Sarah Johnston
Last week, the Financial Markets Authority opened consultation on the proposed full licence standard conditions for financial advice providers, as part of the new regulatory regime.
The FMA is proposing three licence classes for financial advice providers (FAPs).
- Class A licences will apply to advisers who give advice on their own, as part of a one-adviser business.
- Class B licences will be for firms that have multiple advisers but no nominated representatives.
- Class C licences permit the holder to engage nominated representatives or another entity.
The FMA is considering eight standard conditions for full licences: record keeping, internal complaints process, regulatory returns, outsourcing, professional indemnity insurance, business continuity and technology systems, ongoing capability, and notification of material changes.
Record-keeping and internal complaints are the same conditions as will apply to transitional licences.
FAPs will be required to have appropriate professional indemnity insurance, ensure outsourcing agreements allow them to meet their market service licencee obligations at all times, and have a business continuity plan that is appropriate for the business.
Astute Financial chief executive Sarah Johnston welcomed the clarity on full licensing, and said the proposed conditions were "similar to the standard conditions applicable to other types of licences currently issued by the FMA".
"In our context, as an aggregator, we do not see these conditions slapping unreasonable burden on us from a compliance perspective. This may well be because we already have to comply with similar conditions imposed on us by the product providers," Johnston added.
Johnston said the three-class FAP licensing system showed "the FMA’s proportionate approach to licensing which does not preclude a sole advisory business from obtaining a FAP licence".
Yet she warned some advisers would face mounting costs: "The FAP licensing regime is ‘new’ to RFAs, and they have to face a fair amount of compliance costs, compared to the costs they incur today."
She added: "This is where we, as the potential FAP licence holder, will support them in this journey and ensure together we continue delivering clients the same (if not better) value they expect of us."
Q Group's Geoff Bawden was more critical of the full licensing details.
He questioned whether the new regime would simplify the current AFA-RFA system: "I'm really not sure how we can claim to be simplifying things to avoid confusion, it's a minefield."
He believes insurance costs will rise: "We are now creating a whole new entity who looks like they will require additional PI insurance protection, even though there are the same number of financial advisers trading, and there is no real change around those who are providing financial advice."
Bawden questioned whether the additional layers of cost and compliance would be good for clients in the long term.
"By far the majority of financial advisers in New Zealand are sole practitioners, and you align that with the stated objective that having financial advisers is beneficial to the consumer, then you have to ask if cost will become an impediment to giving sound advice."
The FMA's consultation is open until August 7. It will start accepting full licence applications when the new legislation takes effect, which is anticipated to be no earlier than March 2021.
The regulator continues to process and grant applications for transitional licenses, which have now passed 800 in total. They include an estimated 5,800 financial advisers – representing well over half the current number of authorised and registered financial advisers in New Zealand.
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