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Financial Regulation Update – 8 April 2019

Home Insights Financial Regulation Update – 8 April 2019

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Contributed by: Deemple Budhia and Joanna Khoo

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Published on: April 08, 2019


The Financial Services Legislation Amendment Bill (affectionately known as the FSLAB) passed its third reading on 4 April 2019. This means it is likely to be enacted into law very shortly (bills that have passed their third reading typically receive Royal Assent within a week or so). 

The FSLAB overhauls the financial advice regime that was implemented in 2008, and seeks to ensure consistency in the conduct and client-care obligations of persons who provide financial services.

Amendments are also made to the Financial Service Providers (Registration and Dispute Resolution) Act 2008 to address the misuse of the financial service providers register by off-shore entities.  

Next steps

Following assent of the FSLAB, the next stage is for the Code of Conduct for Financial Advice Services (Code of Conduct) to obtain Ministerial approval. Our submissions on the draft Code of Conduct, which was consulted on in March and October of last year, may be accessed here.

The FSLAB Regulations (Regulations) that will address disclosure and licensing requirements are expected to be consulted on this month. The Cabinet Paper agreeing the proposed disclosure requirements to be set in the Regulations are available here.

How to prepare

The FSLAB, Regulations and Code of Conduct (FSLAB regime) must come into force by 1 May 2021 (although some of the provisions will come into force the day following Royal Assent). While this date is still a couple of years away, we strongly recommend people who will be affected by these changes to consider how the FSLAB regime will affect them. Given the change to the structure of the regime, we expect that transitioning to the FSLAB regime will require a great deal of thought and preparation.

In brief, if you are currently a business that provides financial adviser services through individuals or as a qualifying financial entity or registered financial entity under the current regime, or you intend to provide financial advice services under the FSLAB regime, you will need to consider, among other things:

  • how you wish to structure your business under the FSLAB regime, including whether you will engage other persons to give financial advice to clients on your behalf;
  • if so, whether such persons will be engaged:
    • directly as financial advisers (noting that only authorised financial advisers under the current regime will immediately qualify as financial advisers under the FSLAB regime);
    • directly as nominated representatives; or
    • indirectly as financial advisers and/or nominated representatives through authorised bodies or interposed persons.
  • whether you should obtain a transitional licence (in respect of which see below);
  • how you will meet the obligations for the services that you expect to provide under the FSLAB regime; and
  • how you, as a financial advice provider, will comply with your general and/or particular standards of competence, knowledge and skill under the Code of Conduct.

If you are currently an entity that provides financial adviser services under the current regime and wish to continue to provide such services under the FSLAB regime, then you should apply for a transitional licence. A transitional licence would provide you and your advisers with a two year safe harbour period from the commencement date to meet the competency standards. Applications for transitional licensing are expected to open at least six months prior to the commencement date (which will be 1 May 2021 at the latest). Otherwise, entities that provide financial advice services that do not have a transitional licence will need to have a full licence from the commencement date and will need to comply with the full extent of the FSLAB, Regulations, and Code of Conduct.

Current expected timeline

It is expected that the Financial Markets Authority (FMA) will provide an update to its expected timeline for the implementation of the FSLAB regime, given that the latest commencement date of the FSLAB has been changed from 1 May 2020 to 1 May 2021. Currently, the FMA's timeline provides that:

  • the Code of Conduct will be approved, and the Regulations made, by Q2 of 2019; and
  • the transitional licensing applications will open at least six months prior to the commencement date.

For more information, please contact us.

This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

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