Regulations to support FSLAA and other recent changes published

Speak to our experts

Tim Williams

Partner

Penny Sheerin

Partner

Bradley Kidd

Partner

This week a slew of regulations were released, most of which will come into force on 15 March 2021, the start date of the Financial Services Legislation Amendment Act 2019 (FSLAA).

We take you through the main changes in the newly issued regulations.

Financial Markets Conduct Amendment Regulations 2020

The Amendment Regulations make changes necessary to support the FSLAA regime and to address certain other amendments. The regulations relating to the FSLAA regime come into force on 15 March 2021, those relating to the Trusts Act 2019 come into force on 30 January 2021 and the changes to reflect changes in the Taxation KiwiSaver, Student Loans, and Remedial Matters) Act 2020 come into force on 18 January 2021.

Changes include:

replacing terminology from the Financial Advisers Act 2008 (FAA)
- i.e. references to “category 2” financial products have been replaced with references to certain types of simple financial products such as call debt securities and term deposit products (but note that the existing treatment under the Financial Markets Conduct Regulations 2014 in relation to category 2 products, such as in relation to whether a PDS needs to be given, has been preserved)
replacing references to financial advisers with references to financial advice providers and including transitional provisions to give affected providers time to update documents
prescribing eligibility criteria for an entity that wants to be an authorised body under a licence that covers a financial advice service
carrying over the effect of the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 but with some updates and clarifications, and clarifying when assurance reports for assurance engagements must be obtained by custodians
prescribing limited circumstances in which a provider of a client money or property service is not required to hold client money and property separate from firm money or property including duties to protect the interests of clients
- these provisions replace the Financial Advisers (NZX Brokers—Client Money and Client Property) Exemption Notice 2020 and the Financial Advisers (Non-NZX Brokers—Client Money) Exemption Notice 2017
prescribing when firm money that is held together with client money is to be treated as client money
prescribing requirements for the record of nominated representatives that must be maintained by providers
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
continuing duties imposed under the FAA for former authorised financial advisers and qualifying financial entities to retain records
carrying over exemptions contained in regulations under the FAA
updating a cross-reference in the financial advice disclosure regulations so that financial advice providers are able to refer to their website for information about their legal duties
enabling financial advice providers to provide contingency discretionary investment management services (DIMS) without being subject to DIMS licensing requirements (and providing for transitional arrangements). This carries over and updates an existing licensing exemption for contingency DIMS provided by authorised financial advisers
dis-applying certain provisions of the Trusts Act 2019 to trusts relating to portfolio investment entity (PIE) call fund units and PIE term fund units
- these trusts are instead subject to governance requirements under clause 28 of Schedule 8 of the Financial Markets Conduct Regulations 2014 regulations, which comes into force on 30 January 2021
updating the information that must be disclosed to investors about the tax consequences of investing in managed investment schemes that are PIEs
- this is necessary due to amendments made by the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 that provide for the refundability of overpaid PIE tax, which comes into force on 18 January 2021, and
amending the Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019, including a new exemption from the licensing requirement for financial advice services.

Financial Markets Authority (Levies) Amendment Regulations (No 2) 2020

The Regulations set levies for the new financial advice regime as well as for the 2021/22 and 2022/23 years reflecting decisions made earlier this year.

Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Amendment Regulations 2020

The Regulations replace the now redundant terminology from the Financial Advisers Act 2008. No substantive changes to the AML obligations have resulted.

Financial Service Providers (Registration) Regulations 2020

The Regulations update the Financial Services Providers (Registration and Dispute Resolution) Act 2008. Changes include:

requirement for additional information to be displayed on the Register
- additional information includes, for example, whether services are being provided to retail or wholesale clients. The Registrar will provide more information about the process for updating records in due course
new measures to address misuse of the Financial Service Providers Register
- these include a prescribed threshold for registration for certain financial service providers and that a warning statement be given for some providers that registration does not mean active regulation in New Zealand.

Financial Service Providers (Exemptions) Amendment Regulations 2020

The Regulations exempt certain providers without a place of business in New Zealand from registration on the Financial Service Providers Register if they do not promote services to New Zealand clients.

Our comment

We welcome the new regulations. They are a necessary addition to the regulatory regime to provide certainty on the finer details ahead of FSLAA’s implementation.

If you would like more information on any of these regulations or on the implications for your business, please get in touch with one of our contacts.