[UPDATED] Full licensing rules finally released

• Tweet

The FMA has released the long-awaited standard conditions for the licensing of financial advice.

Friday, November 6th 2020, 10:10AM 3 Comments

After much industry consulting, the FMA have finally released the standard conditions that financial advice providers must adhere to achieve a full licence.

The final standard conditions for a full financial advice provider licence include three separate classes of financial advice service, as well as seven sections that the standard conditions cover.

The seven standard conditions for a full licence include:

• record keeping
• internal complaints process
• regulatory returns
• outsourcing
• business continuity and
• technology systems,
• ongoing requirements, and notification of material changes.

One notable admission from the conditions is professional indemnity insurance. The FMA media release says that “Professional indemnity insurance cover remains an important decision for each financial advice provider to consider, taking into account their own particular circumstances, and accordingly, the FMA decided not to include professional indemnity insurance as a standard condition”.

Katrina Shanks, CEO of Financial Advice New Zealand told Good Returns that “we were extremely pleased to see the admission of professional indemnity insurance from the final full licensing conditions. There was a lot of consultation with the industry around this point. The FMA listened to the concerns of the industry and as a result have removed PI from the final conditions.

“One of the big reasons for removal was the change in the market, as well as the uncertainty around the availability and affordability of PI. This was one of the key things that we advocated on behalf of advisers for as a part of our submission process.

“FANZ have worked really collaboratively with the FMA on these full licensing conditions and we appreciate the consultation process which they put in place.”

The three different financial advice provider classes have changed from “A, B and C” to “1, 2 and 3”. The classes mean financial advice provider applicants can apply for the licence that best suits their circumstances, whether they are a sole adviser business, engage multiple advisers or authorised bodies, or a business that has nominated representatives.

John Botica, FMA Director of Market Engagement, said the consultation received a healthy response from the industry, with 55 written responses.

“Standard conditions play an important role in setting the bar for the businesses the FMA licences. The consultation helped to ensure the standard conditions will be fit for purpose and we were pleased to see the industry was broadly very supportive of them,” Botica said.

The FMA continues to process transitional licence applications, leading up to the commencement of the new financial advice regime. Anyone who still intends to apply for a transitional licence is encouraged to do so before the summer break to ensure their application can be processed before March 15, 2021.

Shanks says that the full licensing conditions bring with them “a lot of new requirements which many advisers have not had to consider before. Advisers are going to have to look very carefully at those final standard conditions. To help them through this process FANZ and the FMA are running a joint-launch of the final standard conditions guidance in Christchurch on the November 17.”

Murray Weatherston, principal of Financial Focus told Good Returns that in the full licence provisions “there are a few things that I think will prove to be fishhooks.

“The first one is the record keeping. Now while everyone thinks they keep good records, these provisions are asking for ‘records relating to how you or any person engaged by you has complied with the financial advice duties’. So in this new regime advisers are not only going to have to be careful when they give advice, but they are going to carefully document how they took into account any particular piece of advice all the ways they took into account the laws and regulations.

“This is going to mean that once someone has given advice, they are going to have to sit down and spend hours writing notes in case the FMA comes calling. This is going to cost anyone who has a licence a truckload of money, and the regulators won’t like me saying this but there is only one place these costs are going to fall and that is on the clients.”

Compounding these fears of a skyrocketing cost of advice is Weatherston’s concern that many advisers don’t realise just how much these changes are going to affect their industry. “I would imagine that large numbers of advisers who are going to be licensed have not even looked at these [conditions]. Most people who do read them might think ‘oh this is all pretty simple’, but when you get into the nitty gritty and you are faced by a monitoring visit, I think a fair number of advisers are going to be found to be wanting.”

As of Monday November 2, the regulator had approved 1,112 transitional licences and 420 authorised bodies, representing an estimated 7,753 financial advisers and 7,943 nominated representatives.

The FMA will start accepting full licence applications from the beginning of the new financial advice regime (March 15, 2021).

Advisers who don’t have a transitional licence when the new regime begins will have to stop providing financial advice to retail clients until they obtain a full licence unless they are engaged by a financial advice provider that holds (or is authorised under) a transitional licence.

After two years, all transitional licences expire and financial advice providers must have a full licence (or be authorised under another entity’s full licence) to continue giving advice to retail clients.

DOWNLOAD CONDITIONS HERE

Tags: FMA Katrina Shanks Murray Weatherston

Comments from our readers

Sign In to add your comment