December 17, 2020 - New Zealand

MBIE Publishes Regulations to Support FSLAA and Other Changes

Today, the Ministry of Business, Innovation and Employment (MBIE) released various long-awaited suite regulations to support the Financial Services Legislation Amendment Act 2019 (FSLAA) and other recent legislation changes (such as the Trusts Act and tax disclosure).

Links to the new regulations are available here:

Who needs to read it? Why?

This announcement will be relevant to all financial advice providers, custodians and brokers. It is also relevant to all financial service providers.

What does it cover? When does it come into effect?

The Financial Markets Conduct Amendment Regulations 2020 introduce changes which come into force in January 2021:

  • Regulation 17 comes into force on 30 January 2021, and provides that certain provisions of the Trusts Act 2019 do not apply to PIE call fund unit trusts and PIE term fund unit trusts.
  • Regulations 29(2) and 30 come into force on 18 January 2021, which update the disclosure information that must be given by managed investment schemes to reflect changes in the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 relating to tax refundability.

Other changes which come into force on 15 March 2021 (or later, for parts of the Financial Markets Authority (Levies) Amendment Regulations (No 2) 2020) to support either FSLAA’s repeal of the Financial Advisers Act 2008 and its replacement by a new Part of the Financial Markets Conduct Act 2013, or changes FSLAA makes to the application of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 are as follows:

1. The Financial Markets Conduct Amendment Regulations 2020 contain the following as a result of the new financial advice regime:

  • replacing terminology from the Financial Advisers Act 2008, such as references to “category 2” financial products and authorised financial advisers. Note:
    • The existing treatment under the Financial Markets Conduct Regulations 2014 in relation to category 2 products (for example in relation to whether a PDS needs to be given) is preserved.
    • Transitional provisions have been included to give affected providers time to update documents that refer to “authorised financial advisers” and “financial advisers”;
  • carrying over the effect of the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 with some updates and clarifications;
  • prescribing limited circumstances in which client money and firm money can be held together, to reflect the effect of existing FMA exemptions for NZX brokers and Non-NZX brokers;
  • prescribing when firm money that is held together with client money is to be treated as client money;
  • prescribing the statement that lenders can give to make clear to consumers that the limited exclusion from the financial advice regime relating to lender responsibilities applies;
  • prescribing requirements for the record of nominated representatives that must be maintained by providers;
  • requiring AFAs and QFEs that continue operating in the industry to retain records that were required to be held under the Financial Advisers Act 2008;
  • carrying over exemptions contained in regulations under the Financial Advisers Act 2008;
  • updating a cross-reference in the financial advice disclosure regulations so that financial advice providers are able to refer to their website when disclosing information about their legal duties, and;
  • enabling financial advice providers to provide contingency DIMS without being subject to DIMS licensing requirements. This carries over and updates an existing licensing exemption for contingency DIMS provided by authorised financial advisers. The regulations also include transitional arrangements where an authorised financial adviser named in a contingency DIMS investment authority is engaged by a financial advice provider.

The Financial Markets Conduct Amendment Regulations 2020 also make amendments to:

  • The Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019. The amendments include a new exemption from the licensing requirement for financial advice services. The exemption relates to advice given in relation to offers of interests in a foreign passport fund. Under those regulations, the offer of interests in a foreign passport fund is primarily regulated under the laws of the fund’s home country (instead of New Zealand law).
  • The Financial Markets Conduct (Unlisted Market) Regulations 2015 as a consequence of FSLAA.

2. The Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Amendment Regulations 2020, replaces terminology from the Financial Advisers Act 2008. No substantive changes are being made to who is subject to AML obligations.

3. The Financial Service Providers (Registration) Regulations 2020 updates the 2010 regulations and include changes to:

  • provide for additional information to be displayed on the register, for example, relating to whether a provider is providing services to wholesale or retail clients, (the Registrar will be providing further information about the process for updating existing FSPR records); and
  • add measures to address misuse of the FSPR, including prescribing a threshold for registration for certain financial service providers and requiring certain providers to include a warning statement that registration on the FSPR does not mean active regulation in New Zealand.

4. The Financial Service Providers (Exemptions) Amendment Regulations 2020, exempts certain providers without a place of business in New Zealand from registration on the FSPR if they do not promote services to New Zealand clients.

  • The regulations also include changes to exemptions as a consequence of FSLAA. The changes include:
    • revoking an exemption for entities that provide financial adviser or broking services where there is only 1 adviser. The exemption is not required under the new financial advice regime. That regime requires providers of those services (and financial advisers) to be registered under the FSP Act:
    • continuing an exemption for a member of an angel organisation in respect of financial advice services provided to other members of angel organisations. Angel organisations are organisations directed at facilitating the provision of capital from investor members to innovative or start-up businesses. The exemption has been amended so that it applies only if all members of the angel organisation to whom the advice is provided are wholesale clients.

5. The Financial Markets Authority (Levies) Amendment Regulations (No 2) 2020, sets levies for the new financial advice regime as well as levies for 2021/22 and 2022/23, to reflect decisions announced earlier this year.

  • On 1 July 2021, regulation 11 and Schedule 2 of these regulations increase the amounts of the levies and adjust some of the levy tiers.
  • On 1 July 2022, regulation 14 and Schedule 3 of these regulations further increase the amounts of the levies.

Our view

We welcome these changes to support the new financial advice regime ahead of the start date of 15 March 2021.

What next?

If you have any questions in relation to these regulations, or the new financial advice regime in general, please contact one of our experts.

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