FMA releases in-principle decisions on financial advice exemptions

  • Legal update

    07 November 2019

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The Financial Markets Authority (FMA) yesterday released its in-principle decisions following its consultation on certain exemptions under the incoming new financial advice regime.

The Financial Services Legislation Amendment Act 2019 (FSLAA) will repeal the Financial Advisers Act 2008 (FAA) and insert into the Financial Markets Conduct Act (FMCA) the new regulatory regime for financial advice. This new regime is expected to start on 29 June 2020.

When the FAA is repealed, the existing exemptions will end and, unless the FMA grants new exemptions, any persons operating under them will need to meet the full FSLAA requirements.

The FMA’s statement on these exemptions, along with details on the earlier stages of the consultation, can be found here, and our previous discussion of the consultation can be found here.

Who needs to read it? Why?

These decisions are important for financial service providers who rely on the current exemptions described below.

What does it cover?

The consultation paper dealt with three existing exemptions that the FMA initially thought would be useful to continue under the FSLAA financial advice regime, being those around:

  • Australian licensees;
  • overseas custodians’ assurance engagements; and
  • Australian-qualified advisers.

It also covered four exemptions that the FMA thought would not be necessary to retain, being those around:

  • the recognition of alternative qualifications in relation to the Certified Investment Management Analyst program;
  • NZX and non-NZX brokers’ co-mingling of client money and property with broker money and property;
  • personalised digital advice; and
  • offers of financial products through authorised financial advisers supplying personalised discretionary investment management services.

In this statement, the FMA has essentially continued with that thinking, with two of the three supported exemptions (those on Australian licensees and overseas custodians’ assurance engagements) intended to be continued (and the third, on Australian-qualified advisers, intended for further consultation, as discussed below) and all four of the others to be left to expire. Although the exact drafting of the exemptions and their conditions is yet to come, the FMA has provided some detail on what the future exemption notices may look like, which we have summarised below.

(1) For Australian financial services licensees with no place of business in New Zealand (and their representatives), the FMA is expecting to grant five-year exemptions allowing them to provide unsolicited regulated financial advice (other than that given through a digital advice facility) to retail clients in New Zealand from offshore without being subject to:

  • the requirement in the FMCA to be licensed to act as a provider of a financial advice service;
  • limitations in the FMCA on who can give regulated advice to retail clients on behalf of a financial advice provider;
  • the prohibition in the FMCA on holding out certain matters in relation to giving financial advice; and
  • the duties in the FMCA on persons giving regulated financial advice except:
    • the duty of care, skill and diligence;
    • the duty not to recommend an offer that contravenes the FMCA or its regulations;
    • the duty to give priority to clients’ interests where there is a conflict;
    • the duty to ensure clients understand the nature and scope of the advice; and
    • the duties on financial advice providers who engage others to give advice to ensure compliance with the above duties.

(2) For overseas custodians of client money and client property, the FMA is expecting to grant five-year exemptions allowing them to obtain an assurance engagement from one of a range of overseas auditors rather than requiring one from a New Zealand-qualified auditor.

(3) In parallel, the FMA is expecting to grant a five-year extension of existing exemptions under the FMCA for overseas custodians of scheme property, to align their expiry date with that of the exemptions described in (2) above.

No decision has been made yet on the exemption for Australian-qualified advisers (continuation of which was supported in the earlier consultation). It has been kept separate from the other two supported exemptions, on the basis that financial adviser qualification requirements are changing in both jurisdictions. The FMA is intending to hold further discussions, including with their Australian counterpart, and then consult in the first half of 2020 on what exemption support (if any) should be continued there.

Our view

The new regulatory regime for financial advice will affect all persons and entities in the financial advice space. Exemptions provide a useful tool in allowing the financial advice regulatory regime to operate smoothly, both without excessive complexity and without compromising the standards for its normal operation while still recognising the particular positions of certain parties that may be affected in unintended ways.

What next?

The FMA has called for expressions of interest in any later consultation on the drafting of the exemption notices.

If you have any questions in relation to these decisions or the new FSLAA financial advice regime, or would like to be involved with us in any later consultation on the exemption notices, please contact one of our experts.