How the FMA says it’s helping advisers to comply with the licensing regime

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With only eight months left for financial advisers to complete full licensing, the FMA took the opportunity at a conference in Auckland on Monday to reveal how slow the sector has been in complying with FSLAA (the Financial Services Legislation Amendment Act).

Wednesday, July 27th 2022, 8:14AM 2 Comments

by Jenni McManus

Under the new regime, only those with a full FAP licence will be able to give regulated financial advice from 15 March next year. To date, of the 1835 advisers who were granted transitional licences two years ago, only 630 (33%) have full class 1 and 2 licences. Another 63 have received full class 3 licences and 29 advisers have withdrawn from the process. The remainder have yet to comply.

The FMA has set a target date of 30 September for Class I (sole traders) and class 2 holders of transitional licences to get their full licensing applications in.

Romil Ghelani, the FMA’s manager of financial advice supervision, was at pains to tell conference attendees that while there was “still a way to go” to achieve full compliance, the regulator was there to help.

In a presentation covering some of the themes emerging from recent roadshows and other meetings with advisers, the learnings for the FMA and what happens once licensing is achieved, Ghelani’s key message was the need to build strong relationships with the sector and to foster trust. Both the FMA and the adviser community want the same thing – a fair outcome for customers, he said.

“The vast majority of the sector is trying to get the compliance arrangements right so it’s really important that we look at working with the sector and not against it,” Ghelani said. “We recognise the changes introduced by FSLAA are significant and our supervision approach in the advice sector will reflect this regulatory setting.”

Many advisers have asked him what would be “enough” to satisfy the FMA in terms of detail and disclosure on their licensing application forms, Ghelani said. But FSLAA is principles-based legislation and not about tick-box compliance and satisfying the regulator.

“This is all about having processes that are proportionate to the size and complexity of the business. Advisers need to think about how these principles apply to their business operations. It’s all about how to right-size your arrangements,” he said. “Make sure they make sense for your operating environment.”

For example, some FAPs are documenting long and complex processes that don’t fit with the level of risk posed to consumers.

“What we can do is help the sector navigate how to comply, how to tackle those principles,” Ghelani said. “That’s a big part of what we’re doing right now – educating and providing that guidance. It’s all about proactive engagement so issues and concerns are tackled informally before they become [bigger] issues in the future. It’s all about being supportive.”

Other important concerns are governance and oversight, and cyber resilience and outsourcing. Some of the bigger licensed FAPs have set up oversight bodies, responsible for monitoring compliance with their statutory duties. With cyber and outsourcing, Ghelani said FAPs should again consider the size and complexity of their businesses and the technology they rely on.

“As a regulator, our focus on supervising this area is going to increase, especially as technology becomes more interwoven with licensed market services.”

For now, the regulator’s approach will be guidance-based, intelligence-led (to help identify risk) and will adjust over time as the new regimes becomes embedded. Misconduct – for example, deliberate non-compliance – would still be dealt with as “poor behaviour does not stop just because a new regime has come into force”.

Post licensing, there would be both planned and reactive monitoring of FAPs with a big emphasis on market engagement. Ghelani said the FMA acknowledges the new legislation creates ambiguity for advisers. “That’s why supervision and guidance to the market is so important to clarify those grey areas.”

The FMA didn’t want to see unnecessary barriers for advisers and their firms and wants to work on ways of minimising disruption and identifying any monetary consequences of the changes, he said.

Tags: FMA

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