KensingtonSwan has voiced its concern on the increased complexities of financial sector law and the potential impact of financial advice providers.
This follows the Government’s announcement in September proposing the introduction of a new regulatory regime to govern conduct in the financial sector, representing the next stage in the Conduct of Financial Institutions (CoFI) review.
“It is curious that the brave new world for licensing financial advice providers and regulating their activities through a new set of conduct duties and a code of conduct is just months away from being implemented, yet Cabinet has now seen fit to recommend a separate layer of conduct obligations that will impact on financial advice providers,” the commercial law firm stated in an October newsletter update exploring the implications of the new regulatory regime.
“…Cabinet has now seen fit to recommend a separate layer of conduct obligations that will impact on financial advice providers…”
“The financial sector has been investing significant resources in coming to grips with the regulatory burden and complexity that is being generated through the FSLAA reforms.”
Noting that this regime was in development since 2016, with multiple exposure drafts and consultations to make sure the new regime had “most of its kinks ironed out before implementation,” KensingtonSwan said the same approach will not be possible for the draft CoFI legislation as it is due to be introduced to Parliament in under three months’ time.
“Some of the rushed decisions made look set to cut across – or at least complicate – plans financial institutions have been developing for managing intermediary conduct risk. This is unhelpful at this late stage,” it stated.
KensingtonSwan previously raised its concerns of regulatory burden on the sector in its submission to the Options Paper for MBIE’s consultation on potential options to improve the conduct of financial institutions.
“Some of the rushed decisions made look set to cut across – or at least complicate – plans financial institutions have been developing for managing intermediary conduct risk.”
“We were generally supportive of the concept of an overarching set of conduct duties applying to entities licensed to provide financial services,” the firm stated.
“We also raised a number of concerns as to the extent of the additional regulatory burden that some of the proposed options would place upon a sector already straining under the load of multiple regulatory reforms, reviews, and investigations, with the prospect of unintended negative consequences.”
It also stated its reservations with the CoFI reforms being brought into effect by adding another leg to the FMC Act.
“The outcome of the path taken with the CoFI reforms is that a piece of legislation that is already one of the most complex in the New Zealand legislative framework is set to become even more complicated and lengthy. As if FSLAA’s inclusion within the FMC Act of financial advice and client money and property handling wasn’t enough!” it said.
KensingtonSwan added that although licensed entities under the conduct reforms will not be directly accountable for any advice provided by or on behalf of licensed FAPs, the Cabinet paper noted that banks, insurers, and NBDTs will still be expected to take action to ensure the objectives and needs of their customers are met.
“What it all means is that banks, insurers, and NBDTs may no longer view information-only distribution channels as safe harbours, relatively free from regulatory risk,” it explained.
“If nothing else, this renders the licensed financial advice provider model more attractive as an intermediary proposition than was previously the case.”