Financial Advice Providers (FAPs) may be subject to further licence conditions that align with obligations in the recently announced conduct regime for financial institutions.
The Government revealed the new regime last week, which it says will make banks and insurers treat their customers fairly and the industry promptly weighed in with its response (see: Government Announces Conduct Licensing Regime for Insurers and Banks…).
Although the new conduct licensing system is for banks, insurers and non-bank deposit takers (NBDTs), Commerce and Consumer Affairs Minister, Kris Faafoi, stated the following in a Cabinet paper for Conduct of Financial Institutions:
“I also consider that the new conduct regime should preserve the possibility of further licence conditions on financial advice providers that align with the new conduct obligations.
“This would future-proof the regime to address any problems that might arise if financial advice providers do not conduct themselves in a way that is consistent with the high-level conduct standard expected of banks, insurers and NBDTs.”
“…the new conduct regime should preserve the possibility of further licence conditions on financial advice providers…”
He also proposed that, at this stage, licensed entities under the conduct regime should not be directly accountable for the advice provided by intermediaries who are subject to the new financial advice regime.
“The recently passed Financial Services Legislation Amendment Act 2019 (FSLAA) requires all financial advisers to be engaged by a financial advice provider, and imposes a range of conduct obligations on financial advisers,” Faafoi stated in the paper.
“Some of these obligations are similar to what is proposed in the new conduct regime. For example, financial advisers now have a duty to adhere to a code of conduct, and have a duty to prioritise the client’s interests.
“The new FSLAA regime is untested as yet but is expected to be effective at regulating the interaction in an advised sale context. It is worth waiting to see how effective the FSLAA regime is before moving to make banks, insurers and NBDTs more directly accountable for sales through intermediaries that are already subject to some regulation,” continued Faafoi.
He added, however, that the bank, insurer or NBDT are still responsible for its customers’ outcomes.
“Regardless of the distribution channel, banks, insurers and NBDTs should take action to ensure the objectives and needs of their customers are met. This may include: providing financial advisers with training about their products, setting expectations of good conduct, providing information that needs to be passed on to customers and taking action where they become aware of activity that might not be in the customer’s interests.”
The paper stated that taking action might include:
- Reiterating expectations of good conduct
- Providing further training
- Restructuring remuneration/incentives to avoid perverse outcomes
- Reporting the adviser to the FMA or ultimately ceasing to use the adviser to distribute their products
“The regime that I am proposing would also enable regulations or licence conditions to specify steps that the licensed entity must take when dealing with intermediaries of any kind (such as arrangements dealing with oversight of the intermediary and responsibility for the end customer),” stated Faafoi.
The Government confirmed legislation will now be drafted to implement the new regime, with the intention to introduce this legislation to Parliament by the end of 2019.