FMCA is here - time for FAA part two?

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There are calls for something to be done to address the compliance burden that has arisen as a result of the Financial Advisers Act, now that the Financial Markets Conduct Act is taking effect.

Tuesday, April 1st 2014, 6:00AM 2 Comments

by Susan Edmunds

Stage one of the FMCA kicks in today.

The key changes implemented from today include a prohibition on misleading and deceptive conduct,  licensing for crowd funding and peer-to-peer lending,  reduced documentation requirements for small personalised offers, same class offers and simple bank products.

Other changes, such as licensing for DIMS providers, take effect on December 1.

Ross Pennington, a partner at Chapman Tripp, said the biggest impact of the FMCA would be felt by advisers in phase two, from December.

But he said the move towards less documentation on offers would put more pressure on financial advisers. “In theory, it puts more onus on advisers. Nothing in the law says that but it’s one of the implications.”

The FMCA has been called the biggest rewrite of the country’s securities law in generations and Pennington said its implementation would merit reconsideration of the Financial Advisers Act. 

He said there had not been any bandwidth for the regulator to reassess the FAA while it was working through the process of the FMCA, but now the regulator would be able to turn its attention back to the 2010 legislation.

“I don’t think the underlying changes in the FMCA work properly unless you modify the FAA in light of developments in the market.”

He said he would advocate for a change in the FAA.

“It was written as a responsive piece of legislation… but it goes beyond the scope of the problem [it was meant to solve] and creates problems of its own.”

Those problems were things such as extra red tape compliance costs, and situations where it was not worth an adviser’s time to give advice to a client.  “These should all be addressed. The FMCA is very different to the Securities Act. The more you look into that, the more you realise it to be true. It’s a vastly different kettle of fish. The FMCA was only a twinkle in the eye when the FAA was drafted. I just hope they’ll have the energy.”

It was a matter of looking at what was working for the advisers left in the industry, he said. “Are we getting the best service that investors could want? It’s a different question. After driving out the rogues, we move on to a different phase.”

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