CONTENTS INTRODUCTION... 1 Overview... 1 FINANCIAL ADVISERS ACT 2008... 2 Introduction... 2 Categories of financial advisers... 2 Financial adviser services... 3 Financial products... 3 Clients... 4 Class advice... 5 Internal advice... 5 Incidental advice... 6 Excluded advice... 6 Professional exemptions... 6 Exempted documents... 7 Other exemptions... 7 Securities Commission exemptions... 8 Licensing obligations... 8 Authorised Financial Advisers... 8 QFEs... 9 Conduct obligations... 11 Code of Professional Conduct... 11 Disclosure obligations... 13 Brokers... 14 Territorial scope... 15 Securities Markets Act... 15 Timing... 15 FURTHER INFORMATION... 17 Helpful links... 17 Buddle Findlay has produced this guide to highlight areas of New Zealand's financial services regulation. We have made every effort to ensure that the information is accurate as at the date of publication. However, it should not be relied upon as a basis for making business decisions as circumstances, business conditions, government policy, and interpretation of the law may change.
INTRODUCTION The Financial Advisers Act 2008 (FAA) and Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA) were enacted in 2008. Prior to implementation, the 2 Acts were subject to several different reviews and amendments. Most recently, the Financial Service Providers (Pre-Implementation Adjustments) Bill was passed in August 2010, making significant amendments to both the FAA and FSPA. This guide discusses the requirements of the FAA. A separate Buddle Findlay guide discusses the requirements of the FSPA (see http://www.buddlefindlay.com/a-guide-to-new-zealandsfinancial-services-regulation-financial-service-providers-act). Overview The FAA and FSPA increase regulatory oversight of those who provide "financial services" (particularly financial advice) in New Zealand. The Acts sets up a two-tiered approach to regulation. Under the FSPA (the lower regulatory tier), persons that provide "financial services" will be required to register their business on a public register, and (if those services are provided to "retail clients") be a member of an approved alternative dispute resolution scheme. These requirements are relatively straightforward. In addition to these basic requirements, specific types of financial service providers will be subject to additional regulatory requirements set out in other legislation (the upper regulatory tier). These include: Registered banks, with the additional requirements set out in the Reserve Bank of New Zealand Act 1989 Securities trustees and statutory supervisors, with the additional requirements set out in the Securities Trustees and Statutory Supervisors Act Insurers, with the additional requirements set out in the Insurance (Prudential Supervision) Act Financial advisers, with the additional requirements set out in the FAA. Page 1
FINANCIAL ADVISERS ACT 2008 Introduction The FAA imposes additional regulatory requirements on persons providing "financial adviser services" (the "upper tier" regulatory requirements). The obligations of the FAA are in addition to the obligations of the FSPA. Providers of financial adviser services ("financial advisers") will be subject to registration and licensing, conduct, and disclosure obligations. The exact obligations depend on the nature of the financial adviser service provided, the types of financial products, the type of client, and (in certain cases) the status of the financial adviser's employer. These are discussed in detail further below. The FAA was substantially amended in mid-2010 by the Financial Service Providers (Pre- Implementation Adjustments) Bill. The amended regime addresses many of the criticisms and concerns that were raised regarding the FAA following its initial enactment. The FAA is now far more tailored to specific circumstances, rather than the former "one-size-fits-all" approach. It is, however, much more complicated, with a range of categories, exemptions and requirements. Note that the regime applicable to brokers is discussed separately on page 14. Categories of financial advisers The FAA provides for a number of different categories of financial adviser: Authorised Financial Advisers: Individuals that are both registered and authorised as financial advisers. In summary, Authorised Financial Advisers can give advice on all types of financial product to all types of client. Authorised Financial Advisers are subject to the most rigorous licensing, conduct and disclosure obligations Registered Financial Advisers (Individuals): Individuals that are registered but not authorised as financial advisers. In summary, Individual Registered Financial Advisers can give advice on simple types of financial product to all types of client. Individual Registered Financial Advisers are subject to less rigorous licensing and conduct obligations, however, the full disclosure obligations apply Registered Financial Advisers (Entities): Entities (i.e. not individuals) can be registered as financial advisers. In summary, Entity Registered Financial Advisers can only give class financial advice, or advice to wholesale clients. Entity Registered Financial Advisers are subject to less rigorous licensing, conduct and disclosure obligations QFE Advisers: Employees (and certain "nominated representatives") of Qualifying Financial Entities (QFEs) do not need to be individually registered or authorised as financial advisers. Instead their employer is licensed and oversees the individual financial advisers' activities. In summary, QFE Advisers can give advice to all types of client, but only in relation to simple financial products and the complex financial products issued or promoted (as defined in the Securities Act) by their QFE. Formally, the licensing, conduct and disclosure obligations apply to the QFE, but in practice QFE Advisers will be responsible for ensuring that the QFE complies with these on a day-to-day basis Page 2
Overseas Financial Advisers: Overseas financial advisers without a presence in New Zealand do not need to be registered or authorised as financial advisers In New Zealand. In summary, Overseas Financial Advisers can only give advice to wholesale clients, and no licensing, conduct and disclosure obligations apply. The rights and obligations of each category of financial adviser are discussed further below, and are summarised in the appendix to this guide. For further information, see section 16 of the FAA. Financial adviser services The FAA provides for 3 categories of "financial adviser services": Giving financial advice, being giving recommendations or opinions in relation to acquiring or disposing of a financial product Providing investment planning services, being designing an investment plan for an individual based on (or purported to be based on) an analysis of the individual's financial situation and goals Discretionary investment management services, being deciding which financial products to acquire or dispose on behalf of a client. Only Authorised Financial Advisers can provide investment planning services. The other services may be provided by the other categories of financial adviser, but restrictions relating to the types of financial products and the type of client apply. For further information, see sections 8 to 11 and 16 to 20 of the FAA. Financial products The FAA provides for 2 categories of financial products: category 1 or "complex" financial products, and category 2 or "simple" financial products. The category 1 complex financial products are: Securities (other than securities that are listed as category 2 below) Land investment products Futures contracts Investment-linked contracts of insurance. The category 2 simple financial products are: Bank term deposits Bonus bonds Call building society shares Call credit union shares Call debt securities Shares in co-operative companies Units in a cash or term portfolio investment entity (PIE) Page 3
Consumer credit contracts Contracts of insurance (other than investment-linked contracts of insurance) Life insurance policies (but only if issued before 1 January 2009). Regulations may further prescribe additional financial products as category 1 or category 2 products. In relation to financial advice or discretionary funds management services provided to retail clients: Authorised Financial Advisers may advise on all complex and simple financial products QFE Advisers may advise on simple financial products, and on complex financial products, but only if their QFE is the issuer or promoter (as defined in the Securities Act) of the complex financial products Registered Financial Advisers (Individuals) Advisers may only advise on simple financial products. Other types of financial adviser may provide financial adviser services in relation to any type of financial product but only in relation class adviser services or wholesale clients. For further information, see sections 5 and 17 to 20 of the FAA. Clients The FAA provides for 2 categories of "clients": wholesale clients and retail clients. The FAA defines wholesale clients as: Financial advisers and brokers, acting in the course of their business Financial service providers, acting in the course of their business Professional or habitual investors "Large" entities (with "large" defined as having at least NZ$1m net assets or turnover at the end of each of the last 2 completed accounting periods) Related bodies corporate of "large" entities ("related body corporate" having the meaning set out in section 5B(2) of the Securities Markets Act 1988) Certain state sector entities In relation to offering securities only, private or eligible investors as defined in the Securities Act 1978) "Eligible investors" (being those investors that have sufficient skill and knowledge to evaluate financial products themselves and therefore have "contracted out" of the benefits of being a retail investor). The FAA defines retail clients as any clients that are not wholesale clients. Authorised Financial Advisers, Registered Financial Advisers (Individuals) and QFE Advisers may provide financial adviser services to both retail and wholesale clients. Registered Financial Advisers (Entities) and Overseas Financial Advisers may provide financial adviser services only to wholesale clients. For further information, see sections 5A to 5H and 17 to 20 of the FAA. Page 4
Class advice The FAA provides for 2 categories of financial adviser service: "personalised" and "class" financial adviser services. Note that this distinction applies across the 3 categories of financial advice, investment planning and discretionary funds management (see page 3). The FAA defines personalised financial adviser services as services that are: Provided to, or in respect of a named client; or a client that is otherwise readily identifiable by the financial adviser and Either: - the financial adviser has taken into account the client's particular financial situation or goals in providing the service or - a client would, in the circumstances in which the service is provided, reasonably expect the financial adviser to take into account the client's particular financial situation or goals. The FAA defines class financial adviser services as any services that are not personalised financial adviser services. Authorised Financial Advisers, Registered Financial Advisers (Individuals) and QFE Advisers may provide both personalised and class financial adviser services to retail clients. Registered Financial Advisers (Entities) may only provide class financial adviser services to retail clients. Overseas Financial Advisers may not provide either personalised or class financial adviser services to retail clients. Note that this personalised/class distinction only applies to retail clients, wholesale clients are considered separately on page 4. For further information, see sections 15 and 17 to 20 of the FAA. Internal advice The FAA also sets out a number of exclusions and exemptions from the regulatory requirements of the FAA. Financial adviser services that are provided internally within a business are excluded from the regulatory requirements of the FAA. This exclusion applies where the financial adviser service is both provided and received in the course of, and for the purposes of: The same business The businesses of related bodies corporate (as defined in section 5B(2) of the Securities Markets Act) The businesses of members of a QFE group. Where this internal advice exclusion applies, anyone (not just financial advisers) can provide financial adviser services without being subject to the registration and licensing, conduct, and disclosure obligations of the FAA. For further information, see section 5A of the FAA (definition of "client"). Page 5
Incidental advice The FAA exempts "incidental" financial adviser services from the regulatory requirements of the regulatory requirements of the FAA. This exclusion applies where the financial adviser service is provided only an incidental part of another business that is not otherwise a financial service or does not have, as its principal activity, the provision of another financial service. That is, financial adviser services that are provided in order to facilitate or as an ancillary part of a business that is not otherwise a financial service provider. For example, this exemption will likely include retailers selling goods on hire purchase, and cooperative companies marketing their member shares to prospective members. Where this incidental exemption applies, anyone (not just financial advisers) can provide financial adviser services without being subject to the registration and licensing, conduct, and disclosure obligations of the FAA. For further information, see section 13 of the FAA. Excluded advice The FAA excludes certain types of financial advice from the regulatory requirements of the FAA. Note that this applies only to financial advice "proper", and not investment planning services or discretionary funds management. This exclusion provides that a person does not give financial advice, merely by: Providing basic information such as the costs or terms and conditions of a financial product Providing financial advice in relation to a class of financial products (e.g. general market commentary without recommendations or opinions on specific financial products) Financial advice about the procedure for acquiring or disposing of a financial product (e.g. fill out this form) Transmitting the financial advice of another person Recommending that a person consult a financial adviser. Any person (not just financial advisers) can provide the types of advice subject to this exclusion without being subject to the registration and licensing, conduct, and disclosure obligations of the FAA. For further information, see section 10 of the FAA. Professional exemptions The FAA exempts certain professions and occupations from the regulatory requirements of the FAA. This exemption applies to the following professions and occupations. The service must be performed in the course of that profession or occupation for the exemption to apply: Teachers and lecturers Journalists Certain members of the state sector, including Ministers, Members of Parliament and certain statutory officers of the Crown Page 6
Lawyers and legal executives Conveyancing practitioners Chartered accountants Tax agents Real estate agents and registered valuers Directors and (for non-company entities) "principal officers" in a position analogous to a director Authorised futures dealers. Any person acting the course of one of the above professions or occupations can provide financial adviser services without being subject to the registration and licensing, conduct, and disclosure obligations of the FAA. For further information, see section 14 of the FAA. Exempted documents The FAA exempts certain types of document and information from the regulatory requirements of the FAA. This exemption applies to the following documents and information: Prospectuses, investment statements and advertisements (as defined by and subject to the Securities Act) Other documents required by law to be provided or made available (for example, an annual report of a company). Any person can provide financial adviser services in the course of providing or preparing the exempted documents and information without being subject to the registration and licensing, conduct, and disclosure obligations of the FAA. However, the regulatory requirements of other relevant laws (for example, the Securities Act) may apply. For further information, see section 14 of the FAA. Other exemptions The FAA also exempts certain other activities and persons from the regulatory requirements of the FAA. This exemption applies to the following: Not-for-profit organisations providing free financial adviser services Employers providing financial adviser services to employees (for example, workplace saving schemes) Trustee corporations the ordinary course of providing: - legal or financial services relating to the preparation or drafting of a will - estate management and administration services The offeror, target company and independent adviser acting in the course of a takeover offer under the Takeovers Code Page 7
Approved rating agencies providing financial adviser services in connection with a rating Service providers to financial advisers. Any person can provide financial adviser services in the course of one of the above activities without being subject to the registration and licensing, conduct, and disclosure obligations of the FAA. However, the regulatory requirements of other relevant laws (for example, the Takeovers Code) may apply. For further information, see section 14 of the FAA. Securities Commission exemptions The FAA grants the Securities Commission a wide-ranging exemption making power. The Securities Commission may exempt any person or class of persons from any obligation under the FAA, any regulations made under the FAA, or the Code of Conduct. Such exemptions may be on terms and conditions. Requests for exemptions should be directed to the Securities Commission. For further information, see section 148 of the FAA. Licensing obligations All Authorised Financial Advisers, Registered Financial Advisers (Individuals), Registered Financial Advisers (Entities) and QFEs (but not individual QFE Advisers) must be registered on the Financial Service Providers Register under the FSPA. In addition, Authorised Financial Advisers and QFEs (but not individual QFE Advisers) must be authorised by the Securities Commission (from approximately the middle of 2011, the Securities Commission will be replaced by the Financial Markets Authority (FMA). For further information, see section 5 of the FSPA and Part 3 of the FAA. Authorised Financial Advisers Individuals who want to be Authorised Financial Advisers must apply to the Securities Commission for authorisation. In order to be authorised, individuals will need to: Be registered on the Register Be a member of an approved dispute resolution scheme Advise the Securities Commission which financial adviser services they intend to provide in respect of which financial products (their "Financial Adviser Services Scope") Provide the Securities Commission proof of competence and qualifications. (In practice this involves an ETITO registration number or evidence of relevant alternative qualifications (see http://www.afacompetence.org.nz/) Provide to the Securities Commission proof of their good character Provide to the Securities Commission a declaration as to any criminal convictions in New Zealand or overseas that could involve a sentence of 6 months or more in prison Page 8
Provide to the Securities Commission testimonials from each of: - A recognised industry or professional organisation (must have been a member for the preceding 3 years) and - Either: - an existing client (must have been a client for the preceding 3 years) or - an industry peer or colleague (must have known for the preceding 3 years) and Prepare an Adviser Business Statement that describes the individual's business and the compliance arrangements in place to ensure it operates professionally. This doesn't need to be provided as part of the application, but must be given to the Securities Commission on request. The fees associated for authorisation are NZ$1,144.89 for the initial application, plus NZ$572.45 annually. These fees are in addition to the fees associated with registration (all fees include GST): Application Ongoing fees Registration NZ$357.78 NZ$61.33 annually Criminal history check (per individual named in an application form) Dispute resolution scheme administration contribution (where services provided to retail clients) NZ$40.25 NZ$30.67 NZ$40.25 per person as incurred (e.g. if a new director is appointed) NZ$30.67 annually For further information, see sections 51 to 58 of the FAA, and the Securities Commission's Authorised Financial Adviser Guide, available at http://www.seccom.govt.nz/far/afa/. QFEs The QFE approval regime applies to businesses. Instead of obtaining an individual authorisation for each financial adviser, a business may apply to be approved as a QFE. As a QFE, each of its QFE Advisers (its employees and certain nominated representatives) may provide certain financial adviser services without the need to individually be registered or authorised. To become a QFE, a business must prepare an Adviser Business Statement and have it approved by the Securities Commission. The QFE model is intended to be flexible, and the content of Adviser Business Statements will vary. It must include a description of the QFE's business and the governance and compliance arrangements that ensure it and its advisers operate professionally. The business arrangements section should address: The structure of the QFE's business and key internal and external relationships Any conflicts of interest (such as commissions the entity receives from third-party suppliers, fee structures and group relationships) The products and services the QFE offers, particularly retail products and services with the greatest consumer risk Page 9
The QFE's clients, distinguishing between retail and wholesale clients The QFE's advisers, documenting the category 1 and/or category 2 product types on which they advise The delivery channels for financial adviser services (in person, telephone etc.). The governance and compliance arrangements section will likely need to address the mechanisms that the QFE uses to: Ensure that its QFE Advisers exercise appropriate care, diligence and skill, and operate according to appropriate conduct and competence standards, including ensuring that: - the QFE recruits people with appropriate skills and ethical behaviour - the QFE supports individual advisers to achieve and maintain the right level of knowledge, skills and competence - the QFE actively supervises advisers so they behave appropriately, provide suitable advice and comply with QFE processes - the QFE identifies advisers who do not meet the required standard and takes appropriate remedial action - the QFE's reward structures and practices drive appropriate adviser behaviours and advice standards Enhance professionalism, including controlling and monitoring processes and staff, including ensuring that: - the QFE's marketing does not mislead or confuse customers, or otherwise engage in deceptive conduct - the QFE supports its advisers in giving clear, timely information that helps customers make informed decisions - the QFE's processes help advisers to consistently recommend or guide customers towards suitable products - the QFE delivers agreed products or services, and meets reasonable expectations for ongoing services - the QFE has an internal process for addressing customer complaints and helping advisers learn from them - the QFE has robust compliance arrangements, including those relying on IT systems or outsourcing and - the QFE retains appropriate, easily accessible records Ensure professionalism by means of an appropriate culture, compliance assurance arrangements and good governance, including ensuring that: - the QFE has a high-level person or body responsible for overseeing adviser professionalism and compliance - the QFE's culture supports advisers' professionalism and compliance and the provision of adequate customer protection and - the QFE has appropriate arrangements for challenging and testing the adviser compliance framework and its outcomes Page 10
Adviser Business Statements are intended to be "living documents" that will be kept up-to-date and reflect changes as the QFE's business evolves. Groups of businesses may also become QFEs. Related bodies corporate can apply for: "Partner entity" status, which means that each partner entity is part of the QFE "proper". All partner entities are responsible for the QFE and its employees under the FAA "Associated entity" status, which means that the partner entities are responsible for the employees of the QFE under the FAA. The associated entity does not have any obligations under the FAA. For further information, see sections 63 to 75C of the FAA, and the Securities Commission's QFE Guide, available at http://www.seccom.govt.nz/far/qfe/. Conduct obligations Different categories of financial adviser are subject to different conduct obligations. All financial advisers, regardless of category, type of financial product or type of client must: Exercise the care, diligence, and skill that a reasonable financial adviser would exercise in the same circumstances Not engage in misleading or deceptive conduct (including advertising financial adviser services in a misleading or deceptive manner). In addition, all Authorised Financial Advisers, regardless of the type of financial product or type of client must: Comply with the Code of Professional Conduct (see below) Not recommend an illegal offer of securities, if the financial adviser knows or ought to know that the offer is illegal Comply with any other terms and conditions imposed by the Securities Commission as part of their conditions of authorisation. QFE conduct obligations are to be set primarily by the terms and conditions imposed by the Securities Commission as part of their conditions of authorisation. However, the prohibition on misleading and deceptive conduct applies to all QFEs and QFE Advisers. For further information, see sections 32 to 48 of the FAA. Code of Professional Conduct All Authorised Financial Advisers, regardless of type of financial product or type of client must comply with the Code of Professional Conduct. The Code of Professional Conduct includes minimum standards for matters relating to ethical behaviour, client care, competence, knowledge and skills and continuing professional training. However, not all requirements of the Code of Professional Conduct apply to all types of financial product and clients. The minimum standards for ethical behaviour include: Requiring client interests to be placed first and to act with integrity A requirement not bringing the financial advisory industry into disrepute Page 11
Prohibiting using the term independent financial adviser unless the financial adviser is actually independent Prohibiting borrowing from or lending to retail clients Disclosure of conflicts of interest where the adviser is a related person of the product provider to which the financial adviser service relates (however, only in relation to financial products not offered to the public). The minimum standards for client care include: Requiring financial advisers to behave professionally in all dealings, and communicating clearly, concisely and effectively. This includes only providing financial adviser services that the financial adviser has the competence, knowledge and skills to provide Ensuring retail clients are able to make informed decisions. This applies to both a decision to use the financial adviser, and a decision whether or not to follow any advice provided by the financial adviser Ensuring that any personalised financial adviser services provided to retail clients are suitable for that client. This includes understanding the client's financial situation, needs, goals and tolerance for risk Where the financial adviser service is an investment planning service or relates to a complex financial product, requiring a written explanation of any financial adviser services provided. Further, the financial adviser must take reasonable steps to ensure that a client is aware of the principal benefits and risks involved in following the financial advice Where the financial adviser service is a class service (i.e. general, non-personalised advice), ensuring that the client is aware of the limitations of the service provided Ensuring that appropriate internal processes for resolving client complaints Keeping written records about personalised advice provided to retail clients for at least 7 years. The minimum standards for competence, knowledge and skills include: Only providing financial adviser services that the financial adviser has the competence, knowledge and skills to provide Requiring an adequate knowledge of the Code of Professional Conduct, the FAA and other legal obligations applicable to financial advisers Requiring Authorised Financial Advisers to hold a National Certificate in Financial Services (Financial Advice) (Level 5), or approved alterative qualification. The minimum standards for continuing professional training include: Requiring each Authorised Financial Adviser to keep and maintain a professional development plan Requiring sufficient continuing professional training to ensure that the Authorised Financial Adviser is competent to provide the financial adviser services s/he intends to provide. For further information, see the Code of Professional Conduct, available at http://www.financialadvisercode.govt.nz/. Page 12
Disclosure obligations Financial advisers must disclose certain matters to "retail" clients before providing a financial adviser service to the client (or if that is impracticable, as soon as practicable after providing the service). Authorised Financial Advisers and Registered Financial Advisers (Individuals) must disclose: Their contact details The type of financial adviser they are (i.e. Authorised or Registered) The financial adviser services provided (including financial products in relation to which a financial adviser service is provided) Their fees Any material interests, relationships, or associations Their remuneration Their dispute resolution arrangements Their professional or business experience relevant to performance of a financial adviser service Any criminal convictions, disciplinary proceedings, adverse findings by a court or the Securities Commission or any bankruptcy or other insolvency proceedings Their indemnity insurance. Authorised financial advisers may also be required to disclose additional information required by the Securities Commission as part of their conditions of authorisation. Any advertisement for financial adviser services by an Authorised Financial Adviser (and only an Authorised Financial Adviser) must state that a disclosure statement is available, on request and free of charge. QFEs (not the individual QFE Advisers) must disclose: Their contact details The type of financial adviser they are (i.e. a QFE) Their dispute resolution arrangements Any additional matters required to be disclosed by the QFE's conditions of authorisation Whether the QFE provides any other licensed service. In all cases, the disclosure statement must be up-to-date, and must not be false or misleading. The detailed requirements for disclosure are set out in the Financial Advisers (Disclosure) Regulations 2010, available at http://www.legislation.govt.nz/regulation/public/2010/0378/latest/dlm3306746.html. However, the new disclosure rules will not come into force until 1 July 2011 and the existing disclosure rules under the Securities Markets Act continue to apply until then. Disclosure obligations do not apply in relation to wholesale clients. For further information, see sections 21 to 31 and 36 of the FAA. Page 13
Brokers In addition to the financial adviser services, the FAA also regulates brokers. The regulatory regime for brokers is more straightforward than that for financial advisers. The FAA defines broking services as the receipt, holding, payment, or transfer of client money or client property by a person acting as an intermediary for a client. The money or property must be held as an intermediary for someone else. Taking money or property for your own account does not amount to broking. Brokers (whether individuals or businesses) will be required to be registered as brokers under the FSPA. If the broker offers services to retail clients, they will need to be members of an approved dispute resolution scheme. Unlike financial adviser services, however, employees of a business will not need to separately register. As for financial advisers, brokers will also be subject to certain conduct and disclosure obligations. Brokers must, in relation to all clients (both retail and wholesale): Exercise care, diligence, and skill Not engage in misleading or deceptive conduct (including advertising broking services in a misleading or deceptive manner) Not receive client money if offer for an illegal offer of securities, if the broker knows or ought to know that the offer is illegal. In addition, brokers must, in relation to retail clients only: Pay client money into a separate trust account Account to clients for all client money or property received Keep proper trust account records that disclose clearly the position of the client money in the trust account, and clearly identify the client property, show the date when the client property was received and, if the client property has been disposed of, show where the client property was disposed of and to whom Not use client money or property in any way except as expressly directed by the client. The FAA anticipates that brokers may be required to provide a disclosure statement to retail clients prior to providing broking services. However, regulations bringing this requirement into effect have not been made so the FAA will not require brokers to make disclosure prior to providing broking services. However, the existing disclosure requirements under the Securities Markets Act will apply until 1 July 2011. Certain special rules apply in relation to insurance and insurance brokers under the Insurance Intermediaries Act 1994. For further information, see part 3A of the FAA. Page 14
Territorial scope The FAA focuses on where financial adviser services or broking services are received. If a client receives the services in New Zealand, then the FAA will apply fully to those services, regardless of where the financial adviser is resident, is incorporated, or carries on business. That is, overseas financial advisers advising New Zealand clients will need to consider their obligations under the FAA. Certain limited provisions of the FAA also apply to financial adviser services and broking services provided by a person in New Zealand, but to an overseas client. These relate to the basic conduct obligations to exercise due care, diligence and skill and not to engage in false or misleading conduct (see page 11). The licensing and disclosure obligations do not apply, however, the local law of the client may apply to such services. For further information, see section 157 of the FAA. Securities Markets Act The FAA replaces the investment adviser and broker regime set out in Part 4 the Securities Markets Act 1988. The Securities Markets Act regime primarily required investment advisers and brokers to make certain disclosures to their clients. Unlike the FAA, it did not impose any registration requirements or conduct rules. However, the new disclosure rules will not come into force until 1 July 2011 and the existing disclosure rules continue to apply until then. However, the FAA does not replace the authorised futures dealers regime set out in Part 3 of the Securities Markets Act. Futures dealers will still need to be authorised by the Securities Commission under Part 3. Authorised futures dealers are exempted from the FAA in respect of their futures dealing. However, if futures dealers also provide other financial adviser services, they will also need to comply with the relevant FAA requirements. Timing The FAA and FSPA will come into full force in the latter half of 2010 and first half of 2011. Key dates include: 16 August 2010: The Financial Service Providers Register (the Register) opens for voluntary registration (see www.fspr.govt.nz) 1 December 2010: Mandatory registration of all financial service providers on the Register, except financial advisers 1 December 2010: Applications for Authorised Financial Advisers (AFAs) close 1 December 2010: Applications for Qualifying Financial Entities (QFEs) close 31 March 2011: Late applications for AFAs close 1 April 2011: Mandatory registration of financial advisers on the Register (FSPA fully in force) 1 July 2011: No financial adviser services may be provided unless registered and (if applicable) authorised (FAA fully in force). Page 15
Full details of the transitional scheme set out in the Financial Advisers Act Commencement Order 2010 and Financial Service Providers (Registration and Dispute Resolution) Act Commencement Order 2010 (see http://www.legislation.govt.nz/regulation/public/2010/0232/8.0/dlm3148251.html and http://www.legislation.govt.nz/regulation/public/2010/0231/latest/dlm3149923.html). Further information is available at the Securities Commission financial advisers website (see http://www.seccom.govt.nz/far/). Page 16
FURTHER INFORMATION For further information on the FSPA and FAA, please contact one of Buddle Findlay's financial regulation team. Jason Boyes Partner DDI: 04 462 0444 jason.boyes@buddlefindlay.com Mark Russell Partner DDI: 03 371 3505 mark.russell@buddlefindlay.com Frank Porter Partner DDI: 09 358 7016 frank.porter@buddlefindlay.com Ash Hill Senior Associate DDI: 09 363 1036 ash.hill@buddlefindlay.com Bassam Maghzal Senior Solicitor DDI: 03 353 5884 bassam.maghzal@buddlefindlay.com Jan Etwell Partner DDI: 03 371 3514 jan.etwell@buddlefindlay.com Michael Dineen Partner DDI: 09 358 7009 michael.dineen@buddlefindlay.com Sacha Judd Partner DDI: 09 363 0632 sacha.judd@buddlefindlay.com Matthew Farrington Senior Solicitor DDI: 04 462 0926 matthew.farrington@buddlefindlay.com Rebecca Dickison Senior Solicitor DDI: 03 371 3560 rebecca.dickison@buddlefindlay.com Anna-Louise Oliver Solicitor DDI: 09 363 0672 anna-louise.oliver@buddlefindlay.com Helpful links Further information is also available at: The Register of Financial Service Providers - http://www.business.govt.nz/fsp The FAA and FSPA - http://www.legislation.govt.nz The Securities Commission Financial Adviser portal - http://www.seccom.govt.nz/far/ The Financial Adviser Code Committee website - http://financialadvisercode.govt.nz/ Buddle Findlay's guide to the Financial Service Providers Act - http://www.buddlefindlay.com/a-guide-to-new-zealands-financial-services-regulationfinancial-service-providers-act. Page 17