Licence classes welcomed, more clarity needed on some criteria: Shanks

Four of the proposed full licensing criteria for financial advisers deserve further attention, Financial Advice New Zealand says.

Wednesday, June 17th 2020, 10:18PM

The Financial Markets Authority revealed on Wednesday the approach it plans to take to the new regime, which is expected to take effect in about March next year.

Licences will be issued in classes depending on the size of the FAP making the application.

There will be eight conditions applied to licences covering: record keeping, internal complaints process, regulatory returns, outsourcing, professional indemnity insurance, business continuity and technology systems, ongoing capability, and notification of material changes.

But Financial Advice NZ chief executive Katrina Shanks said she had interest in four of those.

“It’s great the FMA has listened to what the sector has been saying on the standard conditions for full licences, and we will be particularly interested to see how standards in relation to outsourcing, business continuity, technology systems and professional indemnity evolve in this process.

“We are pleased, as John Botica said today, that businesses will be expected to apply only systems proportionate to size of their business. That makes perfect sense.”

The FMA said FAPs might enter into outsourcing agreements and the outsourcing condition was to ensure that they monitored and reviewed those providers and arrangements because the responsibility for meeting their obligations remained with the FAP.

Outsourcing would include hosting technology for digital advice, scanning of advice documents and review of compliance processes.

Professional indemnity cover was needed to ensure clients could be compensated for loss as a result of an adviser breaching professional duties, it said.

“We understand that many product providers already require those holding agency or distribution agreements to have access to professional indemnity insurance cover, and we wish to obtain feedback on the level of additional regulatory burden that would be created by this condition (if any). We intend to ask for information regarding professional indemnity cover at the time of licence application. Where an applicant demonstrates that they are unable to obtain appropriate cover, or has other valid reasons for not having cover, then we intend applying a specific licence condition waiving this standard condition.”

It said its business continuity criteria would ensure that FAPs had suitable arrangements to ensure that they could manage disruptions and clients would have security of continuity.

The FMA said it wanted feedback on whether the conditions proposed would create a barrier to entry.

Shanks said the three licence classes was a good approach.

“Financial Advice NZ supports a system that offers licences that fit the scale, size and different financial advice that businesses provide, be they for a single-adviser business, a multiple-adviser business, or something more complex, such as a licensed FAP engaging multiple advisers as well as having nominated representatives.

“This system will be beneficial to small businesses that do great work providing personalised financial advice to clients and who will have a system that’s fit for purpose.”

Advisers who have a transitional licence when the new regime begins will need to obtain a full licence within two years.

Financial Advice NZ will consult members before submitting on the consultation document.

Tags: Financial Advice New Zealand FMA FSLAA licensing