Consultation on draft Financial Markets Conduct (Regulated Financial Advice Disclosure) Amendment Regulations

The Ministry of Business, Innovation & Employment (MBIE) has released an exposure draft of the Financial Markets Conduct (Regulated Financial Advice Disclosure) Amendment Regulations 2019 (the draft Regulations)  available here.

These draft Regulations set out the disclosure requirements in the 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. The new regime is expected to start in June 2020.

View our previous discussion on the timing of the new regime, passing of the FSLAA and the approval of the new Code of Professional Conduct for Authorised Financial Advisers (Code), the conditions of the licence and transitional licence applications which will open soon.

Who needs to read it?  Why?

The Regulations impose new disclosure requirements around regulated financial advice. This will affect all businesses involved in the provision of financial advice, financial services or financial products.

What does it cover?

The draft Regulations prescribe new duties that apply to those who give regulated financial advice.

This includes:

  • A new market services licence condition for financial advice providers to keep a record of each disclosure made in accordance with their duties under the Regulations. This record must be kept for at least seven years and be made available for inspection by the FMA.

  • A requirement for financial advice providers to make publicly available (to help retail clients find a financial adviser that meets their needs), information relating to:
    • licensing, including licensing status and any conditions
    • the nature and scope of the financial advice
    • any fees charged for financial advice
    • conflicts of interests, commissions and other incentives
    • internal complaints procedures and external dispute resolution, and
    • a statement that the client can request for the information.

  • A requirement to disclose to the retail client when the nature and scope of the financial advice is known, information relating to:
    • licensing, including licensing status and any conditions
    • the nature and scope of the financial advice
    • any instances of being publicly disciplined, convicted, involvement in civil proceedings or bankruptcies and insolvencies
    • information to help identify the financial advice provider, financial adviser or nominated representative
    • any fees charged for financial advice or expenses to be paid
    • conflicts of interests, commissions and other incentives, and
    • a statement that the client can request for the information.

  • A requirement to disclose to the retail client when financial advice is given, additional information relating to:
    • information to help identify the financial advice provider, financial adviser or nominated representative
    • any fees charged for financial advice or expenses to be paid
    • conflicts of interests, commissions and other incentives
    • internal complaints procedures and external dispute resolution
    • duties in the FMCA that the person is required to meet, and
    • a statement that the client can request for the information.

  • A requirement to disclose to the client information regarding complaints handling processes and dispute resolution arrangements when a complaint about a financial advice service is received.

  • Requirements on how certain information is to be provided, including a requirement for information to be worded in a clear, concise and effective manner.

Our view

Time is now exceptionally short, especially for larger institutions who need to update systems and documentation to be compliant with the new regime by June 2020 (if it has not started already) based off those topics from the draft Regulations, even though there may be further changes before they are issued.

The draft Regulations do propose a more flexible regime where disclosure can be provided in different ways so long as the key information is delivered. It also imposes the new duty for financial advice providers to keep a record of all of their disclosures.

However, given that these duties apply, to all types of financial advice (rather than the specific disclosure requirements on authorised financial advisers and qualifying financial entities only under the current regime), financial advice providers will need to carefully consider the systems and procedures that need to be put in place to ensure all advice situations are covered.

What next?

The draft Regulations follow the previous consultation on proposed disclosure requirements and two rounds of consumer testing. The submissions will help finalise the regulations before they are submitted to Cabinet for approval. MBIE is seeking feedback on whether the draft Regulations achieve the policy intent and whether they are workable in practice for the different ways that advice could be given. It is also looking for feedback on whether transitional provisions are needed to ensure that the industry has enough time to meet the new disclosure requirements.

Submissions close at 5pm on Friday, 8 November 2019.

The government is expecting to finalise the Regulations in early 2020, to come into force in June 2020 along with the rest of the new regulatory regime.

If you have any questions on the consultation, the new FSLAA financial advice regime, or would like assistance with submissions, please contact one of our experts.

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