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Financial Regulation Update – Consultation on exemptions under new financial advice regime

Home Insights Financial Regulation Update – Consultation on exemptions under new financial advice regime

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Contributed by: Deemple Budhia, Joanna Khoo and Seira Shin-Clayton

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Published on: August 16, 2019


The Financial Markets Authority (FMA) has released a consultation document on the proposed exemptions under the new financial advice regime (FSLAA Regime). The consultation is aimed at people giving regulated financial advice or providing client money or property services, their advisers, and interested parties.

The exemptions discussed in the consultation paper fall into two categories:

Currently exempted matters which the FMA considers may also need to be exempted under the FSLAA regime, namely:

  • Australian-regulated licensed financial services firms' ability to provide financial adviser services in New Zealand in limited circumstances. The policy grounds for this exemption will still be relevant under the FSLAA Regime, such as facilitating the Trans-Tasman provision of financial services;
  • Overseas custodians' exemption from the requirement to get an assurance engagement with a New Zealand auditor. Provided the content of the current Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 are largely carried over into the FSLAA Regime, the exemption for overseas custodians as to assurance engagements should be retained under the FSLAA Regime; and
  • Australian qualified advisers' exemption from the educational competency requirements. It is difficult for the FMA to assess at this stage whether the exemption will be appropriate under the FSLAA Regime, as the FSLAA Regime will significantly change the competency requirements in New Zealand. Further, the financial advice regime in Australia has undergone significant changes recently, making the comparison of the FSLAA competency requirements and the Australian competency requirements even more difficult.

Currently exempted matters which the FMA considers should not be maintained due to the changes under the FSLAA regime, namely:

  • The exemption for the Certified Investment Management Analyst certification program as an alternative to certain competency requirements. The new Code under the FSLAA Regime has built-in flexibility for recognising alternative qualification or experience in satisfaction of the competency requirements. Therefore, it is preferable under the FSLAA Regime to develop a single process for assessing alternative qualification or experience on a case-by-case basis, rather than providing an exemption for each type of alternative qualification or experience;
  • The exemptions for co-mingling client money and property with broker money and property. The FMA queries whether it will be appropriate to provide relief from the segregation requirement under the FSLAA Regime as the FMA expects that:
    • the FSLAA and the FSLAA regulations will provide adequate guidance on the prescribed circumstances in which the requirement to keep client money and property separate from that held by or for the provider does not apply. The FSLAA provides that co-mingling of client money and property with broker money and property is allowed in the circumstances prescribed under the FSLAA regulations. The FMA confirms in the consultation paper that the Government has decided that the FSLAA regulations on client money and property will be largely consistent with the current client money regulations. One notable change that can be expected under the FSLAA regulations is that providers will be able to deposit their own money into client accounts in certain circumstances, such as to reduce the risk of the client account being overdrawn due to delays in processing payments. The FSLAA provides that broker money or property that is not kept separate from client money must be treated as client money or client property if the regulations provide for this, the intention being to mitigate the risks for clients in the event the broker becomes insolvent; and
    • brokers relying on the current Financial Advisers Act exemptions will have taken significant steps by now towards implementing changes to their systems, processes and business to eliminate (or reduce to the maximum extent possible) any shortfalls arising in client money, such that further relief from the segregation requirement may be very restricted in scope and/or period of time;
  • The exemption for personalised digital advice. The FSLAA Regime is intentionally 'technology neutral' and so the issues in relation to the provision of personalised advice digitally will no longer apply under the FSLAA Regime; and
  • The exemption for offers of financial products through Authorised Financial Advisers supplying personalised Discretionary Investment Management Services (DIMS) from the standard disclosure regime. From June 2020, all persons providing DIMS will be required to operate under a Financial Markets Conduct Act licence and, therefore, the exemption will no longer be relevant under the FSLAA Regime.

In relation to the exemptions for Australian licensees and overseas custodians, the FMA intends to have appropriate exemptions in place prior to the FSLAA regime coming into effect in June 2020. The FMA will conduct a further consultation in relation to Australian qualified advisers in the first half of 2020.

Submissions will close at 5pm, 13 September 2019. Please contact any of the persons below if you would like to discuss the consultation paper or would like assistance with your submission.

This article 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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