers, including advisers, will be able to register and apply for authorisation.
This is a press release from the Securities Commission
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