Help Me Comply - Financial Markets Authority

Guidelines and Codes of Practice

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Guidance on who needs to comply, how to comply and FMA’s expectations, including the Guide for small financial adviser businesses.

The Anti-Money Laundering and Countering Finance of Terrorism supervisors will issue guidelines and, where appropriate, codes of practice that set out how a reporting entity can meet its regulatory obligations.

Below is the current list of guidelines.

Identity Verification Code of Practice

This code of practice provides a suggested best practice for all reporting entities conducting name and date of birth identity verification on customers (that are natural persons) they have assessed to be low to medium risk.

Read the Identity Verification Code of Practice

Risk Assessment Guideline

This guideline is designed to help reporting entities conduct a risk assessment, as required under section 58 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

Read the Risk Assessment Guideline

Ordinary Course of Business Guideline

This guideline is designed to help clarify the meaning of the phrase "in the ordinary course of business" in the definition of financial institution in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

Read the Ordinary Course of Business Guideline

AML/CFT Programme Guideline

This guideline is designed to help reporting entities develop their AML/CFT programme.

Read the AML/CFT Programme Guideline

Guide for small financial adviser businesses

A guide to help financial advisers working independently or in a small business comply with their obligations under the AML/CFT Act.

Read the Guide for small financial adviser businesses.

Designated Business Group - Scope Guideline

This guideline is designed to assist reporting entities to understand which obligations may be shared by members of a designated business group (DBG).

Read the Designated Business Group - Scope Guideline.

Designated Business Group - Formation Guideline

This guideline is designed to help reporting entities forming a DBG understand the process for doing so.

Read the Designated Business Group - Formation Guideline.

Countries Assessment Guideline

This guideline is designed to help reporting entities decide when they will have to assess aspects of another country's regulatory environment and how they could do it.

Read the Countries Assessment Guideline.

Guideline: Issuers of securities and participants in issues

This guideline is for businesses registered on the Financial Services Providers Register (FSPR) as an issuer of securities or who participate in issues of securities.

Read the Guideline: Issuers of securities and participants in issues.

Guideline for audits of risk assessments and AML/CFT programmes

This guideline is designed to help reporting entities manage the requirement to audit their AML/CFT risk assessment and AML/CFT programme.

FMA will use the Audit Report as a supervisory tool. We believe that it will give us a good insight into the AML/CFT compliance regime of a reporting entity and be an effective way of helping us to supervise reporting entities. If the Audit report does not provide us with sufficient assurance that a reporting entity's AML/CFT regime is robust and effective, we may adopt a more vigorous supervisory approach to give us assurance that the reporting entity's AML/CFT regime is up to the required standards.

Read the Guideline for audits of risk assessments and AML/CFT programmes.

Guideline: Territorial scope of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009

This guideline is designed to help financial institutions understand the territorial scope of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

Read the Guideline: Territorial scope of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

Beneficial Ownership Guideline

This guideline and associated fact sheets are to assist reporting entities to conduct customer due diligence of the beneficial owner of their customers. The fact sheets should be read in conjunction with the beneficial ownership guideline.

Read the Beneficial Ownership Guideline.

Read the Clubs and societies fact sheet
Read the Co-operatives fact sheet
Read the Partnerships fact sheet
Read the Companies fact sheet
Read the Trusts fact sheet. Explanation of why the Trust is considered a customer.

Client Funds Regulations and Exemptions

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Guidance, existing exemption notices and how to apply for an exemption.

What are the client funds obligations?

The Futures Industry (Client Funds) Regulations 1990 (‘Regulations’) prescribe rules regarding the operation of client funds accounts and require funds to be kept separate from the dealer’s operating accounts. These rules seek to protect client money and property in cases where the dealer becomes insolvent. For example:

the dealer must establish at least one client bank account with a registered bank in New Zealand, and may establish client bank accounts with overseas banks
the dealer must obtain a prescribed written statement from each relevant bank, which includes acknowledgement that all money in the account is held on behalf of clients
all client money received by the dealer must be deposited into a client bank account and may only be withdrawn for purposes specified by the Regulations
dealers must ensure that the aggregate amount of money and property held in its segregated accounts is sufficient to cover the amounts of client money and client property it holds for clients
dealers must keep proper records of all dealings with client money and client property
compliance with the Regulations must be reviewed by an auditor.

What exemptions can I apply for?

FMA may grant exemptions from all, or some, of the requirements of the Regulations on any conditions it considers appropriate. However, FMA may only grant exemptions if it is satisfied that there are adequate alternative safeguards for preserving client money and property. An exemption must not be broader than reasonably necessary to address the matters that give rise to the exemption.

FMA has previously granted client funds exemptions in three types of circumstances:

the dealer does not hold client money or property. This exemption removes the residual requirements, compliance with which serve no useful purpose
the dealer seeks to hold client money in accordance with the requirements of an overseas jurisdiction in which it is regulated. In this case, FMA must be satisfied that the overseas requirements apply to the client money and would adequately protect that client money
compliance with the Regulations would prevent the dealer carrying out its (proposed) business in a sensible and prudent manner. Examples include exemptions in respect of the operation of the New Zealand Clearing and Depository Corporation Limited, exemptions to facilitate interaction with certain overseas intermediaries, and exemptions to accommodate dealers whose business does not fit within a standard intermediary or issuer model.

How do I make an application?

Information on the process and requirements for making an exemption application can be found here.

How long is an exemption granted for?

FMA’s policy is to grant exemptions for a limited period and for no longer than five years. FMA may also vary or revoke an exemption after it has been granted.

Any person or entity granted an exemption should immediately notify FMA of any matter which could affect the continuing relevance of an exemption granted to them.

Publication of exemptions

FMA is required to publish the exemption notice on its website and have printed copies available for purchase. It must also publish a notification that the exemption has been granted in the Gazette.

List of existing exemptions

Notices for client funds exemptions granted under section 48(1)(d) of the Securities Markets Act since 2009 can be accessed here.

Your Obligations

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The obligations for futures dealers and how they apply to different business types.

Authorised futures dealers must comply on an on-going basis with their obligations, as set out in the conditions of their authorisation by FMA and the Futures Industry (Client Funds) Regulations 1990 (if applicable).

Conditions of authorisation

Each dealer's conditions are tailored to the type of business it undertakes and are set out in its Authorisation Notice (published in the Gazette). They may include matters such as:

the types of clients that the dealer may trade for
capital and professional indemnity insurance requirements
information for clients on the products
client funds obligations (if regulations relating to client funds don't apply)
disclosure and provision of appropriate advice or discretionary management services (when relevant)
obligations to disclose information to FMA.

Dealers which provide services only to wholesale customers generally have fewer higher level obligations, focused on restricting clients to wholesale clients, capital adequacy and client funds.

See the List of Authorised Futures Dealers for specific notices.

Client Funds obligations

The Futures Industry (Client Funds) Regulations 1990 prescribe rules regarding the operation of client funds accounts and require funds to be kept seperate from the dealer's operating accounts. These rules seek to protect client money and property in cases where the dealer becomes insolvent.

Authorised futures dealers must comply with the Regulations, unless they are dealers who deal solely on their own account. This means that any dealer who acts as an intermediary in respect of futures contracts is required to comply with the Regulations, in respect of their whole business, including when issuing futures contracts as principal.

A dealer dealing solely on its own account is not subject to the Client Funds Regulations, but the conditions of authorisation may impose the requirements of the Client Funds Regulations (or specified regulations).

See here for more information about the Regulations and exemptions.

How to Become Authorised

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An explanation of authorisation and approval, and resources you need to become authorised by FMA.

Dealers can become authorised or approved to deal in futures contracts in one of the following ways:

be approved by an authorised futures exchange under its market rules to deal in futures in line with the rules of that exchange
be able to rely on a class authorisation notice granted by FMA
individual authorisation by FMA.

Futures dealers may also need to be registered on the financial service providers register.

Approval by an exchange

A futures dealer approved by an exchange may only deal in futures contracts to the extent that dealing is regulated and overseen by that exchange, and must comply with the obligations imposed by the rules of that exchange.

The derivatives market operated by NZX is an authorised futures exchange. NZX approves futures dealers in this market, in line with its derivatives market rules. NZX acts as front line regulator of futures dealers on its derivatives market, but must keep FMA informed of any disciplinary action or suspected significant breaches of the market rules.

Australian Securities Exchange Limited (operator of the ASX 24 Market), ICE Futures Europe and ICE Futures US are also authorised futures exchanges. The rules of these exchanges do not provide for approval of their participants to deal in futures contracts in New Zealand.

Reliance on a class exemption notice

There are currently two class authorisation notices:

the Authorised Futures Dealers Notice (No 2) 2004, which authorises ASX 24 participants to deal in futures contracts traded on the ASX 24 market on behalf of New Zealand clients
the Authorised Futures Dealers (Registered Banks Futures Contracts) Notice 2012, which authorises registered banks to deal in over-the-counter futures contracts.

Australian Securities Exchange participants

This method of authorisation is available to accreditied participants of the ASX 24 Market (formerly Sydney Futures Exchange) who have a current Australian Financial Services Licence. New Zealand authorisation is only effective for futures contracts made on or effected through the ASX 24 Market itself. A participant dealing in futures contracts in New Zealand that are not made on, or effected through, the ASX 24 Market needs to obtain one of the other forms of authorisation.

Registered Banks

This method of authorisation is available to registered banks (within the meaning of the Reserve Bank of New Zealand Act 1989). The authorisation permits registered banks to offer any futures contract (both as principal and as an intermediary), except a contract which is traded on an authorised futures exchange or a futures exchange regulated overseas. The main condition is that, where a registered bank offers a contract as principal, the bank must provide the disclosure document required under the Securities Act (Registered Banks Futures Contracts) Exemption Notice 2007.

Individual entity authorisation by FMA

Applicants who don't fall into one of the classes above must seek individual authorisation from FMA.

The Act does not specify matters that FMA should consider in authorising a futures dealer. FMA's policy is to consider criteria relevant to the transparency of the arrangements for the client and the applicant's ability to perform the contracts, supporting a fair and efficient market. The criteria include that an applicant:

is fit and proper, with fit and proper owners, directors and senior managers
has directors and senior managers with appropriate skills and experience
has appropriate financial resources
has the necessary systems, policies, procedures and controls to carry out the futures dealing activities it seeks to offer.

Potential applicants should contact FMA directly.

Duration and conditions of authorisation

Authorisations are subject to conditions. FMA sets similar conditions for dealers with similar businesses, although FMA may include specific conditions to address particular issues.

Authorisations will generally be for a period of up to five years. The actual period will be determined on a case by case basis.

Authorised futures dealers who intend to apply to be re-authorised when their current period of authorisation expires should contact FMA at least 6 months in advance of the expiry. Dealers should be prepared to provide the information indicated under 'Individual entity authorisation by FMA' above. Subsequent authorisation periods may vary from the initial period, based on FMA's approach at the time of application.

Who Needs to Comply

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Information on what a futures dealer is, who needs to comply, and declarations as to whether contracts are futures contracts.

Under the Securities Markets Act 1988 (the Act), anyone dealing in futures contacts must be authorised or approved.

The Act defines a futures contract (section 37(1)). A key feature is that the contract must be able to be settled other than by delivery of the underlying commodity or index (sometimes referred to as 'net cash settled'). Futures contracts include most contracts for difference and margin foreign exchange products. Some swaps, options and forward contracts can be futures contracts depending on their terms.

The Act also enables FMA to declare that other instruments are futures contracts. A person may ask FMA to make a declaration as to whether a particular type of contract is a futures contract, to provide certainty around the compliance obligations which apply. See here for more information on declarations.

Dealing is widely defined (section 37(5)). For example, it includes offering to acquire or dispose of a futures contract on behalf of another person or advising or assisting a person to acquire or dispose of a futures contract. This means that advisers, introducing brokers, brokers, and issuers of futures contracts will require authorisation.

The Act requires futures dealers to be authorised, regardless of whether they deal solely with wholesale clients or deal with retail clients. However, FMA does apply different conditions to wholesale futures dealers, see Your Obligations page.

Overseas dealers

The Act does not specifically state the territorial limits of the requirements for authorisation. FMA interprets the Act as requiring authorisations in circumstances where the dealer either has a place of business in New Zealand from which it conducts all or part of its futures dealing business or where the dealer is soliciting business from New Zealand clients.

Money Laundering and Financing Terrorism

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Money Laundering and Financing Terrorism.

See Anti-Money Laundering and Countering Financing of Terrorism.

Breaches and Offences

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How we can enforce the obligations.

A body corporate who deals in futures contracts without being authorised or approved can be fined up to $300,000 on conviction.

FMA monitors and receives information on futures dealers’ compliance with their obligations. FMA may investigate breaches or offences and take action against futures dealers who do not comply.

Where FMA has directly authorised a futures dealer, it may vary or revoke that authorisation. For example, it might impose additional conditions to prevent further misconduct.

FMA may also use its powers under the Financial Markets Authority Act 2011. These include powers to:

require the provision of information, documents or evidence
issue public warnings, or issue a warning that must be disclosed on dealer's website
accept written undertakings, and apply to the High Court if the undertaking is breached.

You can find out more about FMA's enforcement powers and approach to enforcement here.

Applying for Client Funds Exemptions

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Applying for Client Funds Exemptions

What information do I need to provide?

Applicants should provide the following information to FMA:

Name of applicant

Name of person or entity applying for exemption.

Contact details

Contact person for correspondence concerning the application including address, phone number and email address.

Relevant legal obligations

Identify the specific requirements of the Regulations that you seek exemption from.

The circumstances which give rise to the exemption application

Explain the circumstances you seek the exemption to address. This may be:

(a) Impediments to applicant’s activities
Describe the impediments to your activities created by the Regulations, and how these affect your commercial position. Explain how the proposed exemption would address that impediment or otherwise assist your operations.

(b) Costs of compliance
Provide details of the specific circumstances that make the costs of compliance (with a requirement or with the Regulations more generally) either unreasonable or not justified in comparison to the benefits. Your application should include an explanation of why the effect of the law in your circumstances is anomalous.

(c) Recognition of other regimes
If the applicant is subject to another regulatory regime that provides for the protection of client money and property, identify and describe that regime. Your description should include an analysis of the similarities and differences between the Regulations and the requirements and protections of that regime. You should additionally explain:

- whether a regulator is responsible for overseeing that regime, and if so who that regulator is; and

- whether the regime also applies to client funds held in connection with the dealer’s New Zealand futures dealing business.

Your explanation should address the relevant facts, the application of the Regulations (without the exemptions) to your circumstances, and the application of the Regulations, as amended by the exemptions, to your circumstances.

Adequate alternative safeguards

The Regulations seek to protect client money and property. FMA can only grant an exemption if it is satisfied that there are adequate alternative safeguards. Identify the alternative safeguards to protect client money and client property and explain how they provide adequate protection for clients.

FMA will generally expect to impose the alternative safeguards through conditions. This may include requiring compliance with the requirements of another regulatory regime.

FMA will need to consider whether the exemptions and conditions would be appropriate in other analogous cases.

Third party interests

Explain the impact (both positive and negative) of the requested exemptions on the interests of clients, markets or other third parties. Where relevant, you may wish to explain how proposed conditions will address or mitigate any adverse effects.

Precedents

Identify any previous exemption notices FMA has granted in similar circumstances. If there are differences between your application and those precedent exemptions, these should be identified and explained. A list of existing exemption notices is available here.

Notice

Applicants must provide a draft notice of their desired exemption. You may wish to base your draft notice on other exemption notices FMA has granted.

The final exemption notice may differ from the draft exemption notice provided by the applicant. However, applicants will be given the opportunity to comment on the exemption notice prior to completion and publication.

Disclosure of information about my application

Applicants should note that FMA is permitted to use or communicate information provided to it in connection with its regulatory functions as provided for in the Financial Markets Authority Act. Information held by FMA is also subject to the Official Information Act 1982 and the Privacy Act 1993. Any request for release of information we hold must be considered in accordance with the requirements of those Acts on a case by case basis. While we understand that information submitted to us will generally be submitted on a confidential basis, we suggest applicants state if they consider the information provided is confidential.

How long does it take to process an application?

It generally takes about four to six weeks to process applications from when we have been provided with all the information we need to assess the application. However, where an exemption application is made together with a futures dealer authorisation application, the exemption application will generally not be completed before the authorisation application.

Exemption notices can come into force at any time after FMA grants them. You do not need to wait for the exemption to be notified in the Gazette, although this will be done as soon as possible after it is granted. However, if the exemption is linked to an authorisation application, it cannot take effect until the authorisation is notified in the Gazette.

What are the fees and costs?

Fees and costs for exemption applications are set out in the Securities Markets (Fees) Regulations 2003. A cheque for $1,265.00 should accompany each application. This covers the application fee of $100 and an advance of $1,000 for fees and costs to be incurred, plus GST.

Charging rates of $200 plus GST per hour (for time spent by Financial Markets Authority board members) and $145 plus GST per hour (for time spent by staff) will be applied. FMA can also recover printing and publishing costs, and costs incurred in obtaining expert advice or assistance.

Can I withdraw my application?

Applicants may withdraw their applications at any time up to the granting of the exemption. FMA charges and costs will not be refunded unless there are exceptional circumstances.

Do I need a lawyer?

FMA recommends that all applicants seek legal advice prior to lodging an application. Applicants may also require further legal advice during the application process. FMA will expect the applicant to take responsibility for the application, the information provided and to be involved in relevant discussions.

How to contact us:

Licensing Team
Financial Markets Authority

Mail:

PO Box 1179
Wellington 6140
New Zealand

Visit/Courier:

Level 2
1 Grey Street
Wellington
New Zealand

List of Authorised Futures Dealers

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Fees and Levies

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Information on the authorisation and ongoing fees futures dealers must pay.

Applications Fees for FMA authorisation

Fees will apply where a futures dealer seeks authorisation from FMA. Fees and charges are prescribed in the Securities Markets (Fees) Regulations 2003.

An administration fee of $115 is payable to FMA.

You will also need to pay an assessment fee. The assessment fee is based on time spent on assessing your application at the rates prescribed by the Regulations as follows:

• $230 per hour for Board members
• $166.62 per hour for staff

FMA may also recover any costs of external advice or assistance obtained, and printing and publication costs incurred in publishing authorisation notices in the Gazette.

You will need to pay an advance of $1,265.00 with your application. We will invoice you for your assessment fee.

The amounts specified are inclusive of GST.

Levies on futures dealers

Levies to fund FMA will be payable to the Registrar of Financial Service Providers, via the Financial Service Providers Register or on invoice.

Full details on the levies, including the class of persons who must pay a levy and the amounts payable can be found in the Financial Markets Authority (Levies) Regulations 2012 at www.legislation.govt.nz. Under those regulations, authorised futures dealers must pay an annual levy of $2000.

Monitoring and Surveillance

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How we monitor, current focus areas and recent findings.

FMA monitors that futures dealers are compliant with their obligations. See FMA's overall Compliance Focus for 2013.

FMA’s monitoring tools in respect of futures dealers include:

review of notification from the dealer of material matters
review of information requested
visits or interviews with management and staff
review of annual reports from the dealer on its compliance
reports from third parties (see below)
review of annual accounts.

Capital

Dealers which issue contracts to retail clients or handle client funds for retail clients must appoint an auditor to carry out certain agreed procedures, including procedures to check the entity’s capital position and its calculations every month. The auditor reports to FMA if the information required is not provided to the auditor or breaches are revealed.

Client funds

The Futures Industry (Client Funds) Regulations 1990 require that the client records of a dealer are reviewed by an auditor, approximately once a quarter. If the report discloses any breach of the Regulations or the Securities Markets Act, the auditor’s report is copied to FMA (and any authorised futures exchange of which the dealer is a member).

Compliance

Some dealers which are retail intermediaries must appoint an auditor to carry out certain agreed procedures every six months to ensure that their staff follows the entity’s dealing procedures. The report is provided to FMA.

Monitoring findings

Initial visits to authorised futures dealers in late 2012 indicated that some firms had poor compliance controls in place for meeting capital requirements and safeguarding client money and property, and also indicated a lack of robustness in the work undertaken by external reviewers. These areas will be a focus in our monitoring work.

Declarations

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Declarations

What is a declaration?

Under section 37(7) of the Securities Markets Act, FMA may declare an agreement, option, or right to be a futures contract under Part 3 of the Securities Markets Act. This may be done specifically or by class.

Background information

To date, declarations have been made on a case-by-case basis following an application by an entity. A declaration is often made to give certainty around the regulatory treatment of a contract.

Where a declaration declares an agreement, option or right to be one to which Part 3 of the Securities Markets Act applies, persons dealing in those contracts need to be authorised to deal in futures contracts.

Some futures contracts and other derivative contracts may also be 'securities' under the Securities Act 1978. The Securities Act (Authorised Futures Contracts) Exemption Notice 2002, unconditionally exempts persons who deal with authorised futures contracts from the trustee, statutory supervisor, prospectus and investment statement requirements of the Securities Act and all of the Securities Regulations 2009 (except regulation 23 - misleading information) in respect of any authorised futures contract. The exemption recognises that the Securities Markets Act is generally the regulatory framework that more sensibly fits futures contracts. In addition to clarifying the treatment under the Securities Markets Act, a declaration ensures the contract is covered by this exemption.

FMA has been asked to consider making a declaration where:

a product has characteristics of a futures contract but there is uncertainty in the market as to whether the product falls within the definition of "futures contract" in the Securities Markets Act
a product has similar characteristics to a futures contract and would be most appropriately regulated under the regime but falls outside the scope of the definition of "futures contract" in the Securities Markets Act.

FMA's declaration power under the Securities Markets Act must be used consistently with the purpose of that Act. FMA cannot use its power to override the Securities Markets Act or declare agreements to be futures contracts where this would be inconsistent with the intention of the law.

FMA can only declare products to be futures contracts. It cannot declare that a product is not a futures contract.

Declarations for CFDs in respect of shares

FMA has made several declarations for contracts for difference (CFDs) in respect of shares.

CFDs in respect of most commodities are futures contracts. However, clarification has been requested from market participants in repsect of whether equity securities are a "commodity". Declarations have been made in appropriate cases to provide certainty.

How does my entity apply for a declaration?

There is no specific form, but the declaration application should include:

a formal request to FMA to consider exercising its power to make a declaration under section 37(7)
detailed information about the product in respect of which the declaration is sought including:

- what the product is

- whether the product has the characteristics of a futures contract

- how there is uncertainty as to whether it is a 'futures contract' within the meaning in the Securities Markets Act

- why the product falls outside the scope of the Securities Markets Act

full reasons why the applicant considers the Securities Markets Act provides the most appropriate regulatory treatment for the product
whether, if the product is not regulated as a futures contract under the Securities Markets Act, it may be subject to the full disclosure and supervision requirements of the Securities Act.

The declaration application often accompanies a seperate application for authorisation as a futures dealer.

How long does it take?

It generally takes about four to six weeks to process application from when FMA receives all the necessary information. However, where an application for a declaration is received in relation to products issued by a particular company together with a futures dealer authorisation application for that company, the progress of the declaration will depend on the progress of the authorisation application.

Declarations take effect once a declaration notice has been published in the Gazette.

Find out more about declarations already made

Notices for declarations made since 2009 under section 37(7) of the Securities Markets Act are listed below. The full text of notices can be accessed by searching www.legislation.govt.nz under regulations.

Title	SR Series
Futures Contracts (Financial Transmission Rights) Notice 2012	2012/62
Futures Contracts (Velocity Trade Limited Agreements) Notice 2011	2011/108
Futures Contracts (IG Markets Limited) Notice 2009	2009/278

Varying an existing licence

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Varying an existing license

Licensed securities trustees and statutory supervisors can apply for a variation to an existing license, for example to add or remove a licence class.

How to apply

Applying for a variation of licence is similar to the procedure followed when making the original application for a licence.

Please review the original licensing application and any supplemental material provided, or disclosures made, to FMA since the submission of the original licensing application. Any changes to this information should be included in the variation application or all factors from the original licensing application re-confirmed. Use a new licensing application form for the variation application.

Where there are changes, please submit amended or updated material for those sections, referring to the licensing guidance note. Where there has been no change to the information already submitted to the FMA as part of the initial licensing application, please note the relevant sections on the application form.

Please also forward payment of the prescribed fee for the variation application.

Assessment of the application

To grant the variation, FMA must be satisfied that, having regard to any conditions imposed, the applicant is, or will be, capable of effectively performing their functions of trustee or statutory supervisor after the licence variation. FMA assesses the variation application based on the same factors as for the initial license application (as explained in the licensing guidance note). The matters FMA must assess are set out in section 16 of the Act and the associated Regulations.

FMA will undertake a full review of all material submitted and will take into account information from its monitoring of the licensee. FMA may request additional information, updating of previously submitted material or verification of the information. When assessing an application, FMA will also consider the appropriateness of the current term of the licence and the current licence conditions. This may result in a reduction of the term, the variation of current conditions or imposition of additional conditions.

Variations to include a new class of licence

A licensed trustee or statutory supervisor should not assume that because it holds a licence in one or more class of licence, it will be granted an extension to other classes. Any variation request for an extension into a new licence class must be fully assessed against the statutory tests (under section 16(1)).

In practice, FMA’s assessment will concentrate on satisfying itself that the applicant can effectively perform the role of trustee or statutory supervisor in the new class, and that the addition of the new class will not adversely impact its existing activities. The variation request should therefore include:

• written procedures tailored to the new class
• material demonstrating a full understanding of the different reporting requirements of the new class and how the applicant will adapt its existing monitoring procedures to encompass these
• how staff and management have up-skilled to ensure they have the appropriate skill base to effectively perform trustee or statutory supervisory functions in this class
• peer review and supervisory processes for any new class
• levels of staffing resources
• confirmation that work on existing supervised entities will not be adversely impacted.

FMA expects the licensee to have clearly identified the risks associated with any new class of licence and how it will adapt its existing monitoring processes to address these risks.

FMA expects more than a simple transfer of existing processes to another class.

Need help?

Prior to making an application to vary an existing licence, speak to your normal FMA contact to discuss your specific circumstances.

Getting Licensed

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How to apply for a new license or variation and a link to the application form and a full licensing guidance note

Under the Securities Trustees and Statutory Supervisors Act 2011, securities trustees and statutory supervisors have to be licensed.

For full details of the application process, see the licensing guidance note.

Application form

All licence applicants must complete a licence application form. The form contains details of how to submit your licence application fee.

Supporting documentation

Applicants will need to provide supporting documentation. The application form page has information about how to submit this information.

Licence duration and conditions

A licence may be granted for up to eight years. The actual duration granted will be assessed on a case-by-case basis and conditions may apply. See the guidance note for more details.

Applying for a variation of licence

Licensed securities trustees and statutory supervisors can apply for a variation to an existing license, for example to add a licence class. The procedure for applying for a variation of licence is similar to that followed in applying for the existing licence. Details and guidance on how to apply for a variation of a licence are available here.

Fees and Levies

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Applicants must pay a fee to apply for or vary a licence

Fees

Applicants must pay a fee to apply for or vary a licence. The licence fee is determined by the Financial Markets Authority (Fees) Regulations 2011.

The fee for a new application is $4,968 (inclusive of GST). The same fee applies for all applications types. If licensed, the applicant will also need to pay a levy, which recovers the on-going costs of the regime.

The fee for variation of an existing license is $1,419.10 (inclusive of GST).

See the application form for details of how to pay the fee. Licence fees are not refundable if a licence or variation application is rejected.

Levies

The Companies Office collects levies to fund the FMA. The levies will be included within most registration fees, annual return fees and with the filing of a prospectus via the Companies Office.

Full details on the levies, including the classes of persons who must pay a levy and the amounts payable can be found in the Financial Markets Authority (Levies) Regulations 2012 at: www.legislation.govt.nz

Most levies will be payable to the Registrar of Financial Service Providers, via the Financial Service Providers Register. Some levies will be payable to FMA (by classes of persons who are not currently on the register). The following classes of persons will be invoiced direct by FMA:

Class 8 - Public issuers
Class 10 - Registered exchanges
Class 11 - Authorised futures exchanges
Class 13 - Overseas auditors

These organisations and individuals will be contacted by the FMA, after the regulations have come into effect on 1 August 2012.

Reports on issuer breaches - Section 46 reports

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Reports on issuer breaches - Section 46 reports

Trustee disclosures to FMA of breaches or potential breaches by issuers are an important part of the licensing regime and enable FMA to:

• monitor the extent and nature of non-compliance by supervised issuers
• assess the adequacy of action the trustee or statutory supervisor plans to take in response to a breach
• monitor the effectiveness of that action, if necessary
• where appropriate, work collaboratively with trustees or statutory supervisor to ensure that steps are taken to address any breach.

When to report

Section 46(a) states ‘If a trustee or statutory supervisor has reasonable grounds to believe that a supervised issuer has breached, may have breached, or is likely to breach an issuer obligation in a material respect, the trustee or supervisor must, as soon as practicable report the breach or possible breach to the FMA.’

The obligation to report contains a materiality threshold, which requires the exercise of judgment. FMA recommends that a precautionary approach is adopted, and that matters are reported if there is an internal discussion between trustee staff to determine whether a matter is material. This approach is consistent with:

• the purpose and function of section 46 reports
• a focus on investor protection;
• the development of a mutually supportive relationship between FMA and licensees.

In particular, if a potential breach relates to a matter that may result in a statutory penalty for the issuer, the licensee should only decide not to report to FMA on the basis of immateriality, if it has some degree of comfort that the relevant regulator will not take action.

What is material should be assessed in light of the principle of investor protection. Any breach or likely breach which may, in a trustee’s or statutory supervisor’s reasonable opinion, impact adversely on investors interests, should be reported. It may be helpful to view the matter from an investor’s perspective; if you were an investor in the licensed entity, would you consider the breach to be material?

A section 46 report will not necessarily result in FMA directing the trustee’s or statutory supervisor’s intended course of action, unless there is a clear need to do so to protect investors.

Some concerns have been raised about whether a trustee or statutory supervisor could be liable to action from a supervised entity in the circumstances where a report is made to FMA, but the matter reported is ultimately not material. FMA considers these concerns to be unfounded, given that:

• no reporting obligation arises if an issuer is not in breach or a circumstance of likely breach;
• the matter is reportable only if that breach is material;
• the licensee, in making that assessment, will be acting reasonably. Reporting is a matter for the licensee to determine, not the issuer. The licensee should document its decision making process as part of its internal procedures
• reporting to FMA is a confidential matter.

What to report

FMA expects each report under section 46 to comply fully with section 46(a) and the obligations in section 46(b) to:

• advise FMA of the steps (if any) that the trustee or statutory supervisor intends to take in light of the breach or possible breach
• the date by which the steps are to be taken.

A date range can be provided. If no further steps are to be taken, this should be stated.

Following the initial section 46 notification, FMA may ask the trustee or statutory supervisor for reports on the progress and success of the steps, to ensure that supervised entity is taking remedial action. Where a supervised entity does not respond to the trustee’s or statutory supervisor’s plan, the licensee should discuss this with FMA.

Your Obligations

2013-05-29T16:17:02+13:00

The obligations that apply to securities trustees and statutory supervisors under the Act

From 1 October 2011, securities trustees and statutory supervisors (including securities trustees and statutory supervisors appointed before the commencement of the Act) must comply with the Securities Trustees and Statutory Supervisors Act and Regulations. Compliance involves the following activities.

Be licensed. See Getting licensed for more information about how to get licensed.

Deliver reports to FMA at least once every six months. The reports ensure we are aware of any changes which may affect licensees' ability to perform their role to the required standard, and to satisfy us licensees are meeting their obligations (See section 25 of the Act). The Regulations provide further detail on the matters to be covered in a licensee's report.

Immediately report to FMA any situations where licensees believe:

- they have or may have breached their obligations (section 26(1)(a))

- a material change of circumstances has or may have occurred or may be likely to occur in relation to their licence (section 26(1)(b))

- the information provided in relation to an application for a licence was, or may have been, wrong, misleading or incomplete (section 26(1)(c)).

Prepare a report for or disclose certain information to us in circumstances where the relevant issuer under supervision is, or is likely to become, insolvent (section 47)or is in material breach of its obligations (section 46). Licensees must also tell FMA what steps they intend to take in response. In such circumstances, FMA has the power to take action in order to protect investors' interests. See more about reports under section 46.

Your Obligations

2013-05-16T10:06:22+13:00

Preparing offering documents, ongoing issuer obligations, disclosing information to the market, preparing financial statements and listing rule obligations

The primary obligations issuers have arise under the:

Securities Act 1978 and the Securities Regulations 2009
Securities Markets Act 1988
Financial Reporting Act 1993.

Issuers have a number of other obligations, depending on what kind of entity they are (e.g. a trust or a company), and whether their securities are listed on a registered exchange. Currently NZX is New Zealand's only registered exchange.

Obligations under the Securities Act 1978 and Securities Regulations 2009

Issuers and promoters (including their directors) have initial and ongoing obligations under the Securities Act and the Securities Regulations. Primarily, these obligations relate to the nature and content of the offering documents required when securities are offered to the public.

Issuers also have specific obligations where they intend to offer debt or participatory securities to the public. Prior to offering those securities, the Act requires issuers to appoint a trustee (for debt securities) or a statutory supervisor (for participatory securities) and to enter into and register a trust deed or participation deed for those securities.

Obligation to prepare offering documents

Generally, issuers may not allot (or sell) securities to the public unless:

at the time of subscription or payment there was a registered prospectus for those securities
the subscriber received an investment statement for those securities before subscribing.

Prospectus

A prospectus contains information about the securities being offered, the terms of the offer, and information about the issuer and any promoters. Prospectuses must be signed by the issuer's directors, and each promoter (including the directors of a promoter, if it is a company). By doing so, the directors and promoters take responsibility for the content of the prospectus.

The information required to be included in a prospectus is mostly set out in the regulations. The information required will depend on the type of securities being offered, and whether there are any exemptions which may exempt an issuer, or certain types of issuers, from specific provisions of the Act or regulations, or modify their application.

Investment statement

The investment statement is the primary disclosure document. The purpose of the investment statement is to provide key information to the prudent but non-expert investor, and it must contain the answers to certain questions specified by the regulations.

The investment statement is an 'advertisement' for the purposes of the Act and is subject to requirements in the Act and the regulations relating to advertisements for securities.

Other advertisements

In general, an issuer is free to advertise its offer as it pleases provided the advertisement does not contain any untrue statement or any information likely to deceive, mislead or confuse about anything material to the offer. The Act and the regulations regulate the content of advertisements, with the aim of ensuring that information is presented fairly and is truthful.

A certificate must generally be completed by the directors of the issuer for each advertisement when it is distributed. This certificate must state that the directors of the issuer have read, seen or listened to the advertisement, that the advertisement complies with the Act and the regulations, is not likely to deceive, mislead or confuse about anything material to the offer, and is not inconsistent with the investment statement or registered prospectus.

Standard of disclosure in offering documents

Issuers and their directors, and promoters are primarily responsible for ensuring offer documents do not contain untrue statements.

A statement will be untrue if:

it is misleading in the form and context in which it is included in the offer document
it is misleading because it omits further information material to that statement.

If a prospectus or advertisement does contain an untrue statement, issuers and their directors, and promoters can have civil and criminal liability.

The Act prohibits allotment of securities if at the time of allotment the investment statement or registered prospectus contains a false or misleading material statement by failing to refer, or give proper emphasis to, adverse circumstances. This applies whether or not those circumstances arose after the date of the prospectus or investment statement.

Ongoing issuer obligations

Once a prospectus (or amendment to a prospectus) is registered issuers must:

update their website to let the public know the prospectus (or an amendment) has been registered
provide the Registrar of Financial Service Providers (via the Companies Office) with certain information for the register of securities offers, and notify the Registrar when there is any change to that information

Find out more about registering prospectuses.

Issuers also have ongoing procedural obligations under the Act. These include obligations to:

maintain a register of all securities they have issued
ensure the register is audited at least once a year by a qualified auditor
keep accounting records that explain the transactions of the issuer
ensure their financial statements are audited at least once a year by a qualified auditor
provide certain information (such as annual reports or financial statements) to investors on request.

Obligations under the Securities Markets Act 1988

Public issuers (issuers who are party to a listing agreement with a registered exchange) and certain persons related to those issuers also have disclosure obligations under the Securities Markets Act.

Public issuers are required to disclose to the market all material information not generally available to the market, in line with the continuous disclosure regime prescribed by the listing rules of the relevant registered exchange. Find out more about the listing rules of NZX, New Zealand's only registered exchange.

Material information is information about the issuer or their securities that if available to the market could be expected to have a material effect on the price of the issuer's listed securities (essentially, price-sensitive information).

Information is generally available to the market if:

it has been made known in a manner likely to bring it to the attention of persons who commonly invest in the type of securities the information relates to, and there has been a reasonable period for that information to disseminate
it is likely that persons who commonly invest in that type of securities can readily obtain the information
it consists of deductions, conclusions, or inferences made from the kinds of information described above.

The Act requires directors and officers of public issuers, and persons holding specified amounts of listed voting securities, to disclose certain information to the issuer and to the market. Public issuers are also required to keep registers of that disclosed information.

Financial Reporting Act 1993

The Financial Reporting Act requires issuers to prepare and register audited financial statements each year.

An issuer's financial statements must comply with generally accepted accounting practice, being financial reporting standards approved by the Accounting Standards Review Board.

In some circumstances (where the issuer owns or controls other companies), the issuer will also need to prepare group or consolidated financial statements, which include financial information about the companies the issuer owns or controls.

Find out more about issuers' financial reporting obligations on the Companies Office website. FMA has provided a short letter outlining their financial report review priorities for 2013. View the letter here.

FMA periodically reviews the standard of issuers' financial reporting disclosures, and publishes reports on its findings. You can read more about these reviews (and the results) here.

Listing Rule obligations

If the issuer is listed on NZX, it needs to comply with NZX's listing rules, which include obligations relating to the activities, market disclosures and governance of the listed issuer.

Find out more about NZX and its listing rules.

Corporate governance

Below are two publications that may help issues maintain high standards of corporate governance and related market disclosures.

Corporate Governance - Principles and Guidelines (Feb 2004, reprinted Feb 2011).

Review of Corporate Governance Disclosures by Selected Issuers (July 2010).

A Director's Guide

Application form

2013-05-15T11:54:22+13:00

Securities trustee and statutory supervisor licence application form

Securities trustee and statutory supervisor licence applications must be accompanied by three forms:

1.    Form TRU1.1 is the application form. It contains the core administrative details necessary to start processing an application. The form contains notes and links to online information sources to assist in completing the form. It also contains information about how to pay the application fee.

2.    Form TRU2.1 is a supporting information checklist and statutory declaration form that must be submitted with your supporting information. It contains an appendix of cover sheets to help us track the information you provide. It also requires you to list all directors and senior managers who will be submitting DIR1.1 forms.

3.    Form DIR1.1 collects the information and statutory declarations by directors and senior managers. A separate DIR1.1 form must be completed for every director and senior manager named in form TRU2.1.

Forms TRU1.1, TRU2.1 and DIR1.1 are available as downloads below. You must submit your forms electronically and in paper form.

Refer to the licensing guidance note for full details of the information you must submit, and application due dates.

Paper-based submission instructions

Each form must also be printed and signed by the relevant parties and sent to us to us for our records.

The TRU1.1 form typically has an earlier submission deadline and should be sent as soon as it has been submitted electronically.

TRU2.1 and DIR1.1 forms should be submitted in one package along with all supporting information. Please take care to include the relevant cover sheet on each section of supporting documentation.

Please post or courier your paper-based information to our Wellington office, clearly marking it for the attention of the Trustee and Statutory Supervisor licence application team.

Monitoring and Surveillance

2013-04-30T14:43:46+13:00

Monitoring and Surveillance Issuers

FMA monitors that issuers are compliant with their obligations. See FMA's overall compliance focus for 2013.

FMA's focus areas for 2013

FMA is concerned about a lack of focus on obligations to investors by some issuers and their directors. Areas of particular concern are the inadequate handling and disclosure of conflicts of interest and disclosure of business changes. We will focus on these issues as part of our review of prospectuses and offer documents during 2013. We will also focus on those issuers currently offering securities where we are aware that they are experiencing trading or financing difficulties.

Some issuers are subject to oversight by securities trustees and statutory supervisors, who must report to FMA if they believe an issuer has breached, or may breach, a disclosure requirement. The report must indicate what action the trustee and supervisor intends to take and FMA may also act on these reports.

Our Effective Disclosure guidance highlights the need for product transparency from the perspective of a prudent but non-expert reader. As part of our 2013 work program, we will monitor how issuers adapt to our guidance.

Property related investments may seem attractive in the current economic environment, but may be higher risk than they seem. We will consider the transparency of investment structure and risks, and will also issue guidance for proportionate property ownership schemes. We will monitor scheme compliance with the disclosure requirements following the expiry of previous exemptions.

Financial reporting - focus for 2013

Non-GAAP financial information can be useful for investors, but has the potential to be misleading. We will monitor how issuers adapt to our guidance on disclosing such information.

We will undertake themed reviews of other financial reporting, including a focus on hybrid instruments. See more information on our 2013 financial reports focus here.

Financial Reporting Updates and Guidance Notes

2013-04-08T12:34:00+13:00

The approach FMA takes to interpreting various requirements under legislation.

Guidance Note: Pre-prospectus publicity - some practical guidance for issuers and their advisers

Guidance Note: Effective Disclosure

Guidance Note: Disclosing non-GAAP financial information

2013 financial reports focus

Monitoring and Surveillance

2013-03-28T12:36:43+13:00

How FMA will monitor reporting entities and its priorities.

It is important that market participants adapt to new regulatory obligations in a timely manner so that the regime can achieve its objectives for New Zealand. From July 2013 FMA will monitor that reporting entities are compliant with their obligations.

We expect all businesses to be ready to comply from the start of the regime. From 30 June 2013, we will monitor how entities assess and manage AML/CFT risks, with a focus on customer due diligence. Our monitoring will take account of our risk assessment of the sectors we supervise (see the report here). We will take action in instances of non-compliance.

A reporting entity must ensure that its risk assessment and AML/CFT programme are audited every two years or at any other time at the request of FMA. FMA may also request a copy of any audit report (section 59). FMA will use the audit report as a supervisory tool. It will give us a good insight into a reporting entity's AML/CFT compliance and be an effective way of helping us to supervise. If the audit report does not provide us with sufficient assurance that a reporting entity's compliance is robust and effective, we may adopt a more vigorous supervisory approach. View the Guideline for audits of risk assessments and AML/CFT programmes here.

Initial visit findings

FMA is working to set clear expectations in advance of the implementation of the regime. FMA has met with over 100 reporting entities to assess their readiness, and the size and nature of their business. We will take this into account when setting our monitoring priorities.

Following our visits, we wrote an open letter to managers of collective investment schemes, noting that outsourcing an activity does not absolve a reporting entity from its obligations under the Act.

FMA's overall compliance focus for 2013 includes more information on FMA's general themes and regulatory approach.

Exemptions

2013-03-27T18:45:12+13:00

Information on exemptions and how to apply for an exemption.

The Anti-Money Laundering and Countering Financing of Terrorism Act provides for two types of exemptions - Regulatory exemptions and Ministerial exemptions.

The Minister of Justice may grant a Ministerial exemption from any or all provisions of the Act. Exemptions may be granted for businesses, transactions, products, services or customers and may be subject to conditions.

The Ministry of Justice is now inviting applications for Ministerial Exemptions under the Act. For further information and a copy of the Ministerial Exemption Policy go to the Ministry of Justice Website.

The Anti-Money Laundering and Countering Financing of Terrorism (Ministerial Exemption Form) Regulations 2011 came into force on 28 July 2011 and prescribe the form in which the Minister must make Ministerial exemptions.

Your Obligations

2013-03-27T18:45:11+13:00

The obligations that apply under the Act.

In order to be ready for the implementation of the Anti-Money Laundering and Countering Financing of Terrorism Act, reporting entities must follow the information outlined in how to get ready.

Once in place, the Act imposes several obligations on reporting entities. If you operate a business that falls within the definition of reporting entity you will need:

A written Risk Assessment of the money laundering and financing of terrorism that you could expect in the course of running your business

An Anti-Money Laundering and Countering Financing of Terrorism Programme that includes procedures to detect, deter, manage and mitigate money laundering and the financing of terrorism

A Compliance Officer appointed to administer and maintain your programme

Customer Due Diligence processes based on your risk assessment including customer identification and verification of identity

Suspicious Transaction Reporting, Auditing and Annual Reporting systems and processes.

The Act takes a risk-based approach to compliance. Reporting entities will (within the limits set by the Act and regulations) have some flexibility to determine the way in which they meet their obligations based on their risk assessment.

A reporting entity must ensure that its risk assessment and AML/CFT programme are audited every two years or at any other time at the request of FMA.

For guidance on the obligations, including on risk assessments and programmes, see here.

For FMA's risk assessment of the sectors it supervises, see here. You can also read sector risk assessments prepared by the Reserve Bank, Department of Internal Affairs for the sectors they supervise, and the national risk assessment ( Police [468kB pdf]).

Open Letter to managers of collective investment schemes (CIS)

2013-03-27T18:45:11+13:00

Open Letter to managers of collective investment schemes (CIS)

Anti-Money Laundering and Countering Financing of Terrorism Roadshow 2011

2013-03-27T18:45:10+13:00

Anti-Money Laundering and Countering Financing of Terrorism Roadshow

The Department of Internal Affairs, the Financial Markets Authority and the Police Financial Intelligence Unit presented the 2011 AML/CFT roadshow between 15 August and 2 September 2011.

Anti-Money Laundering and Countering Financing of Terrorism Roadshow 2012

2013-03-27T18:45:10+13:00

Anti-Money Laundering and Countering Financing of Terrorism Roadshow 2012

The Department of Internal Affairs, the Financial Markets Authority and the Police Financial Intelligence Unit presented the 2012 AML/CFT roadshow between 14 May and 8 June 2012.

The 2012 roadshow was presented in two parts.

The Part 1 presentation is an introduction to the AML/CFT Act. The information presented in Part 1 will be similar to what was presented in 2011.

Part 2 focuses in more detail on selected topics related to compliance with the AML/CFT Act.

Part 1 topics include:

What is money laundering and terrorism financing
The impact of money laundering and terrorism financing in New Zealand
The AML/CFT Act, purpose of the AML/CFT Act
The role of the supervisors
Obligations and key requirements for reporting entities

Part 2 topics include:

Brief overview of the AML/CFT Act, Regulations and the key requirements for reporting entities
Customer Due Diligence (including identity verification, beneficial ownership, enhanced due diligence, countries assessment)
Account monitoring
Suspicious/unusual transactions
Auditing your AML/CFT programme

Who Needs to Comply

2013-03-27T18:45:09+13:00

Information on who is a reporting entity and must comply.

The Anti-Money Laundering and Countering Financing of Terrorism Act describes those who need to comply as 'reporting entities'. To work out if your business is a reporting entity refer to section 5 of the Act

FMA supervises six groups who must comply:

issuers of securities

brokers

financial advisers

trustee companies

collective investment schemes

futures dealers

Reporting entities covered by the Anti-Money Laundering and Countering Financing of Terrorism Act are described in greater detail in the The Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Regulations 2011. These came into effect on 28 July 2011 and:

Include certain financial advisers and trust and company service providers

Exclude certain entities from the Act

Establish thresholds for occasional transactions and beneficial ownership

Extend eligibility for designated business groups and establish the procedure for electing to be a member.

See the guidance, including on 'ordinary course of business', the territorial scope of the Act, issuers of securities and participants in issues and Designated Business Groups here.

How to Get Ready

2013-03-27T18:45:09+13:00

How to prepare for the start of the regime.

The AML/CFT regime comes into full effect on 30 June 2013. If you are a reporting entity under the Anti-Money Laundering and Countering Financing of Terrorism Act, you need to be preparing your organisation now:

Read about the risks

The Sector Risk Assessment (SRA) is a review of the characteristics of certain sectors of the financial system. It assesses the level of risk of money laundering occurring in that sector and outlines any particular risks in that area.
FMA's SRA is a preliminary assessment looking at the risks of money laundering amongst issuers of securities, brokers, financial advisers, trustee companies, collective investment schemes, and futures dealers.

Read the assessment

You can also read sector risk assessments prepared by the Reserve Bank, Department of Internal Affairs for the sectors they supervise, and the national risk assessment ( Police [468 kB pdf]).

Understand the regime and your obligations

To help reporting entities get ready, the three supervisors have run roadshows, issued guidelines and codes of practice and fact sheets and are providing regular updates.

You can download a copy of the presentations from the 2012 and 2011 Anti-Money Laundering and Countering Financing of Terrorism Roadshows.

Complete a risk assessment

Section 58 of the Anti-Money Laundering and Countering Financing of Terrorism Act requires each reporting entity to assess the risk of money laundering and financing of terrorism it may reasonably expect to face in the course of its business. The Act calls this a risk assessment.

A risk assessment is the first step a business must take before developing an anti-money laundering and countering the financing of terrorism programme. The supervisors have issued guidelines on how to complete a risk assessment, and one for small financial adviser businesses.

Put in place a compliance programme

Once a risk assessment is completed, a business can then put in place a programme that minimises or mitigates these risks. See the AML/CFT programme guideline.

Breaches and Offences

2013-03-27T18:45:08+13:00

It is an offence to fail to provide information required under the Act. Find out about other offences and our enforcement powers

Under the KiwiSaver Act 2006 it is an offence to fail to provide information required under the Act. (section 197)

There are a number of other offences, including failing to carry out any direction from the Financial Markets Authority and knowingly supplying false or misleading information about a KiwiSaver scheme. See section 198 for a full list of other offences.

The Act provides for fines where persons are convicted of any of the listed criminal offences. (section 199)

See information on breaches and offences in the Issuers section.

Exemptions

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The current exemptions that apply

Securities Act (Employer Superannuation Schemes) Exemption Notice 2004
Securities Act (Externally Managed KiwiSaver Schemes and Superannuation Schemes) Exemption Notices 2008
Securities Act (Multiple Participants Superannuation Schemes) Exemption Notice 1998
Securities Act (Renewals and Variations) Exemption Notice 2002
Securities Act (Superannuation Schemes - Summary of Financial Statements) Exemption Notice 2006 (SR 2006/224)
Securities Act (Taxation Changes Affecting Investment Statement Disclosures) Exemption Notice 2010

See a full list of Exemption Notices

Fees

2013-03-27T18:45:07+13:00

The fees that you must pay us for applications, monitoring activities and changes

Fees are payable to the Financial Markets Authority. For more information on fees, see KiwiSaver Regulations 2006 Schedule 2.

KiwiSaver Schemes fees
	Fee Description	Fee Amount (incl gst)
1.	On application to register a KiwiSaver scheme under section 131 of the Act	$102.22
2.	For an application for approval of a transfer under section 119G of the Act	$102.22 for each half-hour spent by FMA considering the application
3.	For lodging an amendment to a trust deed under section 129 of the Act	$51.11
4.	For providing an annual report under section 123 of the Act	$102.22 if net assets* of the scheme are less than $3,000,000 $357.78 if net assets of the scheme are $3,000,000 or more
5.	For requesting consent to the reversion of assets to an employer for the purposes of section 129B or 130 of the Act	$102.22 for each half-hour spent by FMA considering the request
6.	On application under section 168(c) of the Act for cancellation of registration of a KiwiSaver scheme	$255.55
7.	For filing, under section 174 of the Act, the final accounts of a KiwiSaver scheme that is wound up.	$255.55

* Net assets means the market value of the assets of the scheme, net of borrowings, at the close of the financial year to which the annual report relates.

Guidance Note: KiwiSaver Performance Fees

2013-03-27T18:45:06+13:00

Guidance Note: KiwiSaver Performance Fees

This guidance note was released in May 2012 following a formal consultation process.

See submissions and a summary of changes

KiwiSaver newsletter - Early withdrawal for earthquake-affected Canterbury residents

2013-03-27T18:45:05+13:00

Commentary oh how to deal with applications for early withdrawal of Kiwisaver contributions

This newsletter is intended to provide commentary on how to deal with applications for early withdrawal of KiwiSaver contributions on the grounds of financial hardship by Canterbury residents who are victims of the aftershock of 22 February 2011.

KiwiSaver Q&A

2013-03-27T18:45:04+13:00

Questions and answers on KiwiSaver.

Q: What are the 'unreasonable fees' restrictions in the KiwiSaver legislation?

A: No KiwiSaver scheme trustee, manager, promoter or other person who charges a fee for services to provide that scheme may charge a fee that is 'unreasonable'. Regulations 10 to 12 of the KiwiSaver Regulations 2006 set out the process requirements and relevant criteria for the Financial Markets Authority when considering whether a KiwiSaver scheme complies with the requirement that fees not be unreasonable, and there are KiwiSaver guidelines which provide additional information.

Scheme fees must be disclosed in investment statements and all fees will be assessed in line with the legislation when a provider applies to register a scheme. FMA must also be notified of all fee increases.

Fees charged by advisers for advice about particular KiwiSaver schemes might in some cases (e.g. where the adviser belongs to a scheme's sales force) be 'services relating to the provision of' KiwiSaver schemes and therefore be subject to the unreasonable fees restrictions. It is not appropriate in any circumstance for advice fees to be deducted from members' KiwiSaver accounts.

Q: Do employers have to inform the Financial Markets Authority when they select a preferred provider?

A: No, an employer is not required to advise FMA when selecting the employer's chosen KiwiSaver scheme for employee automatic enrolment purposes.

Q: How should payments of insurance premiums be treated?

A: Section 68(2) of the KiwiSaver Act 2006 provides that payments for 'other things' like life insurance premiums do not count as contributions under the Act, or towards a contribution rate, and cannot be paid via Inland Revenue. This means that, for example, where such payments are made by an employed member they must be additional to the employee's chosen 2%, 4% or 8%.

Q: Can scheme providers substitute their own wording in certificates and statements?

A: In some cases providers of KiwiSaver schemes have substituted their own wording in schemes' annual reports for the statements and certificates required under the KiwiSaver Act 2006. As a result, the meaning of some statements and certificates has changed, requiring the regulator to seek clarification and replacement certifications in some situations.

For clarity trustees should ensure that they use the wording required for each certificate or statement that is specified in the KiwiSaver regulations.

Q: What are the requirements regarding amending KiwiSaver participating employer agreements?

A: Any amendment to a participation agreement for a KiwiSaver scheme (i.e. an agreement between the scheme provider and an employer which determines some of the conditions on which the employer's employees may be members) must be made in line with section 129 of the KiwiSaver Act 2006, with a copy lodged with the Financial Markets Authority within 14 days of execution.

Q: What are scheme providers' obligations relating to unpaid and short-paid employer contributions to KiwiSaver schemes?

A: The Superannuation Schemes Act 1989 requires the trustees of a superannuation scheme to state in the scheme's annual report whether all contributions required to be made to the scheme under its trust deed have been made (Clause 1(d) of Schedule 2 of the Act).

By contrast, the KiwiSaver Regulations 2006 only require providers to state on an annual basis whether or not they have applied contributions received for each member in line with the trust deed.

However, legal advice received confirms there is a general duty on providers to reconcile amounts that have been received against amounts that the providers reasonably expected to receive from each employer. Where the two amounts do not match up, the general duty of providers is to then follow up this discrepancy and take appropriate action to address the discrepancy.

Whether providers ought reasonably to be aware of contribution shortfalls, and the appropriate action to take in respect of any discrepancies, will depend on the circumstances of the scheme.

The key point is that the relief provided under the KiwiSaver Regulations, when compared with the annual reporting requirements in the Superannuation Schemes Act 1989, does not go so far as to relieve scheme providers entirely from their general obligations.

Q: When may the Financial Markets Authority approve transfers without the consent of members?

A: Members generally cannot be transferred between KiwiSaver schemes without their prior written consents (section 119D of the KiwiSaver Act 2006). However, sections 119G and 119H of the Act enable a KiwiSaver scheme provider to apply to FMA for approval to a proposed bulk transfer between two KiwiSaver schemes without members' written consents.

The terms and conditions of the scheme to which members are to be transferred must be no less favourable than those of the existing scheme, and certain other conditions must be met. FMA has not issued guidelines as it wishes to consider any applications on a case by case basis. However, in relation to the 'no less favourable' requirement, providers should note the guidance set out in APRA Superannuation Circular No. I.C.4.

Members must be notified that they have the right to make a submission to FMA about the transfer proposal and we would expect them to be given no less than 28 days to make that submission. We would also expect that members will be given sufficient comparative information, including about fees, investment options and member services, to enable them to make their own value judgements.

The provider of the receiving scheme must also meet its Securities Act 1978 responsibilities with respect to offer documentation.

Q: What guidance does the Financial Markets Authority have on the tests used to determine what is an 'adverse effect' on members, and what is 'material', when deciding whether to approve a transfer without requiring member consents?

A: Transfer approval applications are considered on a case by case basis and FMA must consider any member submissions received. Under section 119G(4) of the KiwiSaver Act 2006, FMA may decline to approve a transfer if it considers the transfer would adversely affect the interests of all or any members of the old scheme in a material way. When FMA considers whether there is an 'adverse effect' and whether it is 'material' it is required to consider all aspects, including how areas such as fees and investment allocations compare.

Q: What documentation will the Financial Markets Authority require from the scheme provider to enable transfers without the consent of members under sections 119G and 119H?

A: The documentation required is a formal approval application, attaching copies of the transfer notice communications sent to members of the old scheme and compliance certificates from the trustees of both the old and the new scheme. Drafts of the proposed transfer notice communications and the proposed formal application to FMA should be referred to FMA for informal comment before they are finalised and sent.

Q: Where can I find statistics on KiwiSaver schemes?

A: These can be found in the Financial Markets Authority KiwiSaver Annual Reports to Parliament (under the statistics heading in the Appendices).

Kiwisaver Guideline No KSGN2: Performance Fees and Ethical Fund Fees

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Guidance from the Government Actuary on certain fees.

3 April 2008

Performance Fees

Performance fees, by their very nature, should reflect out performance for a specific fund. Usually the assets underlying such a fund are in equities.
Where such performance fees are defined, it is usual to have a lower base fee.

Performance fees in general should have three specific characteristics beyond the base underlying fund management fee, namely

There is a numeric level for the performance fee.
There is a hurdle rate of return, above which the fee will apply.
There is a high water mark, to ensure that out performance is not paid for more than once.

I would expect to regard a performance fee as unreasonable if it did not have the three specifics. As well, the full combination of the three variables will be reviewed for unreasonableness.

Ethical Funds

In general terms, the costs associated with an ethical fund are similar to the costs associated with a normal equity fund when bottom-up analysis is undertaken. Hence, for funds with similar asset profiles, I would expect the fee levels of ethical funds to be similar to the fee levels of non-ethical funds. However if a global overlay is used, I would expect the additional cost necessary for the additional services to be quantified.

KiwiSaver Guideline No KSGN1: Unreasonable Fees

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This guideline advises how the Government Actuary will view fees to be charged directly to the fund.

19 October 2007

The Government objective for KiwiSaver is to establish a low cost work-based savings scheme. In general terms the KiwiSaver Act 2006 ("the Act") expounds the principle that the fees should not be unreasonable and should reflect the services provided. The fee definition is included in the Act. The definition of fees includes all costs to be deducted either directly or indirectly from the member's KiwiSaver account.

The Act envisages the possibility of guidelines from this office. This guideline advises how I will view fees to be charged directly to the fund, firstly in the event of a complaint being received about unreasonable fees and secondly following receipt of the trustee annual report and the annual (audited) financial statements.

This Guideline is to be read in conjunction with Schedule 1 Rule 2 of the Act and regulations 10 to 12 inclusive of the KiwiSaver Regulations 2006. I note that regulation 11(a) permits me to consider a relevant fee or fees.

When considering fees I must review the total picture including all possible fees. There will be many variations in the way providers deduct fees. Most fees will be clearly defined as a dollar amount or as a percentage of funds under management. Some fees may be defined as being charged directly to the fund.

For registration purposes, I have been considering total fees for the period prior to the next annual report. To date total fees for KiwiSaver Schemes have commonly been expressed in general terms as a (dollar) member charge and a management charge based on a percentage of funds under management. The management charge is usually broken down into an investment charge, an administration charge and a trustee fee.

Sometimes other specific charges have been identified in the fees statement as being charged to the fund as they are incurred. It is important that such charges affect each member equitably. It is equally important for members to understand the significance of these charges. And it is therefore not unreasonable to consider an expectation of the level of such charges in any one year. In light of the degree of differing industry practice in this area and the amount of flexibility contained in some trust deeds and investment statements I have decided that I should give guidance on how I will assess the fees which have not been specifically defined in numerical terms in a fees statement.

In general terms I would expect the total of such non-numerically defined charges and expenses in a fees statement to be no more than 0.2% of funds under management in the first year of operation of a KiwiSaver Scheme. This total would apply to each individual fund. For clarity, I would expect that the actual total charges and expenses should not exceed 0.2% in the first year, not simply that the total would be 0.2%. In future years I would expect this total to be a smaller percentage of funds under management as funds increase and the fund achieves greater economies of scale.

If the maximum management fee is less than 1% of funds under management for all funds and the Trust Deed permits administrative charges and expenses to be charged against the fund, then I would consider acceptance of a higher figure than 0.2% in the first year, subject to proof that such administration charges and expenses are not included in the management fee and that the non- numeric fee reflects the way the particular fund will recover its administrative costs.

Whist the above has concentrated on the non-numeric fees, my review will consider the total fees of which this is the non-numerically defined part. To avoid any doubt, I would confirm that this guideline cannot be used to compromise the fiduciary obligations of Trustees.

I will be happy to discuss with providers exceptions to the above but would expect the discussion to be based around an analysis that demonstrates that the totality of the fees are not unreasonable and reflect the services provided.

David Benison
Government Actuary
Ministry of Economic Development

Disclaimer: The purpose of this guidance note is to provide general guidance on how the Government Actuary will view fees to be charged directly to a KiwiSaver Scheme. This guidance note has no legal status or legal effect whatsoever and users of this guidance note are encouraged to obtain their own professional advice on the KiwiSaver Act 2006 and the KiwiSaver Regulations 2006. The Government Actuary disclaims any and all liability or responsibility for any loss or damages arising out of any use of, or reliance on, this guidance note.

Guidance Note: KiwiSaver Distribution and Disclosure

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This guidance is directed to KiwiSaver issuers and managers. It sets out the Commission's expectations of them in the promotion and distribution of their schemes.

24 March 2010

This technical guidance is directed to KiwiSaver issuers and managers. It sets out FMA's expectations of them in the promotion and distribution of their schemes.

Guidance Notes

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Question and answers

Note, guidance on this website provided by the Government Actuary on KiwiSaver remains current.

Money Laundering and Financing Terrorism

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Monitoring and Surveillance

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Monitoring and Surveillance KiwiSaver

FMA monitors that KiwiSaver Schemes are compliant with their obligations.

KiwiSaver is a key priority area for FMA's monitoring and surveillance in 2013 (see FMA's overall compliance focus for 2013). Participants involved in KiwiSaver management and oversight must ensure they meet regulatory standards and act with customer interests in mind.

Trustees (for non-restricted schemes) also have a responsibility as front-line regulators for supervising management and administration of the scheme.

FMA's focus areas

Investments - Managers must exercise care, diligence and skill in the investment of scheme assets, and act in accordance with the stated investment policy and objectives. We will complete our initial review of how KiwiSaver trustees monitor the investment activities of managers, with a focus on processes and controls. The review will identify what further monitoring work should be undertaken.

Unit Pricing - Unit pricing errors can have adverse implications for investors. FMA will consider how KiwiSaver scheme trustees monitor managers' pricing activities.

Disclosure - FMA will review KiwiSaver scheme offer documents in conjunction with the statement of investment policy and objectives to test whether: investment strategies are appropriately disclosed, and disclosure documents are understandable to investors.

Our Effective Disclosure guidance for issuers highlights the need for product transparency from the perspective of a prudent but non-expert investor. As part of our 2013 work programme, we will monitor how issuers adapt to our guidance.

Fees - Two new sets of requirements aim to increase transparency of fees and allow easier comparison between schemes. Once implemented, we will monitor compliance with these new requirements, which include quarterly reporting on fees to members and fee disclosure in trustee annual reports. After a period of 'settling in' of the Guidance Note: KiwiSaver Performance Fees, we will undertake a review to determine to what extent this guidance is being met.

KiwiSaver scheme trustees - Trustees' responsibility as front-line regulators is crucial to the effective operation of KiwiSaver schemes. We will include a focus on KiwiSaver as part of our ongoing monitoring of trustees. FMA will also work to clarify our expectations of trustees in respect of KiwiSaver schemes.

Advice - FMA has already issued guidance on KiwiSaver sales and distribution and will monitor how distributors adjust to the guidance. We expect distributors to monitor sales practices and avoid inappropriate customer incentives. We will issue information for customers on the selection of non-advice or advice services in response to feedback and will take action in the event of mis-selling.

See other guidance notes on KiwiSaver here.

Prospectus Registration

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Most KiwiSaver schemes need a prospectus. Find out about prospectus registration.

Most KiwiSaver schemes need a registered prospectus. The only exceptions are certain existing employer schemes that are exempted under the Securities Act (Employer Superannuation Schemes) Exemption Notice 2004.

See Prospectus Registration for more information.

Tower Managed Funds Limited

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TOWER Managed Funds Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006.

TOWER Employee Benefits Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006. This appointment came into force on 2 April 2007.

Effective 10 September 2012 Tower Employee Benefits Limited was replaced by Tower Managed Funds Limited.

Schedule 3 Part 4 of this notice was amended to add a new clause 11A which specifies a range of asset classes for the default investment fund and the Scheme name was changed to TOWER KiwiSaver Scheme and the default investment product was renamed KiwiSaver Cash Enhanced Fund.

Schedule 1 of this notice was amended to allow for a change in Manager.

Mercer Human Resource Consulting Limited

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Mercer Human Resource Consulting Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006.

Mercer Human Resource Consulting Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006. This appointment came into force on 2 April 2007.

Schedule 2 of this notice was amended to change the name of the default product specified in the instrument from "Mercer KiwiSaver Portfolio" to "Mercer KiwiSaver Conservative".

Schedule 3 Part 4 of this notice was amended to add a new clause 11A which specifies a range of asset classes for the default investment fund.

National Mutual Corporate Superannuation Services Limited trading as AXA New Zealand

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National Mutual Corporate Superannuation Services Ltd t/a AXA New Zealand has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006.

National Mutual Corporate Superannuation Services Limited trading as AXA New Zealand has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006. This appointment came into force on 2nd April 2007.

Schedule 3 Part 4 of this notice was amended to add a new clause 11A which specifies a range of asset classes for the default investment fund.

Schedule 3, Appendix 2 of this notice was amended to allow for a change in fees.

OnePath (NZ) Limited

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OnePath (NZ) Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006.

OnePath (NZ) Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006. This appointment came into force on 2 April 2007.

ING (NZ) Limited changed its name to OnePath (NZ) Limited on 8 November 2010.

The KiwiSaver scheme name was also changed to OnePath KiwiSaver Scheme.

ASB Group Investments Limited

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ASB Group Investments Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006.

ASB Group Investments Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006. This appointment came into force on 2 April 2007.

AMP Services (NZ) Limited

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AMP Services (NZ) Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006.

AMP Services (NZ) Limited has been appointed as a KiwiSaver Default Provider under section 177 of the KiwiSaver Act 2006. This appointment came into force on 2 April 2007.

Schedule 3 Part 4 of this notice was amended to add a new clause 11A which specifies a range of asset classes for the default investment fund.

Your Obligations

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Registration and reporting obligations that currently exist, new obligations coming by Sept 2012 and information about default providers

The core obligations of KiwiSaver providers are set out in the KiwiSaver Act 2006.

In summary, these obligations include the need to:

register the scheme under the KiwiSaver Act and lodge a copy of the trust deed and other documents with the Financial Markets Authority, as set out in the Schedule 2 to the Act. See the checklist for registration of a new KiwiSaver scheme.
prepare annual reports and summary accounts, lodge these with FMA and distribute them to members (section 123)
prepare statistics-based annual returns and lodge these with FMA (section 125)
provide members with annual personalised statements of contributions and balances (section 125A)
lodge copies of amendments to the trust deed within 14 days of execution (section 129)
when they wind up a scheme, follow the processes in the Act (sections 173-176).

All KiwiSaver schemes (other than certain employer and restricted-entry schemes) must have:

a manager who is the issuer for the purposes of the Securities Act 1978
a licensed external trustee whose main function is to supervise the manager.

See guidance notes on KiwiSaver here.

Providers must also comply with obligations that apply to all issuers. See How to comply - issuers for more information.

Default providers

Six companies have been appointed as default providers of KiwiSaver schemes.

They were appointed by the government following an open competitive tender process. They were required to meet stringent criteria to ensure they could offer the kinds of retirement savings options considered appropriate for New Zealanders.

When an employee starts a new job, if they do not already belong to KiwiSaver and are eligible to join, they will be automatically enrolled in KiwiSaver, unless their employer is exempt from KiwiSaver automatic enrolments. If the employer has not chosen a preferred KiwiSaver provider the employee will be allocated to a default provider. See the Inland Revenue's KiwiSaver website for more information.

The special-purpose terms and conditions that default providers operate under are covered in the documents that were used to appoint them, which are known as Instruments of Appointment.

See a list of default providers and their Instruments of Appointment.

Find out if an employer is exempt from KiwiSaver automatic enrolments.

Default Providers

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The Government has appointed six default providers of KiwiSaver schemes.

They were appointed when the Minister of Finance and Minister of Commerce executed, under section 177 of the KiwiSaver Act 2006, instruments of appointment.

List of default providers including a link to its instrument of appointment, which includes the terms and conditions it operates under as a default provider.

The appointments came into force on 2 April 2007.

Who Needs to Comply

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Anyone offering a KiwiSaver scheme will need to comply with the KiwiSaver Act and obligations as issuers

Anyone offering a KiwiSaver scheme must comply with their obligations under the KiwiSaver Act 2006, which include the need to register the scheme on the KiwiSaver Schemes Register. Organisations wanting to provide KiwiSaver schemes also need to obtain Inland Revenue certification for their schemes.

KiwiSaver providers must also comply with any obligations they have as issuers.

Exemptions

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The current exemptions that apply.

Securities Act (Eligible Service Superannuation Schemes) Exemption Notice 2004

Securities Act (Employer Superannuation Schemes) Exemption Notice 2004

Securities Act (Externally Managed KiwiSaver Schemes and Superannuation Schemes) Exemption Notice 2008

Securities Act (Multiple Participants Superannuation Schemes) Exemption Notice 1998 (SR 1998/423)

Securities Act (Superannuation Schemes - Summary of Financial Statements) Exemption Notice 2006 (SR 2006/224)

See a full list of Exemption Notices

Superannuation Q&A

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Questions and answers on Superannuation Schemes.

Q: When can a person apply for approval of a registered superannuation scheme as a complying superannuation fund?

A: A person can do this if:

the scheme was registered on or before 1 July 2007 and has 20 or more non-associated members
any relevant participation agreements were also entered into on or before 1 July 2007 (limited exceptions apply - see sections 35(1)(e) and 35(5) of the Superannuation Schemes Act 1989)
the scheme (and those participation agreements if any) have been amended to subject relevant contributions, returns and benefits to the requirements of the complying fund rules specified in the Income Tax Act 2007.

Any applications under section 34 of the Superannuation Schemes Act 1989 for complying superannuation fund approval made to the Financial Markets Authority should include a completed CSF Checklist.

Q: What guidance is available on the member notice requirements applying under section 9B (for consents-based transfers between schemes)?

A: Under subsections (2) to (2B), where it is proposed to transfer all or a substantial number of members or beneficiaries from one scheme to another the trustees of each scheme must notify:

all members and beneficiaries of each registered scheme (other than those members and beneficiaries that, in the opinion of the Financial Markets Authority, are not likely to be materially affected by the proposed transfer) and
FMA.

The notices must be in writing, and given at least one month prior to the date by which transfer consents from members and beneficiaries of the old scheme must be received by the trustees.

If trustees form the view that certain members and/or beneficiaries of either scheme may be 'not likely to be materially affected by the proposed transfer', it is expected the trustees will ensure that FMA is also of that opinion before they determine not to notify those persons.

The notices must advise relevant members and beneficiaries of the transfer, its implications, the date it is to occur, the date by which consents are to be received, and that a copy has been sent to FMA. At the same time, the same information has to be sent to FMA.

The purpose of the prior notice requirement is to ensure that members and beneficiaries have at least one month in which to consider the information and take advice before deciding whether or not to give consent.

Q: Can the Financial Markets Authority exempt trustees from written amendment or transfer consent requirements with respect to members and beneficiaries who cannot be contacted (section 9BA)?

A: Section 9BA states that FMA may exempt trustees of a registered superannuation scheme from the requirement to obtain the written consent of all members and beneficiaries of the scheme under sections 9 and 9B if FMA is satisfied that:

the trustees have not been able to contact all members or beneficiaries of the scheme despite having taken all reasonable steps to do so and
the proposed action is not unreasonable in relation to the best interests of any member or beneficiary who has not been contacted.

This section can apply to both trust deed amendment proposals (under section 9) and transfer proposals under (section 9B) which require members' or beneficiaries' consents.

We expect trustees wanting to use this section to provide us with a written list of members they are seeking to have the exemption applied to, the steps taken to contact them and why, in the opinion of the trustees, the proposed action under section 9 or 9B is not unreasonable as outlined above. Any exemption given will only relate to listed members.

Section 9BA cannot apply to a proposal to transfer members between schemes without their written consents, under section 9BAA (see below). Only duly notified members can be transferred from one scheme to another under section 9BAA, and members who cannot be contacted must be excluded from the transfers.

Q: When may the Financial Markets Authority approve transfers between schemes without written consents (sections 9BAA and 9BAB)?

A: Section 9BAB of the Superannuation Schemes Act 1989 allows the trustees of registered superannuation schemes, and employers within multi-employer schemes, to apply for FMA approval of a proposed bulk transfer to another scheme without obtaining members' and beneficiaries' written transfer consents as required by section 9B.

The terms and conditions of the scheme to which members or beneficiaries are to be transferred must be no less favourable than those of the existing scheme, and certain other conditions must also be met. FMA has not issued guidelines on this matter as we want to consider any applications on a case by case basis. However, in relation to the 'no less favourable' requirement, trustees should note the guidance set out in APRA Superannuation Circular No. I.C.4.

Members and beneficiaries must be notified that they have the right to make a submission to FMA about the transfer proposal and they should be given no less than 28 days to make that submission. Members should be given sufficient comparative information, including the amount of any scheme reserves/surplus, to enable them to make their own value judgements.

The trustees of the receiving scheme will be required to meet their Securities Act 1978 responsibilities with respect to offer documentation.

Q: What guidance does the Financial Markets Authority have on the tests for determining what is an 'adverse effect' on members, and what is 'material', when determining whether to approve a transfer without requiring member and beneficiary consents?

A: Transfer approval applications will be considered on a case by case basis and FMA must consider any member submissions received. Under section 9BAA(3), FMA may decline to approve a transfer if it considers that the transfer would adversely affect the interests of all or any members and beneficiaries of the old scheme in a material way.

When FMA addresses whether there is an 'adverse effect' and whether it is 'material' it must consider all aspects including, for example, how the two schemes' benefit designs, fees and (if relevant), investment allocations compare.

Q: What documentation will the Financial Markets Authority require from employers and/or trustees to enable transfers under these sections?

A: The documentation required is:

an analysis of the two scheme designs and, where relevant, how the schemes compare in other respects such as fees and expenses and funding ratios
if the transfer is between two multi-employer schemes, a draft of each proposed new participation agreement and benefit schedule.

We also require a formal transfer application, attaching copies of the transfer notice communications to members and beneficiaries of the old scheme and compliance certificates from the trustees of both schemes.

Q: What information should be sent to the Financial Markets Authority about trust deed amendments or entry into new participating employer agreements?

A: The Superannuation Schemes Act 1989 does not contain any requirement to advise FMA of the admission of new participating employers to a multi-employer scheme. However, it does require copies of trust deed amendments (and accompanying trustees' certificates) to be sent to FMA within 14 days of execution.

Q: What sort of documents should be used to admit participating employers to a scheme?

A: In the market there is a range of documents used to admit participating employers. Some of the different forms of these documents are as follows:

1. Under some trust deeds, a new participating employer can be admitted to a scheme merely by signing a pro forma application form which is then countersigned by or on behalf of the trustees. The agreement sometimes takes the form of a deed, entered into by the trustees and the new participating employer, which binds that employer into the obligations imposed on employers by the trust deed.

2. Sometimes the agreement signed by a new employer may specify some details which are left open in a trust deed. This could be where, for instance, a trust deed provides that the contributions payable by an employer are as specified in the application by that employer to participate in the scheme.

3. Occasionally, a participating employer agreement will alter the terms of a trust deed as it affects that particular employer. This can occur where the trust deed allows that a participating employer agreement may override some of the terms of the deed, as they affect that employer.

4. In a few cases, the deed itself is altered to allow the participation of a new employer (possibly on terms that are unique to that employer) and some trust deeds explicitly state that the execution of a new participating agreement is an amendment to the trust deed.

The first and second forms of agreement are not deed amendments, while the last one obviously is. The third example may or may not be regarded as an amendment to the trust deed - whether it is will depend on the precise wording of the deed.

Q: What practice should apply to participating employers in registered schemes?

A: The practice which should apply to registered schemes is that trustees should only forward to the Financial Markets Authority under the Superannuation Schemes Act 1989 copies of those participating employer agreements which involve trust deed amendments, and must therefore be duly certified by trustees. Copies of those agreements, and of the trustees' certificates, should be lodged within 14 days of the agreements being signed. This is the normal procedure for trust deed amendments for registered schemes. (see section 12 of the Superannuation Schemes Act 1989)

A subsequent amendment to such a participating agreement will also be subject to sections 9 and 12 of the Act, and a copy of the original participating agreement which is being amended must also be forwarded to FMA where it is not already held on our files.

Participating employer agreements which are not trust deed amendments need not be copied to FMA.

No advice is required for the withdrawal of a participating employer from a registered scheme, unless the withdrawal itself involves a new trust deed amendment.

At any stage FMA can ask to see participating employer agreements in respect of any particular scheme.

Q: How can errors affect the operation of new participation agreements?

A: Some participation agreements have a format which requires boxes to be ticked. An unfortunate error, such as an incorrect tick or some erroneous or illegible handwritten comment, could lead to the need for written consent for a subsequent amendment from members affected. It is recommended that trustees of multi-employer schemes review their administration procedures to ensure sufficient safeguards are in place to minimise such errors.

Q: What are the annual report requirements for trustees?

A: The Superannuation Schemes Act 1989 requires trustees to provide an annual report to scheme members, and to forward a copy of that annual report to the Financial Markets Authority.

Section 14 of the Act states that for annual reports:

The trustees of a registered superannuation scheme must, within 5 months after the end of each financial year, prepare a report on the scheme for that year
The annual report must include the matters specified in the Second Schedule to the Act
The trustees must send to FMA a copy of the completed report within 28 days after its completion.

Section 17 of the Act outlines members' right to information. These include a requirement that each member of a registered superannuation scheme must be given, within 6 months of the close of each financial year of the scheme, a copy of the annual report of the trustees in respect of that year.

Some trustees interpret section 14 of the Act to mean that a report is to be prepared for FMA in addition to that given to the members. That interpretation is incorrect. There should only be one annual report, which is sent to members and FMA.

Under section 14(3), where an annual report includes summarised accounts and an abridged audit report it must tell members where the full financial accounts are available on request and at no charge. FMA must also be provided with a copy of the full financial accounts at the same time as the report is lodged.

The Second Schedule of the Act states the matters to be specified in an annual report. One of these is a statement of numerical changes in the membership of the scheme during the financial year.

Some trustees continue to advise only the total membership at year end. FMA expects to see a detailed summary of changes, including members at the start of the year, number of new entrants, number of exits and number at the end of the year, in the report.

FMA also expects:

the new entrants to be broken down into
- new members
- transfers from other superannuation schemes
the exits to be broken down into
- retirements
- deaths/disablements
- redundancies/retrenchments
- withdrawals
- transfers to other superannuation schemes.

As this information is purely for statistical purposes, if the trustees do not wish such a detailed summary to be included in the trustees' report, because it could identify a specific individual, they may supply this information in the covering letter sent to us with the trustees' report.

Q: What are the requirements for winding up a superannuation scheme?

A: The requirements are:

Winding up resolutions (section 21(1) (a))

A copy of the winding up resolution must be lodged with the Financial Markets Authority within 14 days after the resolution is passed. Trustees must ensure that the resolution is passed by the entity with the power to do so in terms of the trust deed. This is not always the trustee(s).

Final accounts (sections 21(1) (b), (c) and (d) (i))

Final audited accounts must be prepared within 5 months after the effective wind-up date, showing the position of the scheme as at that date. The effective wind-up date is the winding up date stipulated in the resolution or, if the effective date is not stated, the date on which the resolution is passed. Copies of the final audited accounts must then be forwarded within another 28 days to FMA and to each person who was a member of the scheme immediately before the effective wind-up date.

Under section 21(1A), FMA may extend the time period within which trustees must comply with any of the requirements of section 21(1)(b) to (d). However, such extensions will only be granted in exceptional circumstances.

Written advice regarding the basis of distribution of assets (section 21(1) (d) (ii))

FMA and those who were members immediately before the effective wind-up date must also be given a written statement of the manner in which the assets of the scheme are to be distributed. We do not usually require a list of the individual amounts. Note, the Act refers to the manner in which the assets are to be distributed. Therefore, this information and the final accounts should be supplied prior to the distribution of assets.

Date of the final distribution of assets (section 21(1) (e))

This is the last date on which the scheme had any assets and is the date on which the registration is deemed to be cancelled (section 21(3). The information should be sent promptly to FMA, and FMA should be kept informed of the reason for any delays in distributing the assets.

Q: Where can I find statistics on registered superannuation schemes?

A: Statistics on registered superannuation schemes can be found in the Financial Markets Authority Superannuation Annual Reports to Parliament (under the statistics hearing in the Appendices).

Note, guidance on this website provided by the Government Actuary on the superannuation schemes remains current.

Fees

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The fees that you must pay us for applications, monitoring activities and changes.

Fees are payable to the Financial Markets Authority. For more information on fees see Superannuation Schemes (Fees) Regulations 1992.

Registered Superannuation Schemes fees
Clause No.	Fee Description	Fee Amount (incl gst)
1.	On application to register a superannuation scheme under section 3 or section 4 of the Act	$102.22
1A.	For an application for approval of a transfer under section 9BAA of the Act, for each half-hour spent by FMA considering the application	$102.22
2.	For lodging an amendment to a trust deed under section 12 (2) of the Act	$51.11
3.	For filing an annual report under section 14 (3) of the Act	$102.22 if the net assets* of the scheme are less than $3,000,000 and no actuarial report is required to be filed under section 15(3) of the Act; $357.78 if the net assets of the scheme are greater than $3,000,000 and no actuarial report is required to be filed under section 15(3) of the Act; $511.11 if the net assets of the scheme are less than $3,000,000 and an actuarial report is required to be filed under section 15(3) of the Act; $766.67 if the net assets of the scheme are greater than $3,000,000 and an actuarial report is required to be filed under section 15(3) of the Act
4.	On application under section 19 (2) of the Act to cancel registration	$255.55
5.	For filing under section 21(1)(d)(i) of the Act the final accounts of a scheme that is wound up	$255.55
6.	For requesting consent to the reversion of assets to an employer in accordance with section 22 of the Act, for each half-hour spent by FMA considering the request	$102.22
7.	For requesting the confirmation of FMA as required by section 47 of the Act, for each half-hour spent by FMA considering the request	$102.22

* Net assets means the market value of the assets of the scheme, net of borrowings, at the close of the financial year to which the annual report refers. It includes - where the assets of the scheme include policies or contracts of life insurance and annuities on the lives of scheme members and beneficiaries - the aggregate of the amounts assessed by the insurer as the current value of those policies or contracts at the close of the financial year to which the annual report refers. The term policies or contracts of life insurance and annuities excludes any policy or contract which provides only for a lump sum payment on death or disablement or both.

Fees payable for miscellaneous matters
Clause No.	Fee Description	Fee Amount (incl gst)
1.	On application to classify a superannuation scheme as a qualifying superannuation scheme under section EY 11 of the Income Tax Act 2007, for each half-hour spent by the FMA considering the application if the scheme is not required to file an actuarial report under section15(3) of the Act	$51.11

Breaches and Offences

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It is an offence to fail to provide information required under the Act. Find out about other offences and our enforcement powers

Under the Superannuation Schemes Act 1989 it is an offence to fail to provide information required under the Act (section 25).

There are a number of other offences under this section including failing to carry out directions from the Financial Markets Authority and knowingly supplying false or misleading information about a superannuation scheme.

Where a company commits an offence against the Act, every officer of the company who knowingly authorises or permits the offence also commits an offence against the Act.

For more information see section 25 of the Act.

See information on breaches and offences in the issuers section.

Guidance Notes

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Superannuation question and answers

Superannuation Q&A

Note, guidance on this website includes a summary of material that remains current but was previously provided by the Government Actuary on superannuation schemes. For full copies of Government Actuary guidance please see the National Library Archives.

Complying Superannuation Fund Checklist

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Provisions comprising Complying Fund Rules as defined in the Income Tax Act 2007, Schedule 28 and the Superannuation Schemes Act 1989.

Provisions comprising Complying Fund Rules as defined in the Income Tax Act 2007, Schedule 28 and the Superannuation Schemes Act 1989
	'Complying fund rules' under the Income Tax Act 2007 and Section 35 SSA 1989 requirements		Trust Deed/Participation Agreement - corresponding clause reference
	Section 35 The Scheme and any relevant participation agreement evidence rules that subject the following to complying fund rules: relevant contributions returns on relevant contributions relevant benefits The scheme has 20 or more non-associated members; The scheme was registered on or before 1 July 2007; Relevant participating agreement(s) have been entered into on or before 1 July 2007.		AS/
1	KiwiSaver Rules (1) Rules must be the same as the rules for KS schemes in Schedule 1, clauses 2, 4(1)to(4), 7, 9, and 17 of the KS Act 2006 (with necessary modifications). Rules must be the same as the rules in section 101G and 196 of the KS Act 2006 for KS schemes (with necessary modifications) i.e: Any interest in a KS scheme must not be assigned or charged or passed to any other person whether by way of security, operation of law or any other means. However, this does not prevent a members interest or any future benefits from being released, assigned or charged, or from passing to any other person, if that is required by the provisions of any enactment (including a requirement by order of the Court under any enactment).	1	KiwiSaver Rules
2	Withdrawals (2) Rules may allow withdrawals in some or all of the circumstances described in regulations made under s.229(1) of the KS Act 2006 the rules for KS schemes in Schedule 1, clauses 8 and 10to14 of the KS Act 2006 (with necessary modifications), or in none of those circumstances; and Rules must not allow withdrawals under any other circumstances except those described here and in 'Lock-in' above. Rules must require the trustees, at the member's request, to pay any permitted withdrawal as a lump sum, as if the withdrawal were a permitted withdrawal to which schedule 1, clause 5 of the KiwiSaver Act 2006 applied (with necessary modifications).	2	Withdrawals
3	Transfer requirements (3)(a) Rules must require a transfer of all or part of an employee's superannuation accumulation (i.e.Locked-in Balance) to another CSF , or to a KS scheme, if the employee requests such a transfer and, in the case of a transfer to a KS scheme, the requirements of the KS Act 2006 are met. (3)(b) Rules must also require that an employee's superannuation accumulation is subject to complying fund rules, if it is transferred to another complying superannuation fund. (3)(c) Rules must require a transfer of an employee's superannuation accumulation to a KiwiSaver scheme if the employee does not request a transfer and: ceases to be eligible to be a member of their complying superannuation fund; and may not remain a member for any reason except a transfer in accordance with paragraphs(a), (b) and (d), or a withdrawal of some or all of an employee's superannuation accumulation in accordance with complying fund rules. (3)(d) Rules must require a transfer of an employee's superannuation accumulation to a KiwiSaver scheme if the Financial Markets Authority revokes approval of the superannuation fund as a complying superannuation fund and the accumulation is not transferred to another complying superannuation fund and is not subject to complying fund rules.	3	Transfer requirements
4, 5	Notification (4),(5) Rules must require that the Commissioner is notified that the employee's superannuation accumulation must be transferred in accordance with paragraphs(c) and (d), and the notice must include the name, address, and tax file number of the employee, the name and address of their employer, and the name and tax file number of the employee's complying superannuation fund.	4, 5	Notification
6	Age Restriction (6) Rules must prevent a person over New Zealand Superannuation age from joining a CSF.	6	Age Restriction
7	Minimum contribution (7) Rules must require as a minimum, while locked-in contributions are being made, the minimum contribution of 2% of gross salary or wages as defined in the KiwiSaver Act 2006.	7	Minimum contribution
8	Funding benefits (8) Rules must require an employee's superannuation accumulation is used to fund benefits calculated only by reference the accumulation.	8	Funding benefits
9	Commitment (9) Rules must commit an employee to continue to be a member except in accordance with clauses 1 to 8.	9	Commitment

(Note: This checklist ignores those aspects of the complying fund rules that are implied into trust deeds by provisions of the KiwiSaver Act).

Monitoring and Surveillance

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Monitoring and Surveillance Superannuation

FMA monitors that superannuation schemes are compliant with their obligations. See FMA's overall compliance focus for 2013.

Money Laundering and Financing Terrorism

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Who Needs to Comply

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Anyone offering a superannuation scheme will need to comply with the Superannuation Scheme Act. Find out about obligations and prospectus registration

Anyone offering a superannuation scheme must comply with their obligations under the Superannuation Schemes Act 1989, which include the need to ensure that the scheme is registered under the Act.

Superannuation scheme trustees must also comply with any obligations they have as issuers.

Your obligations

The core obligations of superannuation scheme trustees are set out in the Superannuation Schemes Act 1989.

In summary, these obligations include the need to:

register the scheme under the Superannuation Schemes Act and lodge a copy of the trust deed and other documents with the Financial Markets Authority. (section 3 and Schedule One to the Act)
prepare annual reports and audited accounts (sections 13 and 14)
distribute annual reports, including full or summary accounts, to members (section 17)
lodge copies of any amendments to the trust deed within 14 days of execution (section 12)
ensure that if the scheme is not entirely accounts-based (i.e. contributions to the scheme are not allocated on a defined basis to individual members) an actuary examines its financial position at least 3 yearly and the actuary's report is lodged with FMA (section 15)
when they wind up a scheme, follow the process prescribed in the Act (section 21)

Providers must also comply with obligations that apply to all issuers. See How to Comply - issuers for more information.

Prospectus registration

Superannuation schemes which are open to new members need a registered prospectus, unless:

they are employer superannuation schemes invoking the prospectus exemption prescribed in the Securities Act (Employer Superannuation Schemes) Exemption Notice 2004 or
they are church clergy or other restricted-offer schemes invoking the prospectus exemption prescribed in the Securities Act (Eligible Service Superannuation Schemes) Exemption Notice 2004.

See Prospectus Registration for more information.

Compliance Checklist

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Any applications for complying superannuation fund approval should include a completed checklist.

Complying Superannuation Fund Checklist

Fees and Levies

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Information on the application and ongoing fees and levies auditors and audit firms will pay

Auditors will need to pay the following levies, fees and charges. Fees and charges are prescribed in the Auditor Regulations 2012.

In addition New Zealand based auditors may need to pay fees or charges to their accredited body in accordance with the accredited body's rules.

Application fees

New Zealand auditors and audit firms

For New Zealand auditors and audit firms, a registration application fee of $350 will be payable to the Registrar of Companies. Accredited bodies may also charge application fees to cover their time and costs.

Overseas auditors and audit firms

The fees in New Zealand dollars are as follows:

Application fee $115
Registration fee (which is passed on to the Registrar) $350

You must pay these fees when submitting your application for a standard licence (auditors) or registration (audit firms). Payment details can be found on the relevant application form. Firms may pay the fees for a number of individuals' licence applications together.

You will also need to pay an assessment fee. The assessment fee is based on time spent on assessing your application at the rates prescribed by Regulations as follows:

$230 per hour for members
$166.62 per hour for staff

We will invoice you for your assessment fee. FMA may also recover any costs of external advice or assistance obtained.

Ongoing costs

An annual confirmation fee of $110 will be required for each New Zealand or overseas licence or registration that is confirmed. This covers maintenance of the Auditors Register.

Quality review fee

Registered audit firms, and New Zealand based licensed auditors who are not a partner or employee of a registered audit firm, will be subject to a quality review at least once every four years.

Fees and charges for this review will be based on a prescribed rate for FMA members' and staff time as set out below, and on a cost recovery basis for certain other costs.

$230 per hour for members
$166.62 per hour for staff

Levies

From 1 August 2012, the Companies Office will collect levies to fund the FMA. The levies will be included within most registration fees, annual return fees and with the filing of a prospectus via the Companies Office.

Full details on the levies, including the classes of persons who must pay a levy and the amounts payable can be found in the Financial Markets Authority (Levies) Regulations 2012 at: www.legislation.govt.nz

Most levies will be payable to the Registrar of Financial Service Providers, via the Financial Service Providers Register. Some levies will be payable to FMA (by classes of persons who are not currently on the register). The following classes of persons will be invoiced direct by FMA:

Class 8 - Public issuers
Class 10 - Registered exchanges
Class 11 - Authorised futures exchanges
Class 13 - Overseas auditors

These organisations and individuals will be contacted by the FMA, after the regulations have come into effect on 1 August 2012.

Monitoring

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FMA’s Auditor Regulation Plan and the process of Quality Reviews

See FMA's compliance focus for 2013.

The auditor regulation plan

FMA's auditor regulation plan includes:

The specific impacts, outcomes, or objectives FMA seeks to achieve or contribute to as a result of auditor regulation
The ways FMA expects accredited bodies to contribute to those impacts, outcomes, or objectives
How FMA proposes to monitor accredited bodies.

FMA's auditor regulation plan will cover the current financial year and two further years, and will generally be updated annually.

Download the plan below.

Quality review

All registered audit firms and individual auditors who are not members of a registered audit firm will be subject to a quality review at least once every four years.

The review will include an assessment of the design of the internal control systems of the audit firm or licensed auditor and a review of selected audit files for compliance with auditing and assurance standards.

It is FMA's responsibility to conduct these reviews, however, the FMA may arrange for accredited bodies to carry out a quality review, in whole or in part, on its behalf.

Disciplinary Process

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Auditors will be subject to disciplinary action in the event they fail to meet the required standards.

New Zealand based auditors and audit firms

Responsibility for conducting investigations and disciplinary proceedings sits primarily with the accredited body that issued the licence.

Accredited bodies will be able to investigate suspected breaches of auditing and assurance standards, the Act, conditions of an auditor's licence or audit firm's registration, or their conduct rules or code of ethics.

Where an accredited body, or its disciplinary body, determines an auditor or audit firm has breached an obligation, it may cancel or suspend the auditor's licence or impose any other penalty available under its rules.

FMA has some jurisdiction to investigate, or assist an accredited body in an investigation, where requested by the accredited body or where the accredited body has decided not to investigate. Where FMA conducts an investigation and finds a breach, FMA can take disciplinary action against the auditor or audit firm.

Overseas auditors and audit firms

FMA may investigate if it is in the public interest to do so. Where FMA determines an overseas auditor or audit firm has breached its obligations, FMA can cancel or suspend the auditor's licence or audit firm's registration, and make costs orders.

In addition, FMA will refer matters of concern regarding overseas auditors to the audit regulator and their professional body in their home jurisdiction where appropriate.

Disciplinary action will be published

Disciplinary action for both New Zealand auditors and overseas auditors will be published on the register of auditors and audit firms, and may be the subject of a public statement.

How to apply for a licence – overseas auditors

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How to apply for a standard licence – overseas auditors

FMA may issue an overseas auditor an auditor licence if you meet certain requirements. We will also consider whether you are able to meet your licence conditions.

If you have registered your transitional licence, this will be valid until 1 May 2014 (unless it is replaced by another licence or revoked before then). However you are encouraged to apply for a standard licence at an early stage so we can process your application and you can answer any queries we may have.

Please complete the following steps:

1. Download the application guide and relevant template forms

2. Gather the evidence of meeting requirements

The evidence you need to gather is summarised in the application guide. The application guide also has full details of the requirements as well as information about how FMA assesses the evidence provided.

Please check that you have provided the expected evidence from both the 'all countries' section of the guide and the section relevant to your home jurisdiction.

Please also carefully check you provide the evidence in accordance with the requirements in the application guide. Incomplete forms, or answers which do not take account of the guidance are likely to result in queries and delays in processing your application and additional costs.

New Zealand Orientation Topics for Overseas Licensed Auditors

Overseas auditors wishing to be licensed in New Zealand are required to complete an approved course in New Zealand commercial law and taxation. This is to ensure that all licensed auditors have knowledge of the New Zealand commercial environment. FMA has approved for the purposes of this requirement successful completion of degree level papers in both commercial law and taxation at an approved tertiary institution.

The following table sets out the papers which would currently meet this requirement at 14 tertiary institutions:

Tertiary Institutions	Commercial Law	Taxation
University of Auckland	COMLAW 203 Company Law	COMLAW 301 Taxation
Auckland University of Technology	416614 - Law for New Zealand Business	367905 Advanced Taxation or 367907 Taxation: Principles, Policies and Processes
UNITEC New Zealand	ACTY 6320 Law of Business Entities	ACTY 6210 Taxation
Manukau Institute of Technology	323.606 Commercial Law 2	311.642 Taxation
University of Waikato	ACCT322 - Law of Business Enterprises	ACCT 351 Taxation
Waikato Institute of Technology	BBSD622 Corporate Law	BBSD603 Taxation
Eastern Institute of Technology	LAWS 6.01 Corporate Law	ACCY7.08 Advanced Taxation
Massey University *	155.203 - Law of Business Organisations	110.289 Taxation or 110.389 Advanced Taxation
Victoria University of Wellington	COML 303 - Law of Organisations	ACCY 305 Advanced Domestic Taxation or TAXN 301 Advanced Domestic Taxation
The Open Polytechnic of New Zealand *	71 214 - Law of Business Organisations	71 306 Taxation
Nelson Marlborough Institute of Technology	LAW610 - Company Law	ACC 706 Advanced Taxation
University of Canterbury	ACCT 256 Law of Business Organisations	ACCT 358 Advanced Issues in Taxation
Lincoln University	LWST 201 - Commercial Law I	ACCT306 Taxation
University of Otago	BLAW211 Business Law Relating to Entities	ACTP 312 Taxation Practice

* indicates institutions that offer courses by correspondence or distance learning.

If you have completed another course in New Zealand commercial law and taxation which you believe should meet the requirements for auditor licensing, we are happy to consider whether that course is equivalent to the approved courses. In order to do this, we will need you to provide a detailed description of the topics covered and the learning outcomes for the course you have completed.

Contact information for each tertiary institution is available here.

3. Submit your application by both post/courier

Physical copies of all your application material should be addressed to the 'Licensing team, Financial Markets Authority' then:

Posted or couriered to our Wellington, New Zealand office

See our fees page for the fees that will apply.

Your obligations

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Auditors will be subject to appropriate scrutiny and accountability

Auditing and assurance standards

Under the Auditor Regulation Act and the Financial Reporting Act, licensed auditors will be required to carry out audits in accordance applicable auditing and assurance standards.

Continued compliance with prescribed standards

Licensed auditors and registered audit firms will be required to continue to meet the minimum standards prescribed by FMA for licensing auditors and registering audit firms.

See the prescribed minimum standards

Conditions

Both licensed auditors and registered audit firms will be subject to conditions. For auditors, the kinds of conditions that they may be subject to are prescribed by FMA.

See the prescribed conditions.

The exact conditions which an auditor or audit firm is subject to will be set by the accredited body that issues the licence for New Zealand based auditors and audit firms, or by FMA for overseas auditors and audit firms. Conditions will be published on the register of auditors and audit firms, and notified to the auditor or audit firm at the time of being set.

Transitional licences are not initially subject to conditions except a condition that the auditor is licensed for all kinds of issuer audits. Conditions can be varied or added by the accredited body for New Zealand auditors or FMA for overseas auditors.

Ongoing competence requirements

FMA has prescribed ongoing competence requirements. These require auditors to complete 120 hours of relevant training or education in every three year period.

See the prescribed ongoing competence requirements.

Accredited bodies

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Accredited bodies are organisations permitted under the Act to licence auditors and approve the registration of audit firms.

Accredited bodies are organisations permitted under the Act to license auditors and approve the registration of audit firms.

Accredited bodies also have responsibilities for supervising the auditors and audit firms they license and register, and for disciplining those auditors and audit firms if they breach their obligations.

Who are the accredited bodies?

CPA Australia Limited (CPA Australia) has been granted accreditation by FMA under the Auditor Regulation Act, see news release.

The New Zealand Institute of Chartered Accountants (NZICA) is deemed under the Auditor Regulation Act to be an accredited body.

In addition, FMA can grant accreditation to any other body which meets the required standard.

Standards and obligations of accredited bodies

Accredited bodies must have adequate and effective systems and processes for performing their regulatory functions under the Act. In addition, FMA may prescribe further minimum standards an accredited body must meet. FMA has prescribed standards for accredited bodies which can be downloaded below.

Accredited bodies, including NZICA, will be required to comply with conditions attached to their accreditation.

FMA has published a policy on how it will assess applications for accreditation and how it will impose, vary, add or remove conditions of accreditation. This can be downloaded below.

Individual accredited bodies will be notified in writing of the conditions applied to their accreditation.

How to get licensed

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Auditors of an issuer will need to hold a licence. Audit firms will need to be registered.

A person who acts as the auditor in respect of an issuer audit must hold a licence. Audit firms must be registered.

Key dates for licensing and registration are:

1 May 2012	Registration for transitional licences opens for New Zealand and overseas auditors Transitional registration begins for New Zealand audit firms
26 June 2012	Last day to register for transitional licence/registration
1 July 2012	Auditor Regulation Act 2011 comes fully into force. Only licensed auditors /registered audit firms may conduct issuer audits. FMA and accredited bodies can issue standard auditor licences and approve audit firm registrations
1 May 2014	Transitional provisions end.

Prescribed minimum standards and conditions for licensed auditors and registered audit firms

New Zealand auditor licensing

Transitional licence registration has now closed.

New Zealand based auditors need to apply for a standard licence from an accredited body they are a member of.

CPA Australia and NZICA are currently the only accredited bodies.

Contact NZICA for further details of how to apply for a standard licence.
Contact CPA Australia for further details of how to apply for a standard licence.

New Zealand audit firm registration

Transitional registration has now closed.

New Zealand audit firms are registered on the Auditors Register held at the Companies Office following approval by an accredited body.

Contact NZICA for further details of how to apply for firm registration.

Overseas auditor licensing

Transitional licensing has now closed.

Overseas auditors need to apply to FMA for a standard licence.

See how to obtain a standard licence.

Overseas audit firm registration

Overseas audit firms are registered with the Auditors Register held at the New Zealand Companies Office following approval by FMA.

See how to apply for registration.

How to apply for registration – overseas audit firms

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How to apply for registration – overseas audit firms

FMA may authorise the Registrar to register an overseas audit firm where it has met the requirements for registration. We will also consider whether a firm will be able to meet its conditions of registration.

Please complete the following steps:

1. Download the application guide and template forms

• Application Guide: Licensing and registration of overseas auditors and audit firms.
• Overseas Audit Firm Application Form (OAF1.1)
• Overseas Audit Firm Application Form Cover Sheet Pack
• Statutory Declaration Fit and Proper, Firms (SDFP1.1)
• Statutory Declaration Fit and Proper, Audit /Management Partner (SDFP2.1)
• Adverse Matter Template (AMT1.1)
• Partners and Auditor Firm spreadsheet (PAF1.1)

2. Gather the evidence of meeting requirements

The evidence you need to gather is summarised in the application guide. The application guide also has full details of the requirements as well as information about how FMA assesses the evidence provided.

Please carefully check you provide the evidence in accordance with the application guide. Incomplete forms, or answers which do not take account of the guidance are likely to result in queries and delays in processing your application and additional costs.

3. Submit your application by both post/courier and email

Physical copies of all your application material should be addressed to the 'Licensing team, Financial Markets Authority' then:

• Posted or couriered to our Wellington, New Zealand office

In addition, your OAF1.1 form together with the PAF1.1 form must be:
• Emailed to us

See our fees page for the fees that will apply.

Breaches and Offences

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Breaches and Offences

Brokers are subject to obligations under the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008.

Breach of the obligation to exercise care, diligence and skill may give rise to claims of compensation from clients for loss incurred as a result.

Under the Financial Advisers Act, FMA may give directions to brokers in the event of a breach of an obligation. FMA can also seek injunctions, banning orders, and prohibitions on payment/transfer of money, securities or other property in the High Court, and may also issue temporary banning orders in some circumstances.

Breach of a broker obligation, including trust accounting obligations for retail clients, may give rise to an offence resulting in a substantial fine.

FMA may also use its powers under the Financial Markets Authority Act 2011 in respect of brokers.

A person who provides a broking service without being registered on the Financial Service Providers Register may be liable to a term of imprisonment of up to 12 months or to a fine of up to $100,000 (if an individual) or to a fine of up to $300,000 (if an entity).

You can find out more about FMA's enforcement powers and approach to enforcement here.

Who needs to comply?

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Auditors of issuers and audit firms will need to comply. This section also includes information on accredited bodies.

All auditors and audit firms who perform issuer audits will need to comply with the Auditor Regulation Act 2011 when it comes fully into force 1 July 2012.

From 1 July 2012 individuals who perform issuer audits will need to hold a licence.

Audit firms who perform issuer audits must be registered, and must ensure that for each issuer audit:

the engagement partner holds a licence
an individual who carries out the quality control review of key decisions and judgements (before the report is issued) also holds a licence. (This person might be known as the concurring partner, or quality review partner.)

Issuer audits is defined in the Auditor Regulation Act and includes audits of the financial statements of issuers as defined in the Financial Reporting Act 1993 as well as the financial statements of schemes and funds whose securities have been offered to the public, and retirement villages where they are required to produce financial statements under that Act.

Issuer audits also includes any review or audit engagements required to be carried out under the Securities Act 1978.

The purpose of the auditor regulation regime is to promote the quality, expertise and integrity in the profession of auditors. The regime will also promote recognition of the professional status of New Zealand auditors in overseas jurisdictions.

New Zealand auditors and audit firms

Accredited bodies have primary responsibility for regulating affected New Zealand based auditors and audit firms.

FMA has the role of granting accreditation to accredited bodies and supervising them on an ongoing basis.

Overseas auditors and audit firms

FMA has the primary responsibility of regulating affected overseas auditors and audit firms.

An 'overseas auditor' is an individual who is entitled to act as an auditor in a jurisdiction outside New Zealand that is included in a prescribed list. Regulations have prescribed:

Australia
Any country, state or territory in the European Union
Hong Kong
Singapore
The United States of America.

Auditors not based in New Zealand or licensed or authorised to act as an auditor in a prescribed jurisdiction may contact FMA to discuss how they will comply with the law.

An 'overseas audit firm' is a partnership, where the majority of its partners are ordinarily resident outside New Zealand. Entities other than partnerships are not permitted to carry out audits of New Zealand issuers. A limited partnership cannot become a registered firm.

Read the Auditor Regulation Act 2011.

Read the Auditor Regulations 2012.

Read the Financial Reporting Act 1993.

Read the prescribed minimum standards and conditions for licensed auditors and registered audit firms.

Fees and Levies

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A link to information on fees that apply.

See Fees and Levies in the Financial Advisers section.

Exemptions

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There are no exemptions available to brokers.

Your Obligations

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Brokers have obligations under the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008.

Brokers must comply with the Financial Service Providers (Registration and Dispute Resolution) Act 2008, which includes a requirement to be registered on the Financial Service Providers Register. For brokers the requirement to register is at the level at which the business is carried on (i.e. this is usually an entity or may be an individual acting as a sole trader). Brokers must also be members of a dispute resolution scheme where they are providing broking services to retail clients.

See Registration of Financial Service Providers.

Brokers must also comply with the conduct and trust accounting obligations under the Financial Advisers Act 2008. These obligations also apply at the level at which the business is carried on. This will either be the entity carrying on the business or the individual if a sole trader. However, an authorised financial adviser (AFA) who provides broking services as an employee of a broker, must under the standard conditions for AFA's, comply with the brokers' conduct and trust accounting obligations.

Conduct obligations (section 77J-77O) include:

brokers must exercise care, diligence, and skill
brokers must not engage in misleading or deceptive conduct
advertising of broking services must not be in a way that is misleading, deceptive, or confusing
from 1 July 2011, only members of a registered exchange, including its employees, are permitted to use the term 'sharebroker' in any advertising or promotional material. (Currently, New Zealand's only exchange is NZX). Similarly the term stockbroker, which is often used interchangeably with sharebroker, should not be used by people who are not members of a registered exchange. To do so would be misleading or confusing for investors
from 1 July 2011, brokers must not receive client money if an offer for subscription is illegal.

Disclosure obligations: Although disclosure regulations for brokers have not been put in place, we consider brokers should, as a matter of good professional practice, disclose information such as:

fees and other remuneration
material interests or relationships
procedures for handling client money or client property
criminal convictions or other disciplinary proceedings of the broker, and if it is an entity each principal officer

As a general principle each retail client should have sufficient information to enable them to make an informed decision about whether to use the broking services.

Money and asset handling and trust account obligations

Sections 77P-77T of the Financial Advisers Act covers obligations for broking services for retail clients. These obligations include:

requirements to hold money on trust
to properly account to the client for funds held
to maintain adequate trust account records.

Monitoring and Surveillance

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Monitoring and Surveillance Brokers

FMA monitors that brokers are compliant with their obligations. See FMA's overall compliance focus for 2013.

Brokers are required to keep retail clients' money and property separate from their own and on trust. We will visit a number of brokers to monitor their compliance with these requirements. We will focus on reconciliations of internal and external records, plus segregation of roles, and will take into account how the broker has assured itself of compliance, for example through internal or external review.

Money Laundering and Financing Terrorism

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Who Needs to Comply

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A definition of broking services, who needs to comply and a list of those excluded from the obligations under the Financial Advisers Act.

There are obligations in the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 for individuals and companies providing broking services. These provisions apply to anyone providing broking services, whether or not they are financial advisers. Employees carrying out broking services on behalf of their employer can rely on their employer's registration as a broker.

The Financial Advisers Act defines a broking service as the receipt, holding, payment, or transfer of client money/property by someone acting as an intermediary for a client. A person acts as an intermediary if they do not receive, hold, pay or transfer the money/property on their own account. The simple transmission of a non-transferable instrument payable to another person is not considered to be a broking service (e.g. non-transferable cheques and automatic payment forms).
Mortgage brokers or insurance brokers will not be ' brokers' under the legislation, if they do not provide 'broking services' as defined in the Act, but they will often be financial advisers.

The following are not considered to be providing broking services for the purposes of the Act:

lawyers, incorporated law firms, conveyancing practitioners, chartered accountants, tax agents, real estate agents, registered legal executives providing a service in the ordinary course of their business
employers providing a service to an employee in connection with a financial product made available through the person's workplace.

Note, this is not an exhaustive list of exemptions. For more information see sections 77B and 77C of the Act.

How to Register

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Brokers must be registered on the Financial Service Providers Register.

See Registration of Financial Service Providers.

Money Laundering and Financing Terrorism

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Your Obligations

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You must be registered on the Financial Service Providers Register. You must also belong to a dispute resolution scheme if you have retail clients.

Financial service providers must be registered on the Financial Service Providers Register. You must register for activities which match your business and for all of your financial service activities. Merely being registered for some of your services is not enough. See how to register for more information on registering activities.

Those providing services to retail clients must also belong to a dispute resolution scheme.

Once registered you must file an annual confirmation to maintain your registration. This can be done online. There are also duties to notify changes.

For more information visit the Financial Service Providers Register (FSPR).

Monitoring and Surveillance

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Our current monitoring focus for financial service providers and those on the perimeter of financial services.

See FMA's compliance focus for 2013.

FMA monitors financial service providers are compliant with their obligations under the Financial Service Providers (Registration and Dispute Resolution) Act. This includes

following up when businesses or individuals appear to be offering financial services but are not registered to provide those services

following up where financial adviser services are being provided by people who are not appropriately licensed to provide those services Read more

FMA also has oversight of some of the other obligations of financial market participants including financial service providers under other legislation.

Fees and Levies

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Individuals and entities required to be registered will need to pay fees.

See Fees and Levies in the Financial Advisers section.

Who Needs to Comply?

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Information on what is meant by financial service provider and on the exemptions that apply.

Individuals and companies who provide financial services must comply.

Registration of financial service providers

Financial service providers must be registered on the Government Financial Service Providers Register in order to legally conduct a financial services business. This is in addition to any other licences or authorisations they may be required to hold under other laws.

Financial service providers include financial advisers, brokers, building societies, credit providers, credit unions, money changers, finance companies, foreign currency exchange dealers, fund managers, insurers, investment portfolio managers, issuers and registered banks.

The Financial Service Providers Register website has additional information about 'what is a financial service'. For a full description see section 5 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008.

Some exemptions apply. For example, lawyers, chartered accountants, tax agents and real estate agents who only provide financial services in the ordinary course of their business do not need to register. For a full list of exemptions see section 7 of the Act.

The requirement to register is generally directed at entities and individuals who have a place of business in New Zealand or who live in New Zealand. However other legislation may require overseas people to be registered on the Financial Service Providers Register (see for example the Financial Advisers Act).

Do I need to register as an individual if my employer is registered?

The Act requires the person or entity that carries on the business to be registered. Therefore if you are an employee of a financial services provider company you don't have to be registered unless you are offering certain financial adviser services as explained below.

If you provide financial adviser services the requirement to register will depend on the types of financial adviser services you provide. If it's only class services or services to wholesale clients and your employer is a registered financial service provider, then you do not have to register individually. If you are not a QFE adviser but are providing personalised financial adviser services to retail clients then you will need to be registered. You may also need to be authorised. See guidance question and answers.

Does my entity need to register if it is only servicing its outstanding loans?

The Act requires credit providers to be registered. Providing credit generally means providing a loan or having a debt due to you. The requirement covers credit provided under a credit contract, as set out in the Credit Contracts and Consumer Finance Act 2003 (with some additional exclusions set out in the Financial Service Providers Act). This covers lending to businesses as well as to retail customers.

Your entity provides credit (and needs to be registered) until the credit is completely repaid (or forgiven). Providing credit includes having a loan due to you that was originally made by another provider. For example, you will usually need to register if you have bought or been assigned a loan.

Credit providers providing credit to retail customers will also need to belong to a dispute resolution scheme (see below).

Who must be a member of a dispute resolution scheme?

Financial service providers who have retail clients must belong to either an approved dispute resolution scheme or the reserve scheme established by the government. If you are a financial adviser employee or agent (including a QFE adviser) and your employer or principal is a member of a scheme you will be covered by their membership for the services you provide on their behalf. The Ministry of Consumer Affairs administers the government's reserve scheme and has information on approved schemes.

How to Register

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An introduction to the Financial Service Providers Register and a link to the site.

You must apply for registration online at the Financial Service Providers Register (FSPR) website. The register is a searchable, online public register of entities and individuals in New Zealand who provide financial services. The register is run by the Companies Office.

To qualify for registration you must:

not be disqualified from doing so

be a member of an approved dispute resolution scheme if required

If you are also required by other legislation to be licensed (ie a bank or AFA or QFE), you will also need to be licensed.

During the registration process you will need to select all the activities for which you wish to be registered. The FSPR website contains guidance on the definitions of various financial services.

In addition, please note the following options for entities and financial adviser services:

'providing wholesale and/or generic financial adviser services' - select this option if you provide financial adviser services to wholesale clients and/or class services.

'An employer or principal of a financial adviser and/or Qualifying Financial Entity' - select this option if you have financial advisers acting on your behalf, such as advisers who provide personalised financial adviser services to retail clients

If you do both activities you will need to select both.

The registration process also includes a criminal history check (for all individuals and directors/senior managers of entities seeking to be registered), and payment of a fee.

The FSPR website has full details on the requirements and how to make your application.

Guidance Note on Financial Advisers Act Exemptions

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This guidance note explains the approach to granting exemptions under the Financial Advisers Act.

November 2010

This guidance note explains the approach taken to granting exemptions under the Financial Advisers Act 2008. It is intended to provide answers to commonly asked question in relation to exemptions and to provide information to potential applicants on the process for making an application.

Information Requirements: Applications for Exemption Under the Financial Advisers Act 2008

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Information requirements for applications for exemption under the Financial Advisers Act 2008

All applications for exemptions under the Financial Advisers Act 2008 must be made in writing, must be complete, provide sufficient detail and be accompanied by the relevant fee.

Please read the Guidance Note on Financial Advisers Act Exemptions before making your application.

Please provide the information requested below in the following order.

Name of person or entity applying for exemption.
Contact person for correspondence concerning the application including contact address, phone number and email.
Please specify which of the following your application relates to and provide details of the specific obligation from which you seek an exemption:
1. the Financial Advisers Act 2008
2. the regulations (made under the Financial Advisers Act 2008)
3. the Code of Professional Conduct for Authorised Financial Advisers (Code), or
4. the requirement to register (for financial adviser services or broking services) under the Financial Service Providers (Registration and Dispute Resolution) Act.
Please indicate the subject of the exemption application:
1. person or class of persons
2. service or class of services
3. transactions or class of transactions.
Name or description of person, service, transaction, document, information, or product in respect of which exemption is sought.
In the following order:
1. Please let us know what date you would like your exemption to take effect. The Financial Markets Authority is required to notify exemptions in the Gazette as soon as practicable (see section 148B of the FAA), which will usually be the first Gazette to be published after the granting of the exemption.
2. Provide a draft notice (see FAA section 148B and section 149).
3. Refer to published policy or precedent of FMA relevant to your application.
4. Provide all other relevant facts in support of your application.
5. In relation to exemptions from the Code competence requirements, please see section 148 (3) of the FAA, and provide details of alternative qualifications you hold. Then:
  1. explain why qualifications that differ to those accepted as alternatives in the Code would not undermine consumer protection, and
  2. state why these are comparable to standards required by the Code, or
  3. provide information about the costs of compliance and how they would be unreasonable or not justified by the benefit of compliance and
  4. provide any supporting evidence in relation to your qualification.
6. Describe impediments to your activities created by law or published policy, and explain your commercial position.
7. State why the exemption should be granted and how the proposed exemption would operate to assist your operations.
8. Provide details of interests of consumers, markets or third parties that will be affected by your proposed exemption.
9. Outline appropriate limitations on the proposed exemption identifying any regulatory detriment to consumers or investors if exemption is granted.
10. Explain any net regulatory benefit, i.e. where any regulatory detriment caused by granting the exemption is outweighed by the commercial or other benefit.
11. Refer to any third parties (including competitors) whose interests would be adversely affected by exemption and explain how their interests would be affected.
12. State whether you have any objections to or requests concerning publication of details of your exemption (see sections 148B and 149 of FAA), and give reasons.
13. Give details of previous contact with officials (including their names) at FMA or the Ministry of Economic Development (including the Companies Office and the Ministry of Consumer Affairs) on this matter.

You may submit your application online

or send hard copy to Financial Markets Authority

Guidance Note on Financial Advisers Act Exemptions

Financial Advisers Act Exemption Fees

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Details the fees and costs involved in making an application for an exemption.

A cheque for $1,262.50 should accompany each application for an exemption. This represents an application fee of $112.50 prescribed under the Financial Advisers (Fees) Regulations 2010 and an advance payment of $1000 plus GST in respect of fees and costs to be incurred.

The regulations prescribe charging rates of $225 per hour for time spent by Financial Markets Authority board members and $163 per hour for time spent by officers or employees of FMA. These amounts are inclusive of GST. FMA is also empowered under the regulations to obtain independent expert assistance relating to particular applications and to recover the costs involved in doing this. We will consult with the applicant before hand if we think expert assistance will be required. We are also willing to provide estimates for our work. While we endeavour to provide realistic estimates, they are estimates only and we will charge at the prescribed rates.

You will be sent an account for costs, where required, each month and/or at the conclusion of our work. If the cost of the work done at the prescribed rates does not exceed the amount paid in advance, then a refund will be made when our work is completed. Our experience is however, that this will only arise in a few cases.

If the exemption is granted, the applicant must also reimburse FMA for the costs of publishing and/or gazetting the exemption notice. We will advise the applicant what the charges are at the time of publishing.

Exemptions

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Guidance, existing exemption notices and how to apply for an exemption.

In certain circumstances it may be possible to obtain an exemption from being registered as a financial adviser or from any of the obligations under the Financial Advisers Act 2008, regulations or the Code of Conduct. The Financial Markets Authority will limit the use of its powers to cases that meet prescribed statutory criteria and all exemptions will be based soundly on the policy of the law.

Read the Guidance note on Financial Advisers Act exemptions (November 2010)
Find out the information requirements when applying for an exemption
Find out about existing exemption notices
Find out what fees are payable for an exemption application

Fees and Levies

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Information on the licensing and ongoing fees RFAs, AFAs and QFEs must pay.

Fees

To become an Authorised Financial Adviser (AFA) or Qualifying Financial Entity (QFE) you need to apply on the Financial Service Providers Register. Fees are payable, and will be collected as part of the application and renewal process.

AFA fees

Effective from 1 October 2010.

	Application fees (NZ$ incl. GST)	Ongoing fees (NZ$ incl. GST)
Application for registration	$357.78	$61.63 (annually)
Criminal history check (per person as required)	$40.25	$40.25 (as incurred by the Registrar)
Consumer dispute resolution scheme administration contribution	$30.67	$30.67 (annually)
Application for authorisation	$1144.89	$572.45 (payable on renewal)

These fees do not include any assessment or examination fees for financial advisers charged by The Skills Organisation, delegated assessment organisations or other training providers. See the The Skills Organisation website for more information about its assessment fees.

QFE fees

Effective from 1 October 2010.

	Application fees (NZ$ incl. GST)	Ongoing fees (NZ$ incl. GST)
Application for registration	$357.78	$61.63 (annually)
Criminal history check for every person named in the application (director, controlling owner and senior manager)	$40.25	$40.25 (as incurred by the Registrar)
Consumer dispute resolution scheme administration contribution	$30.67	$30.67 (annually)
Application for QFE status	$4886.22	$4600.00 (payable on renewal)

Registration fees: RFAs, entities and brokers

Individuals and entities required to be registered will also need to pay fees. Visit the Financial Service Providers Register to find out what fees apply.

Levies

Class 8 - Public issuers
Class 10 - Registered exchanges
Class 11 - Authorised futures exchanges
Class 13 - Overseas auditors

These organisations and individuals will be contacted by the FMA, after the regulations have come into effect on 1 August 2012.

Disciplinary Process

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FMA has a formal complaints process if people or companies breach requirements. AFAs who breach the Code may also face the Disciplinary Committee.

Complaints

The Financial Markets Authority has a formal complaints process if people or companies breach the Financial Advisers Act 2008.

Authorised Financial Advisers (AFAs) have certain whistle-blowing protections if they report a breach under the Act. See Complaints to find out more.

Disciplinary Committee

The Disciplinary Committee is an independent body. It conducts disciplinary proceedings arising from complaints about AFAs relating to breaches of the Code of Professional Conduct for AFAs.

The Committee may take a range of actions as a result of proceedings, including cancellation of authorisation, suspension, and censure.

Background on the Disciplinary Committee

The Committee is made up of between four and six members, including the Chairperson. The membership must include at least one member who works, or has worked, in the financial adviser industry, at least one member who is independent of the financial adviser industry, and at least one member who is a lawyer with no less than seven years legal experience.

The role of the Committee is to:

conduct disciplinary proceedings arising out of complaints regarding authorised financial advisers referred to it by FMA
take any actions required as a result of the disciplinary proceedings.

See more about the Financial Advisers Disciplinary Committee (FADC).

Disciplinary Committee members

Hon Sir Bruce Robertson (Chairman)
Tracey Berry
Simon Hassan
Peter Houghton
Geoff Clews
David Macdonald

Money Laundering and Financing Terrorism

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Guidance Note: Code Standard 6 (d) – Analysis Before Recommendation

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This guidance note is intended for Authorised Financial Advisers (AFAs).

December 2011

This guidance note is intended for Authorised Financial Advisers (AFAs). It clarifies FMA's expectations in relation to the application of, and compliance with, Code Standard 6 (d) of the Code of Professional Conduct for AFAs, particularly in relation to public issues but also in relation to other financial products.

Guidance Note: Code Standard 6 (d) – Analysis Before Recommendation

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This guidance note is intended for Authorised Financial Advisers (AFAs).

December 2011

About this guidance note

Status of this guidance note

This guidance note describes FMA's interpretation of the law and how we will apply and enforce it. If a person complies with this guidance note, then we will consider they have complied with the relevant law. While this guidance note has no other legal status and it is not binding on the Courts or third parties, we will ensure that relevant stakeholders are aware of our interpretation.

Examples are provided for illustration. They are not exhaustive and do not impose or imply particular rules or requirements.

It does not constitute legal advice. We encourage you to seek your own professional advice to find out how the legislation discussed and any other applicable laws apply to you, as it is your responsibility to determine your obligations.

A. Overview

1. FMA's principal objective is to promote and facilitate the development of fair, efficient, and transparent financial markets. To perform our functions and deliver on our objectives, we seek to ensure:

financial markets participants have clear and well understood responsibilities; and
retail investors have access to the information they need to make informed decisions.

2. This guidance note aims to assist AFAs as financial markets participants in determining their responsibilities and ensuring that their clients have sufficient information to inform their decision making, particularly in relation to public issues.

3. The Code of Professional Conduct for Authorised Financial Advisers (Code) is specifically designed to be principles based regulation. Each Code Standard consists of an over-arching principle followed by further detail explaining how the Code standard should be applied.

4. Because of this principles based approach in the Code, FMA does not intend to issue prescriptive guidance for particular Code Standards as this would undermine the fundamental 'design' of the Code. We therefore expect AFAs to exercise their own professional judgement in applying the Code to the services they provide, to have regard to the principles expressed in each of the Code Standards and also to have regard to the overarching purpose of the Financial Advisers Act, namely:

[...] to promote the sound and efficient delivery of financial adviser and broking services, and to encourage public confidence in the professionalism and integrity of financial advisers and brokers .

5. This guidance describes the factors and considerations AFAs should take into account to comply with Code Standard 6 (d).

B. Background

6. AFAs must comply with the Financial Advisers Act 2008, which includes an express obligation to comply with the Code. The Code is a regulation made pursuant to the Financial Advisers Act. Code Standard 6 provides:

An Authorised Financial Adviser must behave professionally in all dealings with a client, and communicate clearly, concisely, and effectively.

Code Standard 6 sub clause (d) provides:

When providing financial adviser services to a client, an AFA must: […] make recommendations only in relation to financial products that have been analysed by the AFA to a level that provides a reasonable basis for any such recommendation, or analysed by another person upon whose analysis it is reasonable, in all the circumstances, for the AFA to rely.

7. FMA is aware of uncertainty regarding the extent of the 'analysis' required to be undertaken or obtained by an AFA under this Code Standard, before he or she can make a recommendation to a client to acquire (or to refrain from acquiring) securities by way of initial public offerings, or to acquire or dispose of (or to refrain from acquiring or disposing of) securities listed, or to be listed, on a registered market (public issues).

8. This guidance is provided particularly in the context of recommendations in relation to public issues, but it is also relevant to recommendations in relation to other financial products.

C. Code Standard 6 (d)

9. Code Standard 6 is the first Code Standard in the section of the Code titled Minimum Standards of Client Care. The overarching principle of Code Standard 6 is about the professional behaviour of AFAs and effective client communication.

10. Further detail about the application of Code Standard 6 is provided by the additional provisions set out under that Code Standard. This includes paragraph 6 (d) referred to in paragraph 6 above.

11. The Code makes it clear the details in the additional provisions under Code Standard 6 (d) do not limit the application of the overarching principle in Code Standard 6, or the application of any other Code Standard. Further, the Code states AFAs must apply Code Standard 6 in a way that encourages public confidence in the professionalism and integrity of financial advisers.

D. FMA's interpretation of Code Standard 6 (d)

12. The word 'analysed' is not defined in the Code. It therefore carries its ordinary meaning of 'to examine or think about something carefully, in order to understand' .

13. Code Standard 6 (d) therefore relates to the process of the AFA understanding the product sufficiently to make a recommendation to a client in relation to acquiring or disposing of it.

14. What is a reasonable level of analysis must be determined on an objective basis in the particular circumstances and requires the AFA to apply reason - not irrational or un-informed factors - to the formulation of his or her recommendation.

15. What is reasonable in particular circumstances must be assessed in light of the overarching principle in Code Standard 6 (with its focus on professional behaviour and client communication) and all other relevant Code Standards, particularly:

Code Standard 1: put the interests of the client first and to act with integrity.
Code Standard 7: ensure that a client has sufficient information to enable him or her to make an informed decision about whether to use the AFA's services and/or to follow any financial advice provided by the AFA.
Code Standard 8: take reasonable steps to ensure that a personalised service is suitable for the client.
Code Standard 9: provide a written explanation to the client of the basis on which the service is provided.

E. FMA's expectations: complying with Code Standard 6

General comments

16. We expect all AFAs, before making a recommendation in relation to a financial product, to:

understand the nature of the investment, its structure and terms and the risks involved in investing in it, to the extent necessary to enable him or her to determine suitability for the particular client in terms of Code Standard 8; and
ensure the client is aware of the scope and basis of the service provided by the AFA in relation to the recommendation, and any limitations on the service provided by the AFA in relation to the recommendation in terms of Code Standards 7, 9 and 10. This includes ensuring the client understands whether or not any recommendation is supported by written research.

Extent of analysis expected

17. The extent of analysis we expect in any particular case, including whether written research must be obtained in respect of a financial product before it is recommended by the AFA, will depend on the context in which the recommendation is made - including:

the nature of, and risks associated with, the particular financial product;
the nature of the relationship between the AFA and the client and the client's resulting expectations of the level of service the AFA will provide;
the scope of the service the AFA has agreed to provide to the client;
the information provided to the client by the AFA about the service he or she will provide, in terms of Code Standard 7.

18. We expect AFAs to consider:

initial public offerings: the financial product's registered prospectus and investment statement;
listed securities: material information released by the issuer (such as information released as part of an issuers' continuous disclosure obligations), or information available on NZX or another exchange on which the product is listed.

19. We do not expect an AFA in every case to obtain detailed written 'analysis' or 'research' of the type performed by securities, investment or financial analysts (written research) before making a recommendation about a financial product. Nor do we expect AFAs to review all material that is publicly available. In each case professional judgement should be applied as to what information is material and relevant to inform the client's decision making process. We note also the obligations of NZX Participants under the NZX Participant Rules .

Analysis by another person

20. In all cases, AFAs have a personal obligation to understand the nature and features of a financial product, and the risks associated with investment in that product, to the extent necessary for him or her to determine suitability for the particular client as required by Code Standard 8.

21. Nonetheless, Code Standard 6(d) recognises it may be appropriate in some circumstances for an AFA to rely on analysis of a financial product (including analysis of its prospectus and investment statement) undertaken by another person, if it is reasonable, in those circumstances.

22. The question of whose analysis an AFA may reasonably rely on, will be determined on an objective basis in the particular circumstances. We expect AFAs to exercise reason and professional judgement in deciding on whose analysis they can rely.

23. We expect AFAs to consider factors such as:

the nature of the relationship between the AFA and the person providing the analysis;
the nature of the relationship between the person providing the analysis and the issuer of the financial product;
the capability of the person or persons providing the analysis and the process that person has undertaken to conduct the analysis.

24. For example, it will be reasonable for an AFA working within a dealer group to rely on analysis and/or portfolio asset allocation or direction provided by the dealer group's investment strategist or investment selection committee; or for a sharebroker working in a firm that does not provide an internal research capability to rely on analysis provided by a reputable independent research house.

25. Subject to the considerations in the paragraphs above, an AFA may also refer to information provided, or funded, by the issuer of the financial product, provided the client is made aware of the source of the information.

26. None of the above derogates from an AFA's personal obligation to understand the financial product and apply his or her own professional judgement as to the suitability of any recommendation.

Verification of research/analysis

27. We do not expect an AFA to independently verify the information contained in a registered prospectus and investment statement prepared in respect of the initial offer, nor to restrict his or her recommendations to only those public issues that have been independently analysed and rated by an independent rating agency.

Client's awareness of scope of service

28. FMA expects all AFAs, before making a recommendation in relation to a financial product, to ensure the client is aware of the scope and basis of the service provided by the AFA in relation to the recommendation, and any limitations on the service provided by the AFA in relation to the recommendation in terms of Code Standards 7, 9 and 10.

This includes:

ensuring the client understands whether or not any recommendation is supported by written research;
ensuring the client is aware of any potential conflicts, material relationships the AFA may have and steps taken by the AFA to manage those conflicts.

Application to Discretionary Investment Management Services (DIMS)

29. This guidance also applies to AFAs who provide a DIMS service. DIMS providers must apply Code Standard 6 to their services and the circumstances of each client, having regard to the overarching requirements of professionalism and effective client communication.

F. Further information

30. You can find a copy of the Code of Professional Conduct here

Find further information about the obligations of AFAs, including disclosure and Standard Conditions for AFAs here

Note for Australian Licensees on Financial Advisers (Australian Licensees) Exemption Notice

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Information for Aust regulated advisers who are seeking to rely on, or who are already operating under the Financial Advisers (Australian Licensees) Exemption Notice.

July 2011

Introduction

This information is for Australian regulated financial advisers who are seeking to rely on, or who are already operating under the Financial Advisers (Australian Licensees) Exemption Notice 2011 ("Exemption Notice").

Process for applying

Clause 6(d) of the Exemption Notice sets out the process for applying. The table below provides our comments on complying with the requirements.

	Requirement	FMA comments
1.	Written notice that the Australian licensee wishes to rely on this exemption.	There is no set form for the written notice and the notice may be given by post and/or submitted electronically. The notice should: refer to the exemption notice give the name and address of the Australian licensee and the licence number (this may be made available to the public) be from a person who is authorised to give the notice provide details of the person at the Australian licensee who is authorised to deal with FMA's enquiries The notice may have attached a copy of the licence (although this is not mandatory)
2.	The names of, and contact information in respect of each of its specified representatives	FMA may make this information publicly available If the specified representative is also an authorised representative on ASIC's register, the representative number should also be provided.
3.	Copy of the New Zealand retail client list	The list should include the retail clients who are existing clients of the Australian licensee and who will be treated as clients within the definition of Australian personalised services for a retail client. If a retail client of the Australian licensee is excluded from the list, then this client will not be within paragraph(a)(i)(A) of the definition of Australian personalised services for a retail client.

Additional information on the conditions

The following information is intended as a guide to some of the conditions in the Exemption Notice. It sets out the factors FMA will consider in assessing compliance with the conditions. This information does not constitute legal advice. We encourage you to seek your own legal advice on how to comply with the conditions in the Exemption Notice. Examples given are for illustrative purposes only, are not exhaustive and are not intended to impose or imply particular rules or requirements.

1. What is meant by conduct that is intended to induce or solicit retail clients in New Zealand?

This wording is used in two places in the Exemption Notice:

it is considered when a New Zealand client becomes a client (the client must not have become a client as a result of conduct that was intended to induce or solicit retail clients in New Zealand, or conduct likely to have that effect)
it is a condition at clause 6(l) that the Australian licensee or its specified representatives must not engage in such conduct.

In determining whether or not a person is engaging in conduct that is intended to induce or solicit retail clients in New Zealand, FMA will look at all the circumstances relating to the conduct.

However, in general we will consider whether any measures have been taken to attract New Zealand clients as distinct from general promotional activities undertaken by the Australian licensee outside of New Zealand in respect of its general market outside of New Zealand.

The following activities are examples of conduct that we consider is likely to be conduct intended to solicit retail clients in New Zealand:

Active marketing of the Australian licensee's financial adviser services in New Zealand, including in New Zealand newspapers or local television.
Advertisements on the Australian licensees' website which contain information specifically relevant to New Zealand persons or in relation to New Zealand financial products.

2. Complying with the written disclosure requirement at clause 6(f)

The condition at clause 6(f) of the Exemption Notice requires the Australian licensee to provide written disclosure containing prominent statements as set out in the clause. The following matters are relevant to this condition:

FMA will not pre-vet or approve the written disclosures which may be provided by Australian licensees to their New Zealand clients pursuant to the Exemption Notice, however we may ask to see the form and method of disclosure at any point.
The disclosure required under clause 6(f) should be given before the personalised services are provided to the retail client in New Zealand. If it is not practicable before such services are provided, then they may be provided as soon as practicable after however it is envisaged that in most circumstances and particularly for new clients, it should be practicable to give the notice before the services are provided.
Details of the New Zealand dispute resolution scheme should include the name of the scheme and website details.

Who to contact

If you have questions in relation to the Exemption Notice please contact your legal adviser or contact FMA.

Questions and Answers

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Guidance on specific questions that signals the approach taken in interpreting the law.

February 2011

This document contains guidance on specific questions that signals the approach taken in interpreting the law.

Do I need to register as an individual if my employer is registered?
Who must make disclosure under the regulations when an adviser acts on behalf of someone else?
What responsibility does a QFE take for its nominated representatives?
How will the period of QFE status be determined?

Can mortgage advisers refer to KiwiSaver in their advertising?

A mortgage advice advertisement that refers to KiwiSaver in such a way that it implies an adviser is authorised to provide personalised financial advice on KiwiSaver could be misleading for consumers.

In some circumstances mortgage advisers may need to draw a client's attention to the first home deposit facility within KiwiSaver and provide practical information about accessing the facility. However, advisers should take care in the use of statements and advertisements such as 'come and talk to us about KiwiSaver' or 'use your KiwiSaver to buy your first home'.

A client might think that the mortgage adviser could provide them with personalised advice about the merits of using KiwiSaver funds to buy a house. Under the Act, as a general rule, only an AFA (or QFE adviser) should provide this kind of personalised advice.

In an advertisement for mortgage advice services, FMA would not expect KiwiSaver to be the prominent focus or a key feature of the advertised service. If an adviser is only providing a limited service rather than personalised advice on KiwiSaver we would expect this to be clear.

A mortgage adviser should also be careful when drawing their client's attention to the first home deposit facility other than in advertising. A recommendation to an individual to make use of the facility to buy a first home could amount to personalised advice on a Category 1 product.

QFE feedback summary

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This feedback report summarises the common areas where FMA will expect greater clarity and focus when QFEs explain their capacity

Using this feedback
Discussion with FMA
Notifications to FMA
QFE Annual Report
Keep it clear - and make sure you know it works
What do you do and how do you know it works?
What do you do?
How do you know?
Specific information about the processes for your financial adviser services
Four key focus areas
Suitability
What do you do?
How do you know?
Knowledge, skills and competence
What do you do?
How do you know?
Supervision
What do you do?
How do you know?
Compliance
What do you do?
How do you know?
Other areas
Entity level conflicts
Disclosure

Introduction

Qualifying Financial Entities (QFEs) take responsibility for their advisers.

It is up to a QFE to ensure its advisers are providing customers with suitable advice and services. The capacity to monitor advisers and ensure adequate consumer protection is key to an entity's eligibility for QFE status, at application and on an ongoing basis.

All entities granted QFE status demonstrated capacity. However in a number of cases application information was provided during 2010, before QFEs had fully implemented their compliance arrangements. And information in QFE Adviser Business Statements (ABS) was sometimes unclear, lacked concrete examples, or included detail that didn't relate to financial adviser services.

This feedback report summarises the common areas where, in future, FMA will expect greater clarity and focus when QFEs explain their capacity to us. This might be in:

discussions with us during monitoring activities

notifications to us (about changes in business or processes)

the ABS (which must be submitted with your QFE Annual Report).

We also expect QFEs to demonstrate that compliance arrangements have now been implemented.

This summary is addressed to QFEs. The summary may also be of interest to those who assist QFEs with their compliance responsibilities, and those in other financial adviser businesses in considering their compliance arrangements.

Using this feedback

You should use this feedback in conjunction with the compliance principles in the QFE ABS guide to review your compliance arrangements - and improve them where necessary. We have also provided your QFE with individual feedback on the most important areas for you. Your approach to using all these sources of feedback will shape your ongoing relationship with FMA.

Discussions with FMA

FMA's initial monitoring of QFEs is likely to include a focus on the four key areas described in this document. We recognise that when ABSs were written in 2010, many QFEs were still developing their compliance processes. We now expect these to be in place.
As we continue our discussions with you, we will be looking for evidence you have taken on board the feedback you've received. We will expect you to be able to answer two key questions about your financial adviser services: 'what do you do?' and 'how do you know it works?'.

Notifications to FMA

In feedback meetings, we have reminded QFEs of the notification requirements (under the standard conditions, and explained in the related Explanatory Notes). These cover a range of compliance matters, such as breaches and complaints. But they also require you to engage with FMA at an early stage if you are proposing changes to your business or processes.

We will expect you to explain how capacity will be maintained. In framing your notifications, you will find it useful to think about the four key focus areas outlined in this document.

QFE Annual Report

We have also reminded QFEs of the need to provide an Annual Report to FMA (under section 77).

In writing your Annual Report, you will need to consider whether your QFE and its advisers have complied with the requirements.

Your supervision and compliance assurance arrangements should help to provide evidence to support your principal officer's approval of the report. We may ask about the basis for that approval.

Keep it clear - and make sure you know it works

A QFE must demonstrate on an ongoing basis that it can ensure compliance and provide adequate consumer protection. So a QFE must have robust compliance arrangements in place and be open in its dealings with FMA.

But FMA also expects QFEs to be more than technical compliers doing the minimum necessary. QFEs are encouraged to adopt high standards and to demonstrate engagement beyond the letter of the law. Remember, the objective is to encourage public confidence - so it's about taking appropriate care in providing financial adviser services to your customers.

Make sure you and everyone in your organisation is clear about what they should do to achieve the objectives. And make sure you know that what you're doing really works.

We will tailor our regulatory approach to your QFE accordingly.

What do you do and how do you know it works?

The compliance processes QFEs use are summarised in the Adviser Business Statement (ABS). In your ABS, in notifications to us, or in discussions with us, you should be able to show:

What you do to ensure your customers are getting suitable advice or services

How you know whether the compliance arrangements you've invested in are working.

What do you do?

'What do you do' is about processes. Getting the right outcome for customers from your advice or service process depends on:

getting the design right

people operating the process as designed.

How do you know?

'How do you know' is about your management information and controls. It is about making sure processes are working and delivering the right outcomes for customers. It is also about independent testing of the design and operation to ensure the controls are right, and that management information is accurate and measuring the right things.

Specific information about the processes for your financial adviser services

You should answer 'what you do?' and 'how you know?' at a day to day, operational, level with specific information rather than with generic statements.

You should focus on the processes for financial adviser services. The key controls or management information used should be described for each activity (or in each section of the ABS).

It should be clear which senior management role is responsible for each area.

Four key focus areas

To demonstrate ongoing capacity and eligibility for QFE status, we expect you to have robust compliance arrangements in place, particularly in four key focus areas. We expect you to be clear about what you do and how you know it works in these areas:

Diagram: Key focus areas

Suitability (the advice or service processes) and competence are the foundations on which good financial adviser services are built - a robust process to match customers to suitable products, coupled with people with appropriate skills and knowledge.

There is often a balance between these two areas. For example, if your advice process is highly prescriptive, such as in a call centre, you might apply lower competence standards; but if your service is more principles based, for example designing an investment plan, then you will need higher levels of competence. Your ABS should reflect this balance.

Supervision and compliance assurance are key to your role as a QFE of ensuring compliance by your advisers. They explain how your QFE checks and tests that its systems and processes are appropriate and operating properly.

'Supervision' covers advice or service checking activities which are undertaken frequently within the business, often by a line manager or team supervisor or a quality assurance unit.

'Compliance assurance' covers checking and testing activities over all the systems and controls. Such activities are often carried out on a less frequent basis by a compliance monitoring unit, which is independent of responsible manager.

In practice, there may be a spectrum of testing activities, for example, including a quality assurance function. But they all help senior management to answer 'how do you know it works?' So they are a key part of FMA's interaction with your QFE.

We expand on these key areas later in the document. Information highlighted in boxes illustrates some of the better descriptions of processes and controls provided to us by QFEs.

Suitability

How do you know your advisers are consistently providing suitable opinions or services?

What do you do?

We expected you to provide a description of the advice processes in place for advisers, focusing on the elements that ensure any opinions have an appropriate basis and the customer is matched to a suitable product.

The processes and systems you have in place might vary by product type or adviser group. But for each key type, we were looking for:

The opinions that are given. Some QFEs felt they might not always be asked for an overall product recommendation, but might be asked for opinions on particular aspects of a product. It was helpful when this was clearly described.

The information advisers must collect from clients, and any standard forms and templates to help make this consistent. The key information is likely to reflect risks or benefits of a product type or option.

How the advisers use this information to provide the right opinions and identify the right products. For example, are there specific tools, scripts or software packages that aid the adviser? Clear, concise examples were provided by some, but not all QFEs.

Some descriptions of processes seemed focused on how the entity manages its own risk, rather than on the elements which ensure the opinion given is right for the customer. So a lender explained how it decided whether to lend, rather than whether the client should borrow. While there is a strong correlation, a QFE should bear in mind its consumer protection obligations.

Focusing on the key information

One QFE provided a list of the information advisers had to collect from the client. This included mandatory risk profiling and identification of the client's liquidity requirements in any investment advice discussion.

They had clear processes for how reports were to be presented and for what happened in situations where the client sought a variation to the report. Clients had to sign key documents to show the key information gathered was correct, before investment plans could be implemented.

But this QFE could also have improved the information on how risk profiles were matched to particular investments and its research approach.

Facilitating advice through automation

One QFE described how they used a highly automated process to reduce the risk of unsuitable insurance advice.

At an initial consultation meeting, the adviser uses an automated tool to analyse the client's financial exposure. The results of the analysis became a written report that included 'reasonableness' checks - prompts to remind the adviser to check whether the recommendations in the report made sense for the client. This was then used to guide a discussion with the client on the risks and how best to manage those.

The risk tool assisted, but did not replace, the adviser.

While most QFEs provided descriptions of their suitability advice processes, few provided a description of their Discretionary Investment Management Service or Investment Planning Service processes.

How do you know?

We also wanted to know how you ensure that the process is followed - the key controls over your advice process and any management information that you use. QFEs gave less information in this area, although some controls relating to supervision were described in that section.

Key controls might include:

checks that the prescribed forms and templates have been used in all cases

confirmation that quality reviews have been undertaken when required

analysis of management information on adviser recommendations

post sale calls to customers confirming that the process was followed and their understanding of the reasons for the advice.

For example, management information on products sold might show one adviser thinks one product is the most suitable for all their customers. Management information might also highlight cases where asset allocation does not appear appropriate to the customer's risk profile.

Reducing risk through automated controls

One QFE's system forced advisers to collect the information required. The system did not allow the process to proceed until all questions had been answered.

The system also restricted the changes that could be made to the customer information. This prevented advisers from encouraging customers to change their answers to generate a certain outcome - such as the sale of a loan. Where changes were made which put a customer outside the affordability criteria, an exception report was generated and investigated.

But this QFE also needed to focus more on advice, rather than credit controls.

Knowledge, skills and competence

How do you know your advisers are competent to provide financial adviser services?

What do you do?

Most entities understand that with new regulations, there is a greater emphasis on demonstrating competence.

Most QFEs gave a high level description of the training in place. But in some cases it was not clear how the training actually addressed provision of appropriate advice, or advice processes. For example, some ABSs stated only that advisers undertake a three day induction course or attend courses provided by product providers.

Attendance at training does not ensure a person is competent. Your training should have clear learning objectives and a documented approach to ensuring those have been met. So one thing we particularly looked for was that training was assessed.

Focusing on key elements of training

One QFE set out an overview of the five modules of their adviser induction programme, with a brief description of each. Two modules clearly included the advice processes, another products, and another compliance obligations. Some modules indicated additional CPD to be completed in the first 12 months.

The overview showed four assessment points during the induction.

QFEs are expected to set competence standards. These are usually expressed in terms of objectives or activities that a competent adviser will be capable of. So a person might be assessed against the objectives and be competent although no recent training has been undertaken.

Competence standard for Category 1 products

If your advisers sell category 1 products, you must be able to show how your QFE's competence standard compares to that of the Code of Professional Conduct for AFAs - the 'if not, why not' analysis.

One QFE provided a simple table showing which training objectives in its internal programmes mapped to the unit standards in the National Certificate in Financial Services (Financial Advice) Level 5. In some cases, the QFE believed the unit standard wasn't relevant because of the very limited nature of its category 1 product ('non-bank' term deposits). So it explained the internal standard and why this standard was more appropriate.

This QFE also compared other training to external standards set by the New Zealand Qualifications Authority. The QFE could clearly show the competence standard expected.

QFEs often focused on induction training. But once advisers have met your standards, how do you monitor and assess competence on an ongoing basis? How do you ensure that they keep up to date with both external changes, for example, products or regulatory requirements and internal ones, for example, processes? These areas need to be described as well.

How do you know?

Generally QFEs provided less description of the management information and controls they had in place to ensure advisers were competent. You will be expected to answer questions such as:

Can you extract a report that shows the standard each individual adviser has currently achieved?

Do you know how many advisers have missed training and whether they are being followed up?

Do you know who doesn't meet your competence standard and the controls that have been put in place to ensure that they give suitable advice?

What do complaints tell you about adviser competence?

What information do you rely on to know that your training is effective?

You also need to describe how you use information from controls to ensure your competence standard is consistently achieved. So analysis of management information should be used to revisit training needs for the adviser force, improve training design and delivery and adapt assessment.

Supervision

Supervision is the test of how you know whether advisers are doing what they should be.

What do you do?

We expected you to describe your supervision processes. In this area there was some confusion about who a supervisor was. The 'supervisor' we refer to is the person, or team, in your organisation who is specifically monitoring and supervising that the adviser is following the processes and delivering the right outcomes for customers. This might not be the adviser's direct supervisor, manager or team leader.

In general we needed to follow-up with QFEs to better understand how their supervisory processes worked. So we were looking for answers to questions such as:

What do you require your supervisors to do and check? This is not about describing all the day to day duties of a front line supervisor or team leader - just those relevant to checking the financial adviser services.

What tools do you provide? For example checklists, sample client files showing good practice?

How often are supervisors required to make the checks? If there is a risk based approach, what do you see as the key risks?

What management information do you provide to allow supervisors to target relevant areas?

Several QFEs described how working in an open plan office is conducive to the pro-active supervision of advisers. But in those situations it was not clear whether the supervisor was taking an active, planned approach - or whether the supervisor's activities checked the opinions given or financial adviser service provided.

Risk based approach

One QFE explained a risk based approach. All advisers are assessed at least once a year, with more frequent reviews based on volume and type of business and for advisers with lower quality scores from previous reviews.

But this QFE could have improved the file selection approach for lower risk advisers. Files selected were always those above a certain investment value. Advice to clients with less to invest was never checked.

Outside the process, the competence requirements for supervisors were often not explained. For example, was supervisory status a reward for sales performance? Did supervisors have to pass training courses on supervisory processes? Was their performance in their supervisory role assessed?

How do you know?

The management information on, and the controls over supervisors were not always clear. So we were looking for answers to questions such as:

What are supervisors required to do with the results of their checking?

How does this feed into your management reporting? And who does this go to?

How do the results feed into training, advice processes and product development?

If customers have not been provided with suitable advice, how is this put right for the customer?

Results of supervision

One QFE provided management information on the number and percent of files and number of advisers who had been subject to quality assurance over a year. A chart was provided showing reasons why advisers had failed quality assurance and the number for each reason.

Results were collated and discussed monthly at compliance and business risk meetings. Because the vetting was against standard criteria, the organisation could see the specific areas advisers were slipping up on - for example, risk profile analysis incomplete. They could then put in place targeted training and communication initiatives to address the issues with all advisers, as well as the individual advisers concerned.

Compliance

At the compliance assurance level, you should be able to show how you check and test that all of the controls relied on are robust.

FMA expects your senior management to provide a clear description of the processes that give them assurance that your QFE complies across all its responsibilities - and that everything described in your ABS actually delivers compliance in practice.

What do you do?

Most entities were already aware of the benefits of compliance controls and monitoring. Many could describe the tools they use, such as self-certification, compliance monitoring and mystery shopping. They could generally describe who would take on this role. Examples ranged from full time compliance teams or officers in large organisations, to a director (who is independent of sales) taking on this role in smaller organisations.

There are also some good practice guidelines or regulatory processes that some QFEs already follow - for example, the 'three lines of defence' model and the Reserve Bank's operational risk requirements.

But what was less clear was how QFEs were using their compliance controls to test financial adviser service processes.

QFEs often described a framework within which compliance operates, but concentrated on reporting on controls by management, rather than on independent testing, for example by a compliance monitoring team.

They tended to focus on operation of existing processes and controls, rather than ensuring that these were properly designed to monitor and control the outcomes.

For example, rather than just monitoring that supervisors sit in on client interviews (the operational process), your compliance assurance needs to consider what they are checking when they sit in on the interview and whether this includes the outcome of the advice process (ie whether the design is right).

Compliance framework and reporting description

One QFE explained a framework that included:

A compliance plan for each business area, including documentation of obligations, risk profile, key controls and a monitoring program including testing. This plan was the responsibility of business management

A central aggregated plan including testing of high risk controls by a central team

Reporting by business management including self assessment, including the results of testing and breach reporting

Approval of the central plan by a risk committee and escalation of significant testing results through reporting to the committee.

But this QFE also needed to explain the areas regarded as key risks and indicate frequency or approach to testing these.

Creating a work plan

When processes are brand new it can take time to identify the best way to challenge and test them.

One QFE had created a work plan that identified and categorised the types of advice risks. They had identified a person who would be reviewing the risks and mapped out a timeline for the work.

The work plan was submitted to the governing body for signoff along with a template for the findings of the initial compliance review.

How do you know?

QFEs were clear about the governance bodies that would approve the plan and the ABS, and who would receive compliance reporting. But the content and frequency of reporting, including the monitoring of remedial action was less clear, as was the responsibility for monitoring progress against the plan and deciding on any revision of monitoring priorities.

When preparing the ABS in mid 2010, many QFEs were in the early stages of planning their compliance monitoring. We now expect you to have implemented your compliance monitoring plans, so that you are carrying out your QFE role.

Over time, we expect many of our discussions with you to start with, or include, compliance monitoring and its results. Demonstrating robust compliance monitoring will allow FMA to reduce its own surveillance activities with your entity - so that you can maximise the efficiencies of being a QFE.

Other areas

While this feedback summary concentrates on four key focus areas, there were two more where you should ensure you are clear about what you do and how you know it works.

Entity level conflicts

QFEs were very aware of the potential conflicts of interest that might arise from the way their advisers are remunerated. In asking about entity level conflicts, we were looking for matters which might influence senior management in an entity, which in turn might influence the culture and put other pressures on adviser behaviour.

Some QFEs did identify the receipt of commissions by the entity as a potential conflict, which might influence senior management. Few product providers identified their product role as a potential conflict, of which they needed to be aware. And few QFEs commented on remuneration for senior management, particularly those in sales roles.

You should be able to identify potential entity level conflicts of interest, as the first step to ensuring they are appropriately managed or taken into account.

Disclosure

Now that disclosure regulations are in place, FMA is likely to ask for updated information about your approach to disclosure.

In addition to how you meet the requirements, we will focus on how your disclosure assists retail clients in making informed decisions about whether to use your services and whether to follow the advice received (section 3 of the Act). We will be looking for disclosure which is easy to understand and provided at a time when it is relevant to the customer.

Guidance Notes

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The approach FMA takes to interpreting various requirements under legislation.

Links to topical guidance on other pages

Who Needs to Comply?

Does the Financial Advisers Act apply to investment property consultants?

How to Get Licensed

Competence alternatives and the eligibility sunset

Your Obligations

Monitoring and Surveillance

Guidance Note: Good Character and Criminal Convictions: Financial Advisers Act 2008

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This guide describes the Commission’s process and policies for the assessment of the character of applicants for authorisation.

March 2011

This guidance note explains the approach taken to assessing the character of applicants for authorisation. It is intended to answer some commonly asked questions in relation to good character as well as to provide further guidance on the information applicants need to provide in relation to criminal convictions.

Monitoring feedback and tips

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Monitoring feedback and tips

On the basis of early monitoring reviews (May-October 2011), FMA has developed the following hints and tips for AFAs.

They provide examples of the behaviours, information and processes we will be looking for in our monitoring reviews. Please note, they do not cover all aspects of an AFAs obligations.

Please also see the AFA Monitoring Reports.

Advice or service

What's more important - process or outcome?

FMA will look whether the advice or service provided was suitable for the client. We have asked advisers to justify the outcome - and to revisit and amend for the client where the result doesn't appear reasonable.
To do this we look at electronic and paper-based documents - so if there is no process or little documentation, it's difficult for FMA to judge whether advice is suitable.
But we see process as a means to the end - not the end. Having a suitable client outcome is the end point.
Fact-finding notes
- Write it down. Make sure you've documented how you got to the conclusions you reached for your clients.
- Remember fact-finding applies to existing clients too. File notes about how you've kept up to date with their situation and why you've made changes are important.
Advice processes
- Explain the processes you follow. If you follow a 'six-step advice process' what does that mean in your business - that is what practical steps do you take to perform each step?
- Show how you vary your advice process for different types of products and client circumstances.
Written records of advice (Statement of Advice)
- Make sure your 'Statement of Advice' clearly shows your client what's been recommended - and why.
- Use language your client will understand to explain what has been recommended
- Make sure you understand what you're recommending
- Describe both the benefits and risks
- Don't bury fund fees and fund details in technical appendices - costs are important to your client and to your advice
- Where advice is given to switch, clearly quantify the costs and benefits of disposing or retaining. You are probably providing advice on the sale as well as the purchase.
- Make it clear who the client is when giving advice to a trust
- Make sure that if you limit your advice you clarify exactly what you will do and won't do.
Ongoing service
- As above - document what you do
- Make sure that if most of your business is existing clients, your ABS reflects this eg describe advice process for existing clients, not just new clients
- For Discretionary Investment Management clients, record sufficient information to show how your decisions under the client mandate and implementing those decisions have been suitable for your client
Risk
- Make sure your client understands the risk profile they've been assessed as and what this means for the investments you recommend. A tip: make sure your client understands the risk profile options and terminology you use, for example, they need to understand that 'balanced' is more risky than 'conservative' and less than 'growth' if these are the terms you use
- Sense check the results provided by risk profiling/tolerance tools - can your client actually afford the risk the tool has described? Are there glaring differences in the answers a client provides on different questions?
- Make sure any risk tools you use are based on factors suitable for a client's situation

Competence

Show how you've identified what is required to maintain your competence, including maintaining up-to-date product knowledge
Describe how your structured and unstructured training opportunities are relevant (eg is attending an association roadshow relevant for your needs?)
Use your PDP to describe what your current development plans are. Use your ABS Competence section to describe how you develop your PDP.

Products and services

Financial adviser services
- In your ABS, describe the services you most frequently provide or specialise in
- If you're not currently providing a service you're registered for, just note this in your ABS. But it must be referred to.
Products
- In your ABS, go beyond describing your products as just 'category 1 and category 2' products. Describe the types of products and services and approximate proportions of work you do in each to make it clear the areas you are active in. Your processes need to address different product types
- Check back against the descriptions and terminology in the Financial Advisers Act. For example 'Broker' and 'Discretionary Investment Management' have specific definitions in the Act. That's what FMA will be monitoring against.

Disclosure

Tailored secondary disclosure documents are essential. Explain how and when these are provided to clients, so they understand the cost of the advice.

Complaints

Check the processes you describe are what's required in Code Standard 11

Conflicts of interest

Make sure you recognise and consider all types of conflicts of interest
Commission payments are one potential conflict of interest, but potential conflicts also occur with fee based models based on funds under management - for example the adviser benefits if the client invests, and the more invested, the bigger the 'benefit'.

General tips on Adviser Business Statements

If you're using a template, make sure you personalise it to what you actually do. And don't leave in example text that describes services you don't provide or processes you can't demonstrate.
Remember, what we are looking for is a clear picture of how you meet your obligations as an AFA

Qualifying Financial Entities

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FMA monitoring and surveillance work with QFEs

See FMA's Compliance Focus for 2013.

FMA monitoring and surveillance work with QFEs is:

risk-based - taking into account information on the nature, scale and extent of the business and the compliance controls; QFEs that only comply with the letter rather than the spirit of the law may be assessed as higher risk

targeted - based on information received

theme-based - eg. researching a particular service, or exploration of a potential industry approach or problem.

FMA's monitoring of a QFE will typically start with discussions with senior management and the QFE's own compliance monitoring team. We will start with the question, 'How do you know your compliance arrangements work?' The robustness of a QFE's compliance monitoring will be a key factor in the amount of surveillance undertaken by FMA. We may also conduct on-site visits and interview other management and staff.

Work focuses on the QFE's capacity to ensure compliance by its advisers. The current focus for QFE monitoring will be on four key areas:

suitability

competence

supervision

compliance assurance.

In addition, FMA will continue to explore entity-level conflicts and disclosure.

Our expectations in these areas are covered in the QFE ABS Guide and in a summary of feedback from the application process (which can also be downloaded in PDF format below).

FMA's current monitoring and surveillance activities for QFEs include:

discussions on issues identified

reviewing arrangements when notifications are received; we expect QFEs to be able to describe how capacity will be maintained when a business or processes change

review of QFE Annual Reports, including revised Adviser Business Statements

following up complaints or queries received about QFEs.

We have already engaged with a number of QFEs about:

the impact of acquisitions

training for category 1 QFE advisers

compliance assurance plans.

Authorised Financial Advisers

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FMA selects AFAs for monitoring reviews

See FMA's Compliance Focus for 2013.

FMA selects AFAs for monitoring reviews in one or more of the following ways:

random selection

risk-based - including the nature, scale and extent of the AFA's business

targeted - based on information received

part of a theme, eg researching a particular service, or exploration of a potential industry problem.

Monitoring activities include a mix of desk-based research (investigating complaints, checking websites, and reviewing documents, eg. Adviser Business Statements, professional development plans), phone discussions and office visits. We may also use mystery shopping.

FMA's current monitoring and surveillance activities for AFAs include:

following up complaints or queries received about AFAs

proactively checking through web-based research that those who've applied but are not yet AFAs are not offering AFA services

review of AFA Adviser Business Statements

office visits to AFAs.

Our expectations in these areas are covered in the AFA ABS Guide and in the AFA monitoring feedback and tips outlined below.

FMA's AFA monitoring reports on how AFAs are complying with their legal obligations can be found here.

What AFAs can expect if we request an ABS

If you receive a request to submit your ABS, you will be expected to submit this promptly.

You will receive a fact sheet explaining how the review will work and the likely outcomes. These may include:

a letter advising that no further review is required at this stage

feedback about how to improve your ABS; we may or may not ask you to submit it to us again once changes have been made

a request for a formal interview by phone

a visit (see below).

What AFAs can expect if we visit

In most cases, we will contact you to find a convenient time to visit. The monitoring review is about your compliance - so other members of your team cannot substitute.

You will receive a fact sheet explaining how the visit will work and what we will need you to prepare. You will usually be asked to supply your ABS in advance of the visit.

During a visit, we will review your compliance with your obligations, and check you are operating in accordance with your ABS. We will also consider whether the advice or service provided was suitable.

In accordance with Standard Condition 4, you need to have available all business records pertaining to your financial adviser business so that we can complete this review. This may include your client files, your systems and procedures, your disclosure statements and your competence records.

Once the visit is over, we will let you know the outcome of the review and whether any further information or work is required.

AFA monitoring feedback and tips

AFAs should consider the following tips:

show us you understand how to meet your obligations under the Acts and the Code, eg.

   o    clear marketing materials that wouldn't mislead a customer
   o    simple disclosure statements that follow the prescribed format (primary disclosure) and the intent of the regulations (secondary disclosure)
   o    an ABS that is specific about what you do and demonstrates how you address possible risks for your clients

help us to see how you put your client first

keep up to date with any feedback we've issued

take a constructive approach

be proactive, eg volunteer relevant additional information in answers.

See the monitoring feedback and tips page for more details

Monitoring visits and Standard Condition 4

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Standard Condition 4 requires AFAs to make available their business records, including client files, for FMA’s inspection at any time.

Standard Condition 4 requires AFAs to make available their business records, including client files, for FMA's inspection at any time. FMA will generally rely on this for its routine monitoring activities.

To facilitate this AFAs should explain to clients they are subject to regulation including monitoring by FMA, and obtain their clients' authorisation to the release of their personal information to FMA.

Where AFAs have not yet obtained client authorisation, and cannot meet their obligations under Standard Condition 4, FMA may decide to use its powers under section 25 of the Financial Markets Authority Act 2011 to require an adviser to supply FMA with information, documents or evidence. In this case, section 7 of the Privacy Act applies so that clients' consent to the release of their personal information is not required.

Any client information held by FMA will be held securely.

Inspection of records is a standard function of any regulatory body and gives the public more certainty professional standards are being upheld.

Monitoring the perimeter of the financial adviser regime

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RFAs, AFAs, QFEs and their advisers operate within the financial adviser regime.

RFAs, AFAs, QFEs and their advisers operate within the financial adviser regime. But with laws implemented on 1 April 2011 and 1 July 2011, a number of providers may still not have taken the necessary steps to be registered or authorised. Others may be hoping they can continue to operate illegally without being noticed. We refer to these people as trying to operate outside the 'perimeter' of the regime.

FMA's current monitoring and surveillance focus for perimeter providers is as follows:

encouraging the public and other advisers to report providers who may be operating outside of the rules

following up complaints or queries received; consequences for non-registration or false advertising are serious (up to 12 months in jail or $100K fine) so we need to do a thorough investigation

proactively checking those who advertise financial adviser services are registered through web-based research; other tools at our disposal include mystery shopping, visits and reviewing documents.

We have also made clear to product providers and professional associations that we expect they will put in place systems to ensure they are distributing their products only through registered and/or authorised advisers.

Financial adviser businesses (non-QFEs)

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FMA’s monitoring and surveillance activities for organisations who employ financial advisers but that are not QFEs

FMA's monitoring and surveillance activities for organisations who employ financial advisers but that are not QFEs:

encouraging the public and other advisers to report providers who may be providing personalised advice services through unregistered or unauthorised employees

enquiries to product providers about how they ensure they are not encouraging illegal activity by unregistered or unauthorised advisers, eg. we have queried reference to 'independent' advisers by a product provider.

We have also made clear to all product providers that we expect they will put in place systems to ensure they are distributing their products only through registered and/or authorised advisers.

Registered Financial Advisers

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FMA’s current monitoring and surveillance activities for RFAs

Many RFAs have previously offered advice on what are now deemed category 1 products. Our current monitoring and surveillance focus for RFAs is to check whether RFAs are still providing these services, which can now only be provided by AFAs.

FMA's current monitoring and surveillance activities for RFAs include:

encouraging the public and other advisers to report RFAs who may be offering category 1 products and services, or operating without care, diligence and skill

following up complaints or queries received

proactively checking the advertising of a random sample of RFAs through web-based research; other tools at our disposal include mystery shopping, visits and reviewing documents.

Monitoring and Surveillance

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How we monitor, and our current focus for each adviser type and for those on the perimeter of financial advice and services.

See FMA's compliance focus for 2013.

FMA monitors that financial advisers are complying with their obligations. We also monitor the activities of providers on the financial services 'perimeter' to ensure they are not providing services that should only be provided by financial advisers.

Monitoring and surveillance activities encourage compliance by all advisers. They help to ensure a level playing field for advisers and will inform our development of policy and guidance.

We look at whether the actions of advisers are achieving the objectives of the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act.

We are particularly interested in the outcomes for customers and the approach taken to providing financial adviser services - processes, materials and how financial advisers operate.

If we do encounter a problem, we will generally work directly with the adviser to help them meet the required standard. However, we may also take action including enforcement action when standards fall below the required level.

Find out about our current monitoring and surveillance activities for:

the perimeter of financial adviser services

Financial Adviser businesses (non-QFEs)

Registered Financial Advisers

Authorised Financial Advisers

Qualifying Financial Entities and QFE advisers.

Care, diligence and skill examples

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Care, diligence and skill examples

The obligations to exercise care, diligence and skill and not act in a way that is misleading, deceptive or confusing apply to all people who provide financial adviser services.

These examples show how we consider these obligations apply to:

Advice on insurance including payment protection insurance
Product replacement advice - for example, replacement of insurance policies or debt consolidation

In general, when providing advice, advisers must:

Assess the product's suitability for the client's needs
Explain the key features and any limitations of the product to the client
Clearly articulate any limitations on the service being provided

In addition advisers should keep records demonstrating how they have fulfilled the care, diligence and skill requirement in providing advice, and how they have disclosed and managed any conflicts of interest arising from commissions or their remuneration. AFAs also have specific conduct and record-keeping requirements under the Code of Professional Conduct.

The information below show how these general principles apply in insurance and product replacement advice. The examples are not intended to be exhaustive comments on compliance with the 'care, diligence and skill' obligation.

Insurance advice

Insurance advice must be balanced - providing a clear explanation of both the benefits and the exclusions or limitations of the product's cover.

For personalised advice, consider the eligibility of the client for the product and the suitability of the product for that client.

For example, FMA expects an adviser to identify the key exclusions and limitations relevant to the client and to highlight these. An adviser may not be able to address all exclusions or limitations in a policy, but should at least consider the client's needs, unusual features of the product and any information on common reasons for claims rejections.

Payment protection insurance

If providing insurance advice in conjunction with another product, advisers providing personalised advice should establish whether the client needs the insurance. For example, for payment protection insurance on a loan, this will be more than the fact a client has a loan.

If the payment protection premium is to be added to the loan, as a minimum, the total cost of adding the protection insurance to the loan must be taken into account and explained to the client.

Product replacement advice

When advising a client to replace an existing product with a new one, an adviser should consider whether s/he is giving (or the client might reasonably expect the adviser is giving) an opinion on the disposal of an existing product, as well as the purchase of a new product.

For personalised advice, the adviser should:

Make an appropriate comparison of the client's existing arrangements with the new recommended product. This will require knowledge of the terms of the client's existing product. The comparison should be clear, reasonable and balanced. It should not just focus on the benefits of changing, for example, "the new product is cheaper". Highlighting only the benefits could be misleading.
Or, if no comparison is made, inform the client of the limited scope of the service. The adviser should explain that no comparison has been made, the types of adverse consequences which might occur as a result of changing products and that the specific consequences for the client have not been considered.

For AFAs, these points will assist with compliance with the Code requirements, including those relating to suitability and limitations on the service (Code standards 8 and 10).

Insurance replacement

If recommending replacement of an insurance policy, the comparison should include:

the material differences in the policies relevant to the client, including any loss of benefits such as value or type of cover
the specific adverse consequences of changing policy or provider.

The adverse consequences might include:

a reduction in cover, for example due to a change in the date from which pre-existing medical conditions or property subsidence will be excluded
the amount of fees charged to cancel the policy
a specific period of reduced cover, for example 'redundancy cover will not be available for the first three months'.

If no comparison is made, the general types of adverse consequences above should be considered in explaining the limited scope of the service.

In considering whether suitable advice has been given, we will consider the frequency with which an adviser recommends that a customer replace a product. For example, we might expect that one year policy will only be renewed or replaced annually, unless there is a significant change in the client's relevant circumstances.

Debt consolidation

In deciding whether to recommend a product change, advisers should compare the total cost of the credit as well as the repayment instalment amount and should draw both to the client's attention.

Other elements of the comparison should include:

any material differences in the credit terms relevant to the client, including any changes in the security required for the credit
the specific adverse consequences of changing the credit agreement.

Adverse consequences might include:

a higher cost over the whole life of the new loan, although each repayment instalments is lower
fees or additional costs for early repayment of the credit.

If no comparison is made, the general types of adverse consequences above should be considered in explaining the limited scope of the service. For example, "replacing a shorter loan with a longer loan lowers the repayment instalments, but as it takes longer to repay the loan, it will cost more in total".

Advertising

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A financial adviser must not advertise a financial adviser service in a way that is misleading, deceptive or confusing.

A financial adviser must not advertise a financial adviser service in a way that is misleading, deceptive or confusing. This is in addition to the general requirement that a financial adviser's conduct in providing a service must not be misleading or deceptive (See sections 35 and 34 of the Financial Advisers Act).

These general obligations apply to all financial advisers including registered financial advisers.

As well as traditional forms of advertising (for example, radio, press, TV advertisements), advisers also need to consider whether messages on websites, business cards, signage and other communications might be seen as an advertisement. This will depend on the particular wording involved and message conveyed.

Find out more about:

RFA advertising
AFA advertising
QFE advertising

How can registered advisers use the term RFA or registered financial adviser in advertising?

There is no prohibition in the Financial Advisers Act against advisers using the term registered financial adviser or RFA. FMA uses the term and its acronym to distinguish between the different types of advisers and the Disclosure Regulations require RFAs to tell clients they are 'a registered but not authorised financial adviser'. Referring to these distinctions helps clients understand the type of adviser they are dealing with and the types of services the adviser is permitted to provide.

However, advisers should not imply that being a registered financial adviser means FMA has licensed, approved or endorsed that adviser. To make or imply these connections could be misleading and confusing for clients.

Advisers should also take care in the way they use the designation RFA, so they do not imply that RFA status is a professional qualification or that it has any minimum competence requirements attached to it. To make or imply these connections could also be misleading and confusing for clients.

For example:

a letterhead or advertisement that reads 'John Adviser, BCom, R.F.A, A.C.A' may imply to a client that RFA is a qualification or professional status the adviser has attained.

AFA advertising

AFAs have additional obligations relating to advertising.

Under AFA Standard Condition 7 AFAs must not at any time state or imply FMA has endorsed or approved the AFA's business, advice, or solvency, or any other agreements or business arrangements.

However this does not prevent AFAs from factually disclosing or otherwise representing they are an AFA. For example, AFAs can display their AFA certificate on an office wall or website or state on business cards that they are an AFA.

AFAs must also state on advertisements for financial adviser services that a disclosure statement is available, on request and free of charge. (Section 30 of the Act and the definition of advertisement at section 5) .

QFE advertising

QFEs also have additional obligations relating to advertising.

Under QFE Standard Condition 5, QFEs must not at any time state or imply FMA has endorsed or approved the AFA's business, advice, or solvency, or any other agreements or business arrangements. However QFEs can factually disclose or otherwise represent that they are a QFE.

QFEs also need to ensure their QFE advisers do not use that term in a way that is misleading. This could include, for example, representations that the QFE adviser is licensed or approved by FMA or that the QFE adviser is permitted to provide services that are not within the remit of the QFE's grant of status.

Registered Financial Adviser Entities (non-QFE)

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Registered Financial Adviser Entities (non-QFE)

Entities providing financial adviser services must:

act with care, diligence and skill (s33)
not engage in misleading or deceptive conduct (section 34 of the Financial Advisers Act 2008)
ensure the individual advisers providing advice on their behalf, follow disclosure obligations when providing personalised advice to retail clients.

Entities providing financial adviser services need to be registered on the Financial Service Providers Register. Find out how to register.

Entities need to annually renew their registration on the Financial Service Providers Register and notify the Registrar of changes. They must be a member of a dispute resolution scheme, if providing services to retail clients.

Registered entities are generally subject to the same range of enforcement actions that may be taken by the Financial Markets Authority against individual RFAs under the Act. The Registrar may also deregister entities in certain circumstances.

Disclosure Obligations

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Disclosure Obligations.

If you provide a personalised service to a retail client, you must disclose certain information.

The principle behind disclosure is to provide the essential information your client needs to make an informed decision. It must not be misleading, deceptive or confusing.

Any additional information you decide to provide to a client must not be misleading, deceptive or confusing either. For example, if you decide to provide accompanying information about your qualifications, make sure your client understands the relevance to the service they are considering.

Disclosure must be made before the advice or service is provided, or if that is not practicable, as soon as practicable after the service is provided (Financial Advisers Act 2008 section 22(1)).

Disclosure obligations are set out in the Financial Advisers (Disclosure) Regulations 2010.

AFAs also need to comply with Standard 7 in the Code of Professional Conduct for AFAs, which may require additional information to be provided to clients.

QFEs are subject to additional requirements set out in a QFE's standard conditions.

RFA disclosure statement and AFA primary disclosure statement
AFA secondary disclosure statement
Joint disclosure statements
AFA advertisements and disclosure
Disclosure for telephone advice
Disclosure when an adviser acts on behalf of someone else
Further assistance and reviewing disclosure statements

RFA disclosure statement and AFA primary disclosure statement

RFA disclosure statements and the AFA primary disclosure documents must follow the prescribed format outlined in the regulations. This makes it easier for consumers to compare the services being offered by different advisers.

The explanatory notes that make up part of the regulations provide a starting point for understanding the requirements. You may not add any information to the prescribed form other than unobtrusive information such as a corporate logo. In addition you should note the following:

Use your legal name which should be the same name listed on the Financial Service Provider's Register. This ensures a client can easily check details on the register.
You must provide the document to your client in person or send it by email. You cannot just post it on your website or provide a link to the website. Links may break and if you update your disclosure statement your client won't have access to the version that applied at the time you provided advice.
Your statement can include an electronic signature so long as such a signature meets the requirements of the Electronic Transactions Act 2002. These include requirements such as the signature adequately identifying the adviser and the person receiving the disclosure document consenting to being given a document with a scanned signature. Please see the Electronic Transactions Act for detail on the requirements.
You cannot provide a joint disclosure statement with another adviser. Although the Act refers to joint disclosure, regulations to enable this are not in currently in place.

AFA secondary disclosure statement

The intent of the secondary disclosure document is to describe the specific nature of the products and services you are recommending to your client. You should do this clearly and concisely and in a manner that brings the required information to the attention of your client.

The information that needs to be disclosed is set out in the regulations. In line with Code Standard 7, you should also consider whether any additional information should be provided to help your client make an informed decision about investing.

The secondary disclosure statement does not have to contain all the products and services an AFA is able to provide (along with the related information) if this would result in a lengthy and confusing document for clients.

It must, however, contain the information that is relevant to the products and services to be provided to the particular client.

The secondary disclosure may be made in one or more documents. This flexibility can help an adviser choose the best way to make the information available to the client.

Joint disclosure statements

You cannot provide a joint disclosure statement with another adviser. Although the Act refers to joint disclosure, regulations to enable this are not in currently in place.

AFA advertisements and disclosure

If you're an AFA, advertisements about your financial adviser services must state a disclosure statement is available, on request and free of charge (see section 30 of the Financial Advisers Act).

Disclosure for telephone advice

You cannot provide a telephone disclosure for Category 1 products.

For Category 2 products, you do not have to give a disclosure statement when personalised advice is given via telephone or video conference if certain information is provided orally before the advice is given. This information is:

That you are an AFA/RFA/QFE adviser
The name of your dispute resolution scheme
That you can provide full disclosure if the client requests it
Anything else FMA has specified in terms and conditions for AFAs and QFEs

You can give this information directly, by way of a pre-recorded message, or by other electronic means.

Disclosure when an adviser acts on behalf of someone else

If you are acting on behalf of another person, for example your employer, you still have disclosure obligations. See our guidance question and answers for more information on this area.

Further assistance and reviewing disclosure statements

As the regulator, we cannot provide definitive advice on how legislation applies to individual circumstances so we cannot review individual disclosure statements. We expect professional advisers to be able to form their own views and take advice where necessary, but we will assist by publishing explanatory material such as this web page.

From time to time, we may ask to see individual advisers' disclosure statements as part of our monitoring, or if there has been a complaint about an adviser.

For more information about disclosure statements:

read the explanatory notes to the disclosure regulations
talk to your professional body
seek legal advice.

Reporting and Notification Standard Conditions for Qualifying Financial Entities

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Reporting and Notification Standard Conditions for Qualifying Financial Entities (December 2010)

These reporting and notifications obligations relate to Sections 1 and 2 of the standard conditions. The Financial Advisers Act allows FMA to change these from time to time during the period of QFE status, subject to appropriate consultation (s147A and B).

The reporting and notification standard conditions below came in force on 20 January 2011 and were updated in March 2012 to reflect the change to FMA.

QFE Standard Conditions: Explanatory Notes

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QFE Standard Conditions: Explanatory Notes

The following explanatory notes are intended to assist QFEs in interpreting and complying with the Standard Conditions in practice in their financial adviser services. They were originally issued in February 2011 and were updated in March 2012 to reflect the change from Securities Commission to FMA.

The conditions follow a principles-based approach. This is intended to assist QFEs in seeing the substance of the requirement. FMA expects a QFE to take into account the objectives of the Act in interpreting the requirements in the context of its business.

FMA may refer to these explanatory notes in discussing matters with QFEs.

Who Is a QFE Responsible For?

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Who is a QFE Responsible For?

A Qualifying Financial Entity (QFE) is responsible for the conduct of all of the financial advisers it employs.

A QFE can also take responsibility for advisers who are not its employees. These may include:

Nominated representatives - where a QFE nominates a person to provide financial adviser services on its behalf
Employees of associated entities - where a QFE applies to the Financial Markets Authority to approve the addition of one or more entities as associated entities of the QFE.

All of the advisers that a QFE is responsible for, including those it directly employs, nominated representatives and advisers in associated entities, fall into one of the following two groups:

QFE Advisers - individual advisers who are not Authorised Financial Advisers (AFAs)
AFAs - individual advisers who are registered on the Financial Service Providers Register and authorised by FMA. AFAs are individually accountable for their own behaviour and compliance with the Code of Professional Conduct for AFAs, and the QFE is also directly accountable for their conduct.

The QFE is responsible for the sound delivery of financial adviser services by its financial advisers and encouraging their professionalism and integrity. A QFE must ensure that its financial advisers comply with the obligations of the Financial Advisers Act 2008. It is accountable for the advice they give, whether they are authorised or not. The QFE sits between FMA and its advisers and is responsible for ensuring that they meet and maintain appropriate standards.

When applying for QFE status an entity must specify the procedures it has in place to train its advisers, demonstrate how it sets standards for advisers and how it monitors those standards.

What responsibility does a QFE take for its nominated representatives?

A QFE is responsible for ensuring compliance by each nominated representative with the terms and conditions of the grant of status (see section 76 (1) (a)) and is further responsible for ensuring compliance with each nominated representative's financial adviser obligations (section 76 (1) (d)). A QFE takes full responsibility for all of the financial adviser services provided by nominated representatives. It should take this into account in considering any nomination of an adviser particularly if it is contemplated that the adviser may provide services other than on behalf of the QFE, for example on their own behalf or for third parties.

Terms and Conditions for Qualifying Financial Entities (QFEs)

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Terms and Conditions for Qualifying Financial Entities (QFEs).

The Financial Markets Authority grants Qualifying Financial Entity (QFE) status subject to terms and conditions. The terms and conditions include standard conditions subject to any modifications FMA considers appropriate and terms and conditions specific to the QFE (if any).

View standard conditions and explanatory notes:

Variation of terms and conditions

Most terms and conditions will remain in place for the period of QFE status. The conditions may be varied during the period of grant of status in the circumstances outlined below.

Situation	Section of the Financial Advisers Act
On application by a QFE (if approved by FMA)	s75(1) and (2)
If they are reporting or accounting standard conditions. Changes are subject to consultation	s147A(3) and 147E
For other standard conditions, in limited circumstances, such as in response to an emergency. Changes are subject to consultation	s147A(3)(a) to (e) and 147E
If the business of the QFE has changed in such a way that there is a material risk to consumers; and/or the QFE or a member of the QFE group has been or is involved in market practices that are in material respects inconsistent with the purpose of the Act	s75(3)
On a QFE's default	s75D(2)(d)

If an entity applies to renew its QFE status, new terms and conditions may apply.

Standard Conditions for Qualifying Financial Entities

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Standard Conditions for Qualifying Financial Entities (December 2010)

Section 67 of the Financial Advisers Act 2008 provides that a grant of QFE status may be subject to terms and conditions and may also incorporate standard conditions.

The standard conditions below came in force on 20 January 2011 and were updated in March 2012 to reflect the change to FMA.

Standard Conditions for Authorised Financial Advisers

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AFAs are authorised to provide the financial adviser services specified in their individual Certificates of Authorisation, subject to terms and conditions.

The standard conditions for Authorised Financial Advisers (AFAs) were originally published on 28 October 2010. The version in the attachment below was updated in March 2012 to reflect the change from Securities Commission to FMA.

In addition, you can download a version of the Standard Conditions that incorporates explanatory notes.

Continuing Professional Development (CPD)

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Set out Code Standards 17 and 18 in the Code of Professional Conduct for Authorised Financial Advisers.

AFAs must meet certain minimum standards for continuing professional training.

These are set out Code Standards 17 and 18 in the Code of Professional Conduct for Authorised Financial Advisers.

The CPD requirements for AFAs are not prescribed in detail and are instead principles-based. This was supported by submissions made by industry and professional bodies during development of the Code.

An overarching principle of CPD is that an AFA has discretion to undertake and structure professional training that best meets their individual needs.

Summary and interpretation of principles

Hours not credits

CPD period

What is training?

Structured training

Unstructured training

Product training

Addressing CPD in your Adviser Business Statement

Summary and interpretation of principles

AFAs should refer to the detail described in Code Standards 17 and 18 as well as the Code's competence requirements in Code Standards 6(a) and 14 to 16, including the overarching requirement of Code Standard 14 that AFAs must have the competence, knowledge and skills to provide any financial adviser service.

In summary if you are an AFA you should:

identify for yourself the areas you need to focus on to improve your own competence, knowledge and skills in relation to your particular financial adviser services.

ensure the training you do maintains your competence at a level appropriate for the financial adviser services you provide or intend to provide

ensure the training helps you keep up to date with developments relevant to your particular practice.

In making these assessments, you should bear in mind the following:

a variety of subjects may qualify as CPD - provided always that the training is relevant to your needs.

the degree of difficulty that is acceptable can also vary, providing you are completing training relevant to your particular needs.

Hours not credits

The term 'credits' is not used in the Code. Rather, the Code requires AFAs 'in each CPD period to complete a minimum of 20 hours of professional development'.

You can interpret an hour of training usually to equate to an hour of CPD whether structured or unstructured.

You should not include periods where no active learning is taking place. For example, lunch breaks at seminars would not count as part of your CPD hours.

CPD period

In most cases, an AFA's first CPD period will start on 1 January in the year following the AFA's date of authorisation (see Schedule H of the Code). There is currently no pro-rating of CPD periods.

However in line with the intent and spirit of the Code, you should not delay training you have identified as necessary or desirable if your CPD period has not yet begun.

What is 'training'?

FMA's view is that training is specialised learning, whether self-directed or given by means of tuition by a third party. We will pay attention to the quality of training being offered and undertaken.

Structured training

10 of your 20 hours in each CPD period must be structured training.

'Structured training' is not defined except that to qualify, the training must be:

1.    part of the requirements for a qualification on either the National Qualifications Framework, or

2.    the national register of quality assured qualifications, or

3.    be part of a structured continuing professional development programme managed by a:

DAO, or

QFE or

professional body (as defined in Schedule H of the Code)

The Code does not define 'Continuing professional development programme'. It is up to DAOs, QFEs and professional bodies to consider whether their CPD programmes qualify as structured CPD programmes.

It is up to those bodies to decide whether their CPD programmes include features such as formal tuition or assessments, or are on-going. This will depend on the organisations' training requirements for their advisers.

AFAs who are not part of a QFE or who do not belong to a professional body can participate in a QFE or professional body CPD programme if offered.

Code Standard 18 requires third party verification of successful completion of structured training.

Unstructured training

Unstructured training is not defined in the Code. Under the principles of Code 18, you can claim any unstructured training as CPD, provided it is at a level appropriate for the financial adviser services you provide or intend to provide. It must also help you keep up to date with developments relevant to your practice.

There is no requirement that unstructured training must be provided by a New Zealand based training provider.

Financial product training

Financial product training may qualify as either structured or unstructured training. To qualify as structured training it must be part of a DAO's, QFE's or professional body's structured CPD programme.

Addressing CPD in your Adviser Business Statements (ABS)

You should address how you are meeting the Code requirements relating to competence, knowledge and skills including continuing professional development in your ABS.

Qualifying Financial Entities and QFE Advisers

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Obligations of Qualifying Financial Entities and QFE Advisers.

Qualifying Financial Entities (QFEs) must, during the period of their QFE status:

act with care, diligence and skill (see insurance and credit examples) when providing financial adviser services (section 33 of the Financial Advisers Act 2008)
not engage in misleading or deceptive conduct. Similarly advertising must not be misleading, deceptive or confusing (section 47 and 48)
comply with disclosure obligations when providing personalised services to retail clients
comply with the terms and conditions set out in the QFE's grant of status. The terms and conditions for QFEs include the Standard Conditions for QFEs, subject to any modifications made as part of the grant of QFE status, and the specific terms and conditions for the QFE
have and maintain an Adviser Business Statement
submit an Annual Report to the Financial Markets Authority. For more information see section 77 of the Act and terms and conditions for QFEs, particularly the Reporting and Notification Standard Conditions for Qualifying Financial Entities.

A QFE also has responsibility to ensure that members of its QFE group and employees and nominated representatives of the QFE Group comply with the terms and conditions of grant of QFE status and that employees and nominated representatives comply with their financial adviser obligations.

QFE advisers

An adviser who provides personalised adviser services to retail clients on category 1 products not issued or promoted by the QFE or a member of the QFE group must be an Authorised Financial Adviser (AFA). They will be subject to the obligations that apply to AFAs.

QFE advisers are not subject to the Code of Professional Conduct for Authorised Financial Advisers. However, their QFE must demonstrate that it maintains procedures to ensure that retail clients receive adequate protection. For services for category 1 products, FMA must consider whether the QFE's clients receive protection of a similar standard to that provided by advisers who are subject to the Code, taking into account their scope of products. See section 66 of the Act.

The standard of professionalism expected from QFE and non-QFE advisers doing similar work is the same.

Code of Professional Conduct for Authorised Financial Advisers

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Code of Professional Conduct for Authorised Financial Advisers.

May 2011

The Code of Professional Conduct for Authorised Financial Advisers (AFAs) applies to all AFAs from the date of their authorisation and while they remain authorised. It is also the benchmark for the conduct of Qualifying Financial Entities (QFE) advisers who are generally expected to demonstrate a similar standard of behaviour to AFAs for similar work.

AFAs are required to meet the minimum standards of professional conduct set out in the Code:

ethical behaviour: Code standards 1 to 5
client care: Code standards 6 to 13
competence: Code standards 14 to 18 and Competence Alternatives Schedule. This includes requirements for continuing professional training to maintain their competence and keep up to date with developments relevant to their business. AFAs must also maintain a professional development plan.

AFAs must comply with all applicable laws, whether or not referred to in the Code.

You can view the code on the legislation website or download a booklet version below. You can also order a printed copy of the booklet version by contacting us.

Terms and Conditions for Authorised Financial Advisers

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An Authorised Financial Adviser must comply with the terms and conditions of authorisation, detailed on this page.

An Authorised Financial Adviser (AFA) must comply with the terms and conditions of authorisation which will include:

Standard Conditions subject to any modifications that the Financial Markets Authority considers appropriate
terms and conditions specific to the AFA

The Standard Conditions include requirements for the AFA to maintain an Adviser Business Statement, provide an annual confirmation and to notify FMA of significant matters.

See the Standard Conditions.

Variation of terms and conditions

Most terms and conditions will remain in place for the term of the authorisation. The conditions can only be varied during this time in the circumstances outlined below

Situation	Section of the Financial Advisers Act
On application by an AFA (if approved by FMA)	s55A(1) and (2)
If they are reporting or accounting standard conditions. Changes are subject to consultation	s147A(3) and 147E
For other standard conditions, in limited circumstances, such as in response to an emergency or where necessary to avoid the defeat of the purpose of the Financial Advisers Act. Changes are subject to consultation	s147A(3)(a) to (e) and 147E
If the business of the AFA has changed in such a way that there is a material risk to consumers; and/or the AFA has been or is involved in market practices that are in material respects inconsistent with the purpose of the Act	s55A(3)
On an AFA's default	s59(2)(d)

If an AFA applies to renew their authorisation new terms and conditions may apply.

Your Obligations

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The common obligations for all advisers and the additional obligations that apply for each adviser type.

Care, diligence and skill

All financial advisers must exercise the care, diligence and skill that a reasonable financial adviser would exercise in the same circumstances.

In determining what a reasonable financial adviser would do, the following matters must be taken into account:

the nature and requirements of the financial adviser's client or clients

the nature of the service and the circumstances in which it is provided

the type of financial adviser

See more in section 33 of the Financial Advisers Act 2008.

See examples of how these obligations apply to advice on insurance and credit products.

Not engage in misleading or deceptive conduct or advertising

Financial advisers must not engage in misleading or deceptive conduct when providing a financial adviser service. They must also not advertise their services in a way that is misleading, deceptive or confusing. Find out more about advertising obligations.

Disclosure

Advisers who provide a personalised service to a retail client, must disclose certain information. Find out more about disclosure obligations.

Other obligations

There are other obligations, depending on the sort of adviser someone is.

Registered Financial Advisers

Authorised Financial Advisers

Qualifying Financial Entities and QFE Advisers

Registered Financial Adviser Entities (non-QFE)

Registered Financial Advisers

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Obligations of Registered Financial Advisers.

Registered Financial Advisers (RFAs) must, when providing financial adviser services:

act with care, diligence and skill (see insurance and credit examples) (section 33 of the Financial Advisers Act 2008)
not engage in misleading or deceptive conduct (section 34)
ensure advertisements are not misleading, deceptive or confusing (section 35)
comply with disclosure obligations when providing personalised services to retail clients

RFAs need to annually renew their registration on the Financial Service Providers Register and notify the Registrar of changes. They must be a member of a dispute resolution scheme, if providing services to retail clients.

Any person can complain to the Financial Markets Authority about the activities of an RFA and FMA can investigate that complaint and take appropriate action. RFAs are not subject to disciplinary committee proceedings under the Act but FMA has a range of enforcement actions it can take in relation to RFAs under the Act. The Registrar may also deregister RFAs in certain circumstances.

Authorised Financial Advisers obligations

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Obligations of Authorised Financial Advisers.

If you are an Authorised Financial Adviser (AFA) you must comply with a number of obligations when providing financial adviser services.

General obligations

Read about the requirements to act with care, diligence and skill and not engage in misleading, deceptive or confusing conduct that apply to all financial advisers.

See insurance and credit examples.

Advertisements not misleading, deceptive or confusing

Find out about what is classified as an advertisement and the additional advertising obligations that apply to AFAs.

Disclosure obligations

You must make both a primary and secondary disclosure when providing personalised services to retail clients. This section has information on these and other disclosure requirements.

Code of Professional Conduct for AFAs

The Code sets out minimum standards of professional conduct. You can download or order a copy of the Code.

Continuing Professional Development

AFAs must meet certain minimum standards for continuing professional training. Find out about structured vs unstructured CPD requirements and other question and answers about CPD.

Terms and conditions of authorisation

The terms and conditions include Standard Conditions for AFAs subject to any modifications that the Financial Markets Authority considers appropriate, and any terms and conditions specific to the AFA.

Have and maintain an Adviser Business Statement

Read the guide on developing an Adviser Business Statement (ABS).

See annual confirmation of ABS.

Registration obligations

You must annually renew your registration on the Financial Service Providers Register and notify the Registrar of changes. You must be a member of a dispute resolution scheme, if providing services to retail clients.

Other information about AFA obligations

Our AFA monitoring and surveillance webpages explain the approach we take to ensuring AFAs meet their obligations. We also provide monitoring feedback, with specific tips and hints on the behaviours we expect AFAs to demonstrate.

Period of QFE Status

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Period of QFE status

When QFE status is granted, the Financial Markets Authority notifies a QFE of its period of QFE status. Typically this would be between three and five years. Find out how the period is determined.

Variation of period of QFE status

FMA may vary the period of QFE status before renewal, on application by the QFE or on the following grounds:

the business of the QFE has changed in such as way that there is a material risk to consumers and/or
the QFE has been or is involved in market practices that are in material respects inconsistent with the purpose of the Financial Adviser Act 2008.

QFE Advisers

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QFE Advisers

QFE advisers are individuals who are employees or nominated representatives of an approved QFE entity or QFE group.

QFE advisers do not have to be individually registered or be authorised if they only provide:

financial adviser services to retail clients on category 1 products that the QFE or QFE group issues or promotes, and/or
financial adviser services in relation to category 2 products, and/or
class services or services to wholesale clients.

However QFE advisers need to be individually authorised if they:

provide personalised financial adviser services to retail clients on category 1 products not issued or promoted by the QFE or a member of the QFE group, and/or

provide investment planning services.

QFE advisers who provide services to retail clients must belong to a dispute resolution scheme but can rely on the dispute resolution scheme membership of their employer or principal.

QFE Application Resources

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QFE Application Resources.

The QFE Adviser Business Statement will help you develop your Adviser Business Statement
See Assessing the QFE Adviser Business Statement for the steps involved in becoming a QFE.

QFE Adviser Business Statement

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QFE Adviser Business Statement

An entity applying for QFE status must prepare an Adviser Business Statement (ABS). The ABS consists of two parts:

Part 1 describes its financial adviser services business
Part 2 explains the governance and compliance arrangements that have been put in place to ensure that the entity can take responsibility for the professional conduct and competence of all of its advisers in all of their adviser services. It must explain how consumer protection is addressed.

The ABS needs be approved by the relevant governing body - usually the board of directors. Maintaining an up to date ABS will be part of the terms and conditions of QFE status, if granted.

Entities that wish to be partner entities in a QFE should prepare one joint ABS document to demonstrate that they jointly have capacity.

See the QFE Adviser Business Statement Guide for more information on how to write an ABS.

How should QFEs submit their Adviser Business Statement?

Send a hard copy and an electronic version (online or by sending us a disk or memory stick).

Is my QFE Adviser Business Statement confidential?

Your statement is for your internal use and for the Financial Markets Authority. You do not need to make it public unless you choose to. FMA will respect the confidential nature of information in an ABS or any other reports submitted to us.

Information held by FMA is subject to the Official Information Act 1982 and the Privacy Act 1993. These Acts provide for proper access to information held by public organisations and also protect information to the extent consistent with the public interest and preservation of personal privacy. Any request for information held by FMA would be considered in accordance with the requirements of these Acts.

There are grounds likely to provide good reason to withhold sensitive information submitted in an ABS, such as where its release would disclose a trade secret, prejudice the commercial position of the financial adviser business, or breach an obligation of confidence where release of the information would be likely to prejudice future supply of similar information, or information from the same source.

Applicants should tell us if they consider the information provided in an ABS is confidential.

Assessing the QFE Adviser Business Statement

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Process for Granting QFE Status

As part of the QFE application process a prospective QFE should submit an Adviser Business Statement (ABS) to the Financial Markets Authority.

FMA will review the document and check it includes the expected information. FMA needs to be satisfied that the prospective QFE has the capacity to, and will:

discharge its ongoing compliance obligations under the Financial Adviser Act 2008
comply with its terms and conditions
maintain procedures to ensure adequate consumer protection for retail clients.

See section 66 of the Act.

In considering the ABS we may:

request further information
conduct interviews with senior management, e.g., the director of the financial adviser force or compliance assurance
make on-site visits.

FMA will send written confirmation of its decision when the review of the ABS and other enquiries are complete.

This flowchart from the Financial Service Providers Register website shows how registration and grant of QFE status fit together.

Authorised Financial Advisers cancellations and suspensions

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Authorised Financial Advisers cancellations and suspensions

The Financial Markets Authority (FMA) publishes this information for public use. The obligation for updating Authorised Financial Adviser (AFA) details on the Financial Service Providers Register (FSPR) is the responsibility of the AFA, not FMA.

You can visit the www.fspr.govt.nz to review the Register.

AFA Name	Status	Period of suspension	Date of cancellation
Andrew Robinson	Cancelled		21 December 2012
David Ross	Suspended	17/12/2012 - 17/06/2013

Becoming a QFE

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Becoming a QFE

Useful Contacts and Links

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Useful Contacts and Links

The Financial Markets Authority's information helpline is open Monday to Friday 8.30am to 5.00pm, phone 0800 434 567 (+64 3 943 4222 for overseas callers). Other helpful information includes:

Code of Professional Conduct for AFAs
The Skills Organisation information on competence standards and assessment
The Financial Service Providers Register and information on registration on the Companies Office website
Ministry of Consumer Affairs information on dispute resolution schemes.

Annual confirmation your Adviser Business Statement is current

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Annual confirmation your Adviser Business Statement is current

Under the Standard Conditions of authorisation Authorised Financial Advisers must maintain a current written Adviser Business Statement (ABS). Each year, you must confirm to us that your ABS is current.

Confirmation is due 12 months after the date of your authorisation.

Submit your annual confirmation by email. If you experience issues contacting us, an alternative way is to use our online contact form.

Please include your name, your FSPR number and 'Annual ABS confirmation' in the subject heading.

The confirmation should state you have completed a review of your ABS and that it still accurately reflects, (or has been updated to accurately reflect) your:

adviser business activities including clients and types of products and services
compliance arrangements including advertising and disclosure, suitability of advice processes and record-keeping
continuing professional development records.

You do not need to supply us with a copy of your ABS or specify any changes you have made to update your ABS. However FMA may ask for a copy of an ABS at any time to assist in monitoring.

What if I cannot provide the confirmation?

If you cannot provide this confirmation, for example if you are no longer practising as an adviser or if your circumstances have changed, you must send an email to the address above by the due date (on your annual anniversary of authorisation) and let us know the reason.

Period of Authorisation

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Period of Authorisation

Financial Markets Authority intends to authorise all financial advisers for an initial term of five years from the date of authorisation, unless there is any information to indicate that a shorter or longer term may be appropriate. FMA will communicate with any applicant who may require a departure from a five year term.

The five years applies from the date of authorisation stated on the authorisation certificate.

Testimonial Guidelines for Referees

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Testimonial guidelines for referees

Overview

The financial adviser who has asked you to provide a testimonial has done so to support his/her application to become an Authorised Financial Adviser (AFA).

The eligibility criteria to be authorised as an AFA are set out in the Financial Advisers Act 2008. One of those criteria is that the Financial Markets Authority must satisfy itself as to the "good character" of the applicant.

The purpose of the testimonial you have been asked to provide is to testify to the good character of the applicant.

Testimonial

The financial adviser should have provided you with a template of the testimonial in the form required by FMA. Please complete the testimonial form, sign and date it and return it to your financial adviser. It is the applicant's responsibility to send it to FMA.

The information you provide in the testimonial must be accurate and not misleading. Please note that any information provided in the testimonial which may be considered negative will not automatically mean that the applicant's application will be declined. FMA will form its view on the applicant's good character by considering all testimonials provided by the applicant, in conjunction with all of the other information it has for that purpose.

False or misleading information

Your attention is drawn to Section 136 of the Financial Advisers Act 2008 which makes it an offence to provide false or misleading information in support of an application for authorisation. This includes any representation to FMA, or making use of any document knowing it to be false or misleading.

Privacy

The information requested in the testimonial will be used for the purpose of the financial adviser authorisation application process and the performance of FMA's statutory functions. Your personal details will be collected and retained by FMA. You are under no legal obligation to provide a testimonial if you do not wish to do so.

AFA Adviser Business Statement Guide

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AFA Adviser Business Statement Guide

The AFA ABS Guide was updated in June 2011. Advisers who used the previous version of the Guide (the Draft Code Edition June 2010) to develop their ABS should note there are no substantive changes to the 'expected information' requirements. However they should familiarise themselves with the updated language and references in the new Guide and make any changes when they next update their ABS.

Read the AFA Adviser Business Statement Guide.

You must annually confirm your ABS is current.

AFA Adviser Business Statement Guide June 2011

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AFA ABS Guide Draft Code Edition June 2010

Introduction
What is this guide for?
Adviser Business Statement (ABS) overview
What is an ABS?
How do I prepare an ABS?
How will AFAs be regulated?
Questions and further information
Part 1: Your adviser business
Overview of Part 1
Role
Remuneration and reward
Business relationships
Products and services
Clients
Part 2: Compliance arrangements
Overview of Part 2
Ethical behaviour
Marketing and branding
Disclosure and information for clients
Advice or service
Complaints
Client money, property and information
Record keeping
Competence, knowledge and skills and continuing professional training
Table 1: Overview of Code Standards in the ABS Guide
Table 2: Overview of Financial Advisers Act conduct and disclosure obligations in the ABS Guide
Table 3: Overview of Standard Conditions for AFAs in the ABS Guide

Introduction

The Financial Advisers Act 2008 introduces minimum standards of professionalism for financial advisers and gives the Financial Markets Authority (FMA) power to regulate people and entities who give financial advice. The Act sets out who needs to be registered and authorised to provide financial adviser services in the new regulatory regime.

What is this guide for?

It's to help AFAs prepare an Adviser Business Statement (ABS). This is a prerequisite for being authorised and must be maintained as part of an AFA's ongoing obligations.

The ABS is a short document (around 7-15 pages) where you describe your adviser business and the compliance arrangements you have in place so that your business operates professionally. You will need to maintain your ABS on an ongoing basis to meet your terms and conditions of authorisation.

This guide will assist an AFA in the new regime, including those advisers or nominated representatives who work for Qualifying Financial Entities (QFEs) who may need to be individually authorised, and advisers who are employed by an adviser business, as well as sole practitioners.

This second edition of the AFA Adviser Business Statement Guide reflects the Code of Professional Conduct for Authorised Financial Advisers approved by the Minister in September 2010 (the Code), the Standard Conditions for Authorised Financial Advisers (the Standard Conditions) and changes made to the Act after publication of the first edition of this guide. It focuses on what you need to include in your ABS. General information on authorisation is available on FMA's website.

We welcome any suggestions for later versions of this guide.

Adviser Business Statement (ABS) overview

What is an ABS?

Behind every successful professional is a well-ordered business with good systems and procedures. As part of the authorisation application process you must prepare an Adviser Business Statement - or ABS. Your ABS is a snapshot of how you operate. It is a short, written document that sets out what adviser business you are in and what compliance arrangements you've put in place. It explains the systems and procedures you have to ensure you conduct your business in a professional way.

The ABS is intended to be a helpful business tool. It's your primary evidence that you've thought about your professional obligations and how your adviser business operates and that you have systems and procedures that are relevant to its size and nature. Your ABS is an internal document - you don't need to make it public.

It's a living document. The terms and conditions of your authorisation will require you to have an ABS and to keep up to date so it reflects any changes in your business and compliance arrangements and any changes in the requirements of the Act and the Code. You must provide annual confirmation to FMA that your ABS is current and must provide a copy on request.

Your ABS will be a key source of information for FMA and must be prepared in accordance with this ABS Guide. You don't need to attach your ABS to your application, but it must be available for us to see on request - both before and after authorisation. It will help FMA to determine the level of regulatory monitoring appropriate to you. As part of our ongoing regulation of the adviser profession we will carry out checks. This could involve a visit to your office so you need to keep your ABS current and have it ready for inspection.

How do I prepare an ABS?

You need to develop an ABS before you go online to register and apply for authorisation.

The ABS consists of two parts:

Part 1 describes your adviser business. It helps you to think about your business in the context of the standards in the Code and the Act. It helps FMA understand your business. It also provides context for Part 2. It should address the principles and contain the information detailed in the section of this guide Part 1: Your adviser business.

Part 2 explains the systems and procedures you have in place to comply with:

the Financial Advisers Act and its regulations
the Code of Professional Conduct for Authorised Financial Advisers
the terms and conditions of your authorisation.

The section of this guide Part 2: Compliance arrangements sets out how to complete this part of your ABS.

Both sections include:

expected information, which is required
suggested information, to help you understand the sort of information which will help to show how you meet the principle or comply with the requirements.

You can structure and write your ABS in a form that suits your own business needs so it will assist you with operating professionally. You will need to include your FSP number on your ABS.

Your ABS is about you. The length and complexity of your ABS will depend on the scope and scale of your adviser services. For most advisers we expect that the ABS will be around 7 to 15 pages. Your ABS is intended to summarise your approach, but should be comprehensive enough to explain how you oversee your business.

Part 1 may contain similar information to that included in your business planning process. For Part 2 we expect that you will be operating systems and procedures that already address some of the new requirements. Any detailed guidance on using these procedures should remain in separate records or manuals, which the ABS can cross-reference. The ABS can indicate the topics covered in your records or manuals that are key to your compliance and consolidate topics from a number of sources into one place.

Your employer or QFE can help you write your ABS, or a group of advisers might help each other. An employer or professional body might provide additional suggestions relevant to a particular business area. Your employer or QFE cannot require you to adopt a particular ABS, but the systems and procedures described in your ABS might be those your employer or QFE requires you to follow. The ABS is your document to help demonstrate your professionalism so you are responsible for it. You are expected to be able to explain it to FMA or provide supporting documentation, if requested.

AFAs are responsible for meeting and maintaining the same professional standards, whether or not they work with a QFE. A QFE sits between its advisers and FMA and is also responsible for their compliance. Therefore, an AFA in a QFE can source some of the information required for their ABS from their QFE, for example, by including QFE-produced material describing the QFE's systems and procedures as an appendix to a shortened ABS.

How will AFAs be regulated?

In addition to authorising AFAs and periodically renewing their authorisation, FMA will monitor AFAs' compliance with their obligations and professionalism.

FMA will focus more resources on monitoring AFAs at higher risk of non-compliance with the Act and the Code of Professional Conduct. We will use a range of information including:

the ABS
- the nature, scale and extent of the AFA's business
- the thoroughness of the approach to compliance procedures
whether a QFE is also responsible for the AFA's compliance with the Act and Code
periodic reports and notifications from AFAs about their activities
market intelligence
complaints.
whether a QFE is also responsible for the AFA's compliance with the Act and Code
periodic reports and notifications from AFAs about their activities
market intelligence
complaints.

Your ABS will help FMA to determine the level of regulatory monitoring appropriate to you.

As part of our ongoing regulation of the adviser profession we will carry out periodic checks. FMA may ask to see your ABS or other information at any time, interview you by phone or personally visit you to look at client files and ensure that you operate in accordance with your ABS. We may select you because:

we have received information that identifies your business as a potential risk for clients
we are investigating a particular theme across the industry, eg, a general review of advice on a particular product
we are visiting your town or have selected you for a random check.

FMA's approach is to work with the industry to encourage high standards of professionalism. We will deal with many issues through constructive dialogue, but will take action when standards fall below the required level. This approach will help build consumer confidence in the industry as a whole.

Questions and further information

As a professional in the new regime you will need to be aware of your obligations under the Act and the Code.

If you have any questions, please check FMA's website first to see if there is information available to assist with your query. The website includes helpful information on how to get licensed including the AFA Authorisation Guide and an Application Checklist. It also includes information about your obligations including the Standard Conditions for AFAs.

FMA's financial adviser helpline is open Monday to Friday 8.30am to 5.00pm, phone 0800 434 567 (+64 3 962 2698 for overseas callers).

We also recommend that you visit our website regularly to keep up to date on implementation of the new regulatory regime (or register to receive email alerts on financial adviser matters).

Your professional body, employer or QFE may also be able to help you or you may need to seek legal advice.

The following sites provide further useful information for financial advisers:

www.financialadvisercode.govt.nz - Code of Professional Conduct for AFAs

www.afacompetence.org.nz - The Skills Organisation information on competence standards and assessment

www.fspr.govt.nz - the Financial Service Providers Register

Part 1: Your adviser business

Overview of Part 1

Part 1 of your ABS must describe your financial adviser business.

Part 1 must address the principles and include the expected information set out in this section.

You may decide on the form and structure of your ABS, but complying with the following suggestions will minimise FMA queries:

Ensure your ABS can be clearly identified in case you are asked to submit it. Include your name, company name and FSP number.
Write your ABS in a way that helps you to think about your role and your business in the context of the standards in the Code and the Act. It should also help FMA understand your business and provide context for Part 2.
Focus on the business that you do personally rather than the whole of your employer's or principal's business.
Address all relevant financial adviser services that you provide.
Think about the business that is relevant to the Act's objectives: to promote sound financial advice and to encourage public confidence in the professionalism and integrity of financial advisers.
Focus on the Code of Professional Conduct and the areas of your business most relevant to the Code.
Provide supporting quantitative information to show the relative importance of various business areas. Give the best information that you can and the latest available (include the date and the period it covers). You may use forecast information, particularly if changes are expected.
Where possible, keep information in the ABS at a high level.
Provide enough information to allow us to assess your business.
Use the suggested information as a guide to the sort of information which may be helpful. Don't worry if you don't have all of the suggested information. Add other information if this better explains your adviser business.
Provide information that helps FMA to understand your business compared to other financial advisers, who include, for example, sales staff in large firms, tied advisers and advisers in independent firms.
Explain any changes to your business that are in progress or planned.

Role

Principle

Your ABS should:

describe your role, including an overview of the type of adviser business that you undertake.Your ABS should:describe your role, including an overview of the type of adviser business that you undertake.

Expected information

We expect your ABS to address this principle including, where relevant:

whether you provide opinions and recommendations, an investment planning service and/or a discretionary investment management service (sections 9 to 12 of the Act)
the method by which you provide services - face to face, internet, phone, postal or other means
if you work for a QFE, as an employee or nominated representative, state the name of your QFE and the nature of your relationship
if you are employed, state the organisation that you work for with a brief overview of its business, including the size of the adviser business, approximate number of advisers and the number in similar roles to yours.

Suggested information

The following may help your ABS describe your role:

the proportion of your time spent on your adviser business - outline any other business you undertake or specific responsibilities you have
a description of the various financial adviser services you provide, including whether you provide personalised and class advice. State the relative proportion of your business that these represent
whether your role involves home or workplace visits or seminars
whether you supervise other advisers or trainees and the proportion of your time devoted to this.

Remuneration and reward

Remuneration and reward include all remuneration and monetary and non-monetary incentives that you receive for adviser services.

Principle

Your ABS should:

explain the way that you are remunerated or rewarded
explain any potential conflicts of interest arising from this.

Expected information

We expect your ABS to address this principle including, where relevant:

a breakdown of how you are remunerated or rewarded, including any base salary, bonuses, commission and fees. You should include percentages, based on figures available for the last quarter or year, for example X% salary and Y% commission
the factors affecting how your remuneration may vary.

Suggested information

The following may help your ABS describe your remuneration and reward:

the proportion of your overall remuneration and reward derived from various sources, for example, from each product or product provider
how your fees are calculated, noting any circumstances where these fees can vary
an overview of any additional rewards that you may receive depending on performance, and the factors which determine whether you qualify for these
any preferential commission terms that you have in place with various providers, particularly any variations in commission rates based on volume
the proportion of clients who might be affected by each potential conflict of interest
an overview of how your reward from financial adviser services is affected by any dividends from your own financial adviser service company.

Business relationships

By a business relationship we mean any person or entity that is key to your business. This might include your employer, employees, product providers and persons or entities you refer clients to or receive referrals from.

Principle

Your ABS should:

explain how your business is structured and your key internal and external relationships
explain any potential conflicts of interest arising from this.

Expected information

We expect your ABS to address this principle including, where relevant:

the nature of any exclusive or preferential terms that you have with any product or service provider
an overview of persons or entities whose services you employ who are key to your adviser business.

Suggested information

The following may help your ABS describe your business relationships:

the proportion of new clients who are introduced and the proportion of your business that each key source accounts for
the proportion of clients who might be affected by each potential conflict of interest
an overview of any contractual arrangements you have in place which could give rise to a conflict of interest. FMA may request additional information on contractual arrangements, if necessary
the roles, responsibilities and relevance of persons or entities who are key to your adviser business.

Products and services

Principle

Your ABS should:

outline the products that you provide advice on and the services you provide. Focus primarily on personalised services to retail clients and products or services with the greatest consumer risk.

Expected information

We expect your ABS to address this principle including, where relevant:

an analysis of your business by high-level product types or classes, noting category 1 and 2 products separately
in what instances you handle client money or property, if any, the context in which this occurs and the extent of your involvement.

Suggested information

The following may help your ABS describe the products and services you offer:

any variation in the service provided by products or product groups, for example, whether class services are provided
any complex or unusual products or services, terms or arrangements that you advise on
whether you are tied to a particular provider, choose from a panel, or whether you are free to select openly from the market place. If you are tied or use a panel, whether you select the providers
the proportion of business that is given to particular preferred providers
whether you provide an ongoing or one-off transaction service.

Clients

Principle

Your ABS should:

outline the types of clients that you deal with, distinguishing between retail and wholesale clients.

Expected information

We expect your ABS to address this principle including, where relevant:

the proportion of your business that each client group represents
how you attract new clients and the key sources of your clients.

Suggested information

The following may help your ABS describe your clients:

the business split between retail and wholesale clients giving the total number of retail clients in each product or service group, and the number of eligible investors (if any)
any specific client segments which might have a greater need for financial advice or be more vulnerable to poor advice, for example, older clients
if you are employed, please state the nature of the relationship you have with your clients, that is, whether their primary relationship is with you or with your employer or principal
the types of marketing and promotional activities for each client group and your involvement in these activities.

Part 2: Compliance arrangements

Overview of Part 2

Part 2 should explain how you take personal responsibility for complying with your obligations under the Financial Advisers Act (the Act).

It must explain your systems and procedures for ensuring that you meet:

the minimum standards set out in the Code
the obligations set out in the Act and its regulations
the terms and conditions of your authorisation (including standard conditions and any individual terms and conditions).

Part 2 must address these requirements and include the expected information set out in this section.

You may decide on the form and structure of your ABS, but complying with the following suggestions will minimise FMA queries:

Focus on your financial adviser services and how you carry out your role. Your ABS is a document about you and your personal professionalism. It is OK to explain that expected information is not relevant to your particular role.
Clearly address the requirements of the Code, Act and terms and conditions. Part 2 highlights some of these obligations, but does not repeat them in detail. It does not refer to any individual terms and conditions that may be specified in your authorisation.
Provide an overview of your relevant systems and procedures in each section, and describe any reliance on third parties for these.
Describe the compliance arrangements for your business and the checks that ensure that you are operating to the required standards. (Advisers will implement processes and controls in different ways, depending on the nature, scale and complexity of their services.)
Focus on how you ensure that professionalism is embedded in your daily role and activities.
If you employ staff or external parties within your business give an overview of how professionalism is embedded in their roles and activities.
Explain any changes to your systems and procedures that are in progress or planned. Point out where these are new.

Use the suggested information as a guide to the sort of information which it may be helpful to provide. Don't worry if you don't cover all of the things in the suggested information. Add other information if this better explains your compliance arrangements or is more relevant.

You can provide information on how you exceed the requirements. FMA can consider this in determining the level of regulatory monitoring appropriate to you.

Tables 1 to 3 on pages 26 to 29 are to help you find your way around how the requirements are covered in this Guide. They are not an exhaustive list of all the detailed requirements in the Code, Act and Standard Conditions for Authorised Financial Advisers. If you are unsure about the requirements, please see the 'Questions and further information' section of this Guide.

Ethical behaviour

Requirements of the Code, Act and Standard Conditions

Code Standards 1 to 6
Section 34 of the Act
Standard Condition 3 - Notifications

Expected information

We expect your ABS to address these requirements including, where relevant:

the safeguards you have in place to identify, avoid or manage any potential conflict of interest.

Suggested information

The following may help your ABS show how you meet or exceed these requirements:

any relevant mission statement or client charter you publicise
any additional code of ethics or conduct that you abide by, for example, from your employer or professional body, stating the relevance to the requirements
any systems or procedures, or support, that help you maintain positive professional behaviour to assist the achievement of suitable client outcomes, for example, any mentoring arrangements
any ethical training you have undertaken
awareness that an adviser may report breaches of the Act (section 45A) or Code obligations by other persons to FMA.

Marketing and branding

Requirements of the Code, Act and Standard Conditions

Code Standard 3
Sections 20B, 30 and 35 of the Act
Standard Condition 7 - No endorsement

Expected information

We expect your ABS to address these requirements including, where relevant:

any approval process that you have in place for marketing activities and promotional and client-facing materials to ensure compliance.

Suggested information

The following may help your ABS show how you meet or exceed these requirements:

an overview of the records you keep in relation to marketing and promotional activity and approvals
where you rely on third parties for your marketing, an overview of your involvement in ensuring that the marketing is compliant
any examples of how you have remedied issues in the past where your marketing, branding or promotional activities have led to confusion.

Disclosure and information for clients

Requirements of the Code, Act and Standard Conditions

Code Standards 6 and 7
Sections 21 to 24, 27 to 30 of the Act and the Financial Advisers (Disclosure) Regulations 2010

Expected information

We expect your ABS to address these requirements including, where relevant:

how you design and approve your disclosure statements, and keep them up to date
your approach to providing disclosure to clients on a timely basis
the process that you follow to calculate and disclose fees and any commission for each client.

Suggested information

The following may help your ABS show how you meet or exceed these requirements:

the extent of your input to the design and content of your disclosure statements. For example, are these based on a template provided by your principal?
if reliant on a third party for the development of disclosure statements, the extent of your involvement and the checks that you undertake
whether more than one secondary disclosure statement is used
whether initial disclosure is provided at the beginning of the relationship (and updated as necessary) or each time a financial adviser service is provided
if advice is given by telephone, how disclosure requirements are fulfilled
any periodic reviews you undertake
whether and how you test client understanding of the content of the disclosure statements
any amendments you have made to improve client understanding of your disclosure statements as a result of feedback
any other information that you provide to meet Code Standard 7.

Advice or service

Requirements of the Code, Act and Standard Conditions

Code Standards 5 to 10
Sections 33 and 38 of the Act
Standard Condition 6 - Supervising trainee advisers

Expected information

We expect your ABS to address these requirements including, where relevant:

any systems and procedures to help you to ensure the quality and suitability of your advice or service and related client communications.

Suggested information

The following may help your ABS show how you meet or exceed these requirements:

the research methods you employ and any reliance on third parties for these
your approach to collecting enough information to understand a client's requirements (within the scope of the service being provided), for example, any parameters or guidance you use or any checklists, forms or templates
your approach to setting out your advice for the client, for example, any templates you use
your approach when no suitable product or service is available
any differences in approach when dealing with different client types, products or services.
any differences in your approach when dealing with class advice
any "pre-check" of your advice or any periodic review of your work
any improvements you have made as a result of feedback from checks or from clients.

Complaints

Requirements of the Code, Act and Standard Conditions

Code Standard 11

Expected information

We expect your ABS to address this requirement including, where relevant:

how you deal with any complaints
the number of complaints received about your advice or conduct in the last 12 months and the number upheld
the proportion that were referred to any external mediation, complaints body or dispute resolution scheme or to any court in New Zealand or overseas.

Suggested information

The following may help your ABS show how you meet or exceed these requirements:

your involvement in resolving complaints about your work and whether an independent person is involved
your approach to the register of complaints, for example, whether your QFE or employer keeps this record, or you keep your own
your procedures for complying with dispute resolution scheme requirements for internal complaints handling
your procedures for assisting your dispute resolution scheme
the time taken to resolve complaints
any examples of how you have used complaint information to improve your advice or service.

Client money, property and information

Requirements of the Code, Act and the Standard Conditions

Code Standard 4
Standard Condition 5 - Client money

Expected information

Ensure that Part 1 explains whether you handle client money or property and the extent of your involvement.

We expect your ABS to address these requirements including, where relevant:

how you handle any client money, property or information
any checks that are carried out on your handling of client money and property, who carries them out and their relationship to you, if any.

Suggested information

The following may help your ABS show how you meet or exceed these requirements:

the name of the entity whose client trust account you use and your relationship to that entity
the name of the bank or entity that holds the trust account (and its location if not in New Zealand)
the name of any custodian, platform or other third party that you use to hold client property (and its location if not in New Zealand)
the results of any recent audit of the trust account that you use, the name of any independent chartered accountant who conducted the audit and any remedial action taken in response to it, where relevant
any other third party arrangements in place in relation to handling client money and property.

Record keeping

Requirements of the Code, Act and the Standard Conditions

Code Standards 12 and 13
Standard Condition 4 - Records

Suggested information

The following may help your ABS show how you meet or exceed these requirements:

the key documents you keep that demonstrate your compliance with the Code, the conduct and disclosure obligations in the Act and the terms and conditions of your authorisation
an explanation of your involvement in record keeping
if you rely on a third party for your record keeping, an overview of their systems and procedures stating how these address your requirements under the Code
the length of time that advice records are kept if in excess of seven years, and any variations between products
the back up and disaster recovery arrangements for essential client records, and whether those arrangements are tested on a regular basis.

Competence, knowledge and skills and continuing professional training

Requirements of the Code, Act and Standard Conditions

Code Standards 6(a), 14 to 18

Expected information

We expect your ABS to address these requirements including, where relevant:

how you are satisfied that you have the competence, knowledge and skills for the specific services you provide
how you maintain and test your competence on an ongoing basis
the process you follow when you do not have the competence, knowledge or skills to provide a professional level of service to a client.

Suggested information

The following may help your ABS show how you meet or exceed these requirements:

any relevant qualifications which exceed the minimum Code requirements
how you develop your professional development plan, for example, involvement of mentors, supervisors, client feedback or complaints information. The role of any third party in delivering the plan
arrangements to maintain competence, knowledge and skills in the light of product developments and changes
arrangements to maintain competence, knowledge and skills in the light of developments in professional practice.

Table 1: Overview of Code Standards in the ABS Guide

Code Standard	Overview of Standard	ABS section
1	Placing client interests first and acting with integrity	Ethical behaviour
2	Obligation not to bring the financial advisory industry into disrepute	Ethical behaviour
3	Use of term "Independent"	Ethical behaviour Marketing and branding
4	Borrowing from or lending to a client	Ethical behaviour Client money
5	Restrictions that apply where AFA is related person of provider	Ethical behaviour Advice or service
6	Behaving professionally	Ethical behaviour Advice or service
7	Ensuring retail clients are able to make informed decisions	Disclosure Advice or service
8	Suitability of personalised services for retail clients	Advice or service
9	Explaining the basis of personalised services for retail clients	Advice or service
10	Providing class service to retail clients	Advice or service
11	Complaints processes	Complaints
12	Keeping information about personalised services for retail clients	Record keeping
13	Record retention	Record keeping
14	Overarching competence requirement	Competence
15	Adequate knowledge of Code, Act and laws	Competence
16	National Certificate in Financial Services (Financial Advice) (Level 5) and alternative qualifications	Competence
17	Professional development plan	Competence
18	Undertaking continuing professional training	Competence

Table 2: Overview of Financial Advisers Act conduct and disclosure obligations in the ABS Guide

Act section	Overview of Act requirements	ABS section
21 to 24	Disclosure obligations	Disclosure
27 to 30	Disclosure obligations	Disclosure
30	Advertising must refer to disclosure document	Marketing and branding
33	Must exercise care, diligence and skill	Advice or service
34	Must not engage in misleading or deceptive conduct	Ethical behaviour
35	Advertisement must not be misleading, deceptive or confusing	Marketing and branding
37	Must comply with Code	All sections
38	Must not recommend securities if offer for subscription illegal	Advice or service
45	Must comply with terms and conditions of authorisation	All sections

Table 3: Overview of Standard Conditions for AFAs in the ABS Guide

Condition	Overview of the Condition	ABS section
1	Requirement to have and maintain an ABS
2	Reporting
3	Notifications	Ethical behaviour
4	Records	Record keeping
5	Client money	Client money
6	Supervising trainee advisers	Advice or service
7	No endorsement	Marketing and branding

The Standard Conditions came into force in November 2010. Copies are available on FMA's website. Each Authorised Financial Adviser will receive his/her terms and conditions on authorisation.

Testimonial Guidelines

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Testimonial Guidelines.

Testimonial Guidelines for Financial Advisers

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Testimonial Guidelines for Financial Advisers

You need to provide two testimonials in support of your application for authorisation - one from option 1 and another from either option 2 or 3, as follows:

A recognised industry or professional organisation of which you have been a member for the preceding three years
An existing client you have advised for the preceding three years
An industry peer or colleague who has known you for the preceding three years.

If you are unable to provide a testimonial from option 1 then you will need to provide three testimonials, as follows:

one from option 2
one from option 3
and a third from either option 2 or 3.

In some circumstances, for instance if you have not been in practice for three years, you may be unable to supply the testimonials required by the Financial Markets Authority. These may, for instance, be provided by a new client or from an employer. In this case, FMA will accept three other references. However, these must be accompanied by a covering letter explaining why you cannot supply the testimonials required.

Testimonial templates

To assist the authorisation application process the following standard testimonial templates may be used by referees:

Professional body
Existing client
Industry peer or colleague

Choose your referees and select the relevant testimonial templates. Complete your full name and The Skills Organisation identification number at the top of each testimonial template and send each of your referees the relevant template along with a copy of the guidance note for referees. Check the testimonials carefully when they are returned to you to ensure that they have been fully completed.

False or misleading information

Testimonial Template - Professional Body

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Testimonial Template - Professional Body

These are the templates for testimonials you must supply to help the Financial Markets Authority assess your character.

One of the templates must be filled out by an individual from a recognised industry or professional organisation of which you have been a member for the preceding three years.

Testimonial Template - Industry Peer or Colleague

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Testimonial Template - Industry Peer or Colleague.

These are the templates for testimonials you must supply to help the Financial Markets Authority assess your character.

One of the templates must be completed by an industry peer or colleague who has known you for the preceding three years.

Testimonial Template - Existing Client

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Testimonial Template - Existing Client.

These are the templates for testimonials you must supply to help the Financial Markets Authority assess your character.

One of the templates must be completed by an existing client you have advised for the preceding three years.

AFA Testimonial Templates and Guidelines

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AFA Testimonial Templates and Guidelines

These are the templates for testimonials you must supply to help the Financial Markets Authority assess your character. Ensure you use the correct template for each testimonial. You should refer to the testimonial guidelines that explain what you and your referees need to do.
Please also see the Guidance Note: Good Character and Criminal Convictions guidance note for full details of FMA's criteria and requirements for assessment of good character of AFA applicants.

Testimonial templates

Testimonial guidelines

Professional body members

A number of professional bodies and organisations have developed their own customised testimonial template and have obtained approval to use those.

Advisers who are members of a professional body or organisation should find out if their organisation has developed its own customised testimonial template for advisers to use.

Testimonial Templates

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Testimonial Templates

AFA Authorisation Guide

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AFA Authorisation Guide.

The AFA Authorisation Guide is a full reference guide to the process of becoming authorised.
Please also see the Guidance Note: Good Character and Criminal Convictions guidance note for full details of FMA's criteria and requirements for assessment of good character of AFA applicants.

AFA Application Checklist

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AFA Application Checklist.

For full information on the authorisation process see the AFA Authorisation Guide.

Tick	Action Required	Notes
Proof of Competence
	Register with The Skills Organisation at www.afacompetence.org.nz for your The Skills Organisation identification number	You will need to enter this number during the online application process
	Identify which Standard Sets you need to complete to meet the minimum professional standards of an AFA - read the Code of Professional Conduct	The Code is available online in booklet format.
	If applicable, obtain evidence of existing alternative qualifications. Scan copies of qualification certificates so that you have an electronic copy	You will need to upload scanned copies of your qualifications during the application process
	Arrange any additional training you require with an accredited training provider - see list at www.afacompetence.org.nz
	Book your compulsory Standard Set B exam through The Skills Organisation at www.afacompetence.org.nz	You don't need to wait for the results before you apply for authorisation - we get the results automatically
	If applicable, book your competence assessment (Standard Set C) - with The Skills Organisation at www.afacompetence.org.nz or with a Delegated Assessment Organisation (DAO) or an accredited training provider.	Engage with your assessor early as they will help you get through
Adviser Business Statement
	Develop your Adviser Business Statement based on the ABS Guide. Save yourself time by checking whether your industry association has additional guidance notes or templates	You don't need to upload this during your application but you will be asked to confirm you have an ABS
Proof of Good Character
	Organise your testimonials using the templates and guidelines Fill out the details you need to provide on the forms then send them to your referees to complete and return to you	Your industry association may also be able to provide approved testimonial formats
	If applicable, prepare a statement declaring any matters that may have an adverse impact on FMAs view of your good character	You'll need to upload a copy of this statement during the application process
	If applicable, obtain details of any criminal convictions you have which carry a penalty of six months imprisonment or more	You will need to disclose this information during the application process and we may check records to verify the information you provide
Scope of Financial Adviser Service
	Decide which service or services you wish to be authorised for (financial adviser services (FAS) scope)	You will need to select this from a drop down box during the application process
QFE FSP Registration number
	If you work for or plan to work for a QFE, ask them for their QFE FSP registration number	You will need to enter this during application
Dispute resolution service
	You (or your employer) must join an approved dispute resolution scheme or the government reserve scheme. See more at www.fspr.govt.nz	You will need to name the scheme during the registration process which is a pre-requisite to the authorisation process
Registration and Authorisation Application
	Set up your igovt logon (username and password) and FSPR user account at the Companies Office Financial Service Providers Register www.fspr.govt.nz	You can use your existing igovt logon if you have one
	Register and apply for authorisation at www.fspr.govt.nz	If you register and apply for authorisation at the same time you can save and close your application if you find you are missing details
Requests for Additional Information
	Respond promptly if FMA emails you to request additional information	Processing times will vary depending on when competence results are available

AFA Competence and Assessment

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AFA Competence and Assessment.

Minimum standards of competence

All Authorised Financial Advisers (AFAs) must abide by the Code of Professional Conduct. The Code says that before providing a financial adviser service an AFA must have the competence, knowledge and skills to provide that service. AFA applicants must also show that they meet the required levels of competence when they apply.

The National Certificate in Financial Services (Financial Advice) (Level 5) is prescribed in the Code as the minimum standard of competence for AFAs. This qualification is made up of unit standards grouped together into Standard Sets A, B, C, D and E:

Standard Set A - core knowledge including knowledge of the industry, financial markets, the advice process and products
Standard Set B (Compulsory) - knowledge of the Code of Professional Conduct and the legislative framework for financial advisers including consumer protection laws
Standard Set C - professional practice including applying the six step advice process and complying with legislation
Standard Set D - investment specialist standards
Standard Set E - insurance specialist standards or residential property lending specialist standards.

These Unit Standard Sets are registered with NZQA on the National Qualifications Framework, providing a nationally recognised, measurable standard across the financial adviser sector.

See a full explanation of each Unit Standard Set.

Proof of competence

The Financial Market Authority will check that advisers applying for authorisation meet the required competence standards.

To become an AFA a person must provide evidence that they have:

attained the Unit Standard Sets contained in the National Certificate in Financial Services (Financial Advice) (Level 5) that are relevant to the financial adviser services they provide, or
hold an alternative qualification or industry designation listed in the Code as being an acceptable alternative to a particular Unit Standard Set. These are listed in the Competence Alternatives Schedule in the Code. See further information below about the eligibility sunset.

All advisers seeking authorisation must complete Standard Set B which demonstrates knowledge of the Code and other relevant law including the Financial Advisers Act 2008 and consumer protection law.

Advisers need to upload copies of qualification documents when they apply for authorisation online at Financial Service Providers Register.

For more information see the Code of Professional Conduct for Authorised Financial Advisers and the AFA Authorisation Guide.

Training and competence assessment

The Skills Organisation, the national standards setting body for the financial services industry, makes sure there is sufficient, appropriate training available and manages the competence assessment process for the authorisation of financial advisers. See the The Skills Organisation website for information about training and assessment.

For other information about alternative qualifications, designations and lapsed designations and application requirements read the AFA Authorisation Guide.

What do I do if my qualifications were attained overseas?

The Code does not include any foreign qualifications in the list of alternative qualifications or designations. If your qualification or designation is not currently recognised in New Zealand then you should apply to The Skills Organisation to be assessed and examined against individual unit standards (within the National Certificate in Financial Services (Financial Advice) (Level 5). You can do this without undertaking any additional training; however, it would be wise to first check with The Skills Organisation whether assessment only options are appropriate for you.

Are there any exemptions?

FMA has limited powers to exempt any person, class of person or activities from complying with any section of the Financial Advisers Act, associated regulations or the Code. FMA will limit the use of its powers to cases that meet prescribed statutory criteria, and all exemptions will be based soundly on the policy of the law.

Who is the Code Committee?

The Code Committee was appointed in July 2009 and developed the Code of Professional Conduct for Authorised Financial Advisers.

Why is there an 'eligibility sunset'?

The Code provides relief from attaining certain unit standard sets for advisers who hold other qualifications or designations (see Competence Alternatives Schedule). Some of these competence alternatives are subject to the 'eligibility sunset' which is explained in Code Standard 16.

The sunset clause creates a cut-off date (1 January 2014) after which an AFA who applies for authorisation for the first time will not be able to rely on alternative qualifications (that are subject to the sunset clause) to become authorised. There are clear benefits in having a standardised curriculum, and this is usual for professional occupations. The rationale for the sunset clause is to give course providers time to align their curricular to the National Certificate.

How does the eligibility sunset apply for renewals?

FMA's interpretation of Code Standard 16 is that an AFA who has used alternative qualifications or designations (that are subject to the eligibility sunset) to become authorised, can continue to take advantage of those alternatives. That is, we will not require them to have attained the unit standards for which they, on first application, claimed relief before they apply for renewal of their authorisation.

This interpretation is based on the Code as currently in effect. Future Code Committees may require different minimum competence requirements. This might include whether any competence alternatives for AFAs will remain in the Code, whether AFAs will be able to continue to rely on 'deemed' attainment of unit standards for or beyond their second period of authorisation, or how long AFAs will have to move to any newly prescribed minimum standards.

FMA encourages AFAs to sit the unit standards they have not yet 'formally' attained. For example, preparing for, and sitting Standard Set C, can be a useful practical refresher. It can also be a useful way to fulfil the structured component of your CPD.

AFA Application Resources and Templates

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AFA Application Resources and Templates.

Authorised Financial Adviser (AFA) Authorisation Guide - a full reference guide to the process
AFA checklist
Description of competence standards advisers must meet
AFA obligations
Testimonials templates and guidelines for completing proof of character requirements
AFA Adviser Business Statement Guide
List of Authorised Financial Advisers (AFA)
Authorised Financial Advisers cancellations and suspensions
Period of authorisation
Categories of licence for AFAs (FAS scopes)
Code of Professional Conduct for Authorised Financial Advisers
Useful contacts and links

Australian Qualified Advisers Exemption 2012

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Australian Qualified Advisers Exemption 2012

Fact sheet: Financial Advisers Act (Australian Qualified Advisers) Exemption Notice 2012.

1. What is the purpose of the exemption?

The exemption provides recognition for Australian qualified advisers when they apply to be Authorised Financial Advisers (AFAs). ASIC is providing mutual recognition for New Zealand qualified advisers.

Prior to the grant of this exemption, the only avenue for recognition of Australian qualified advisers when they applied to be licensed advisers in New Zealand (ie AFAs) was through Trans-Tasman Mutual Recognition (TTMR) legislation. However this legislation has very limited application to financial advisers as it applies only to individuals (ie not firms) who are Australian licence holders when they apply to be authorised/registered under the New Zealand financial adviser regime.

FMA and ASIC have mutually agreed to provide recognition of each other's qualified advisers in addition to the recognition under the TTMR legislation.

2. What is the nature of this exemption?

Certain Australian advisers who meet the qualifications requirements under ASIC's regulatory guides to provide personal financial product advice to retail clients, will be given recognition when applying to be an AFA. This will only be in relation to the products they are qualified to advise on in Australia, where New Zealand has an equivalent licence.

The Australian adviser must have provided the services to retail clients for at least six consecutive months in the three years prior to the NZ AFA application, either as an Australian representative or Australian licence holder.

3. What is the extent of exemption?

This is only an exemption from the educational qualifications requirements under the Code. The adviser will be subject to:

the other eligibility requirements for AFAs (for example good character and criminal record checks, registration requirements, including dispute resolution scheme membership);
standard terms and conditions of authorisation as may be modified by FMA. In particular the terms and conditions will include a requirement for the AFA to complete structured training in the first year of authorisation covering knowledge of the Financial Advisers Act, the Code and other relevant legal obligations;
all the other provisions of the Code, including

- Code Standard 14 which contains the overarching requirement that an AFA must have the competence, knowledge and skills to provide a service.

- Code Standard 15 requirement to have knowledge of the Financial Advisers Act and Code and other legal obligations. Attaining Unit Standard Set B of the National Certificate of Financial Services (Financial Advice)(Level 5) and other structured training are some of the ways an adviser can demonstrate that they have this knowledge;
the provisions of the Financial Advisers Act, including conduct and disclosure obligations, monitoring and oversight by FMA and referral to disciplinary committee in the event of breach of the Code.

4. Who is most likely to utilise this exemption?

Primarily those Australian adviser representatives who are moving permanently to New Zealand. However it may also be utilised by Australian adviser representatives who work for an Australian based entity and who wish to be Authorised Financial Advisers, rather than come within the Australian Licensees Exemption Notice.

5. What types of AFA licence will an Australian adviser be able to apply for under the exemption

The Schedule to the Exemption Notice shows what services under RG 146 and RG 206 that the adviser must be qualified to provide and the corresponding AFA licence scope and financial products that the adviser may apply for.

For example an adviser that meets the RG 146 requirements to provide personal advice to retail clients on securities, derivatives and managed investment services will be able to apply for an authorisation to provide financial advice on all financial products. We note, in addition to the specialist knowledge requirements, this adviser will need to have met the generic knowledge and skill requirements under RG 146. The adviser must also have worked as an Australian representative or Australian licence holder for at least 6 months within the three years prior to the AFA application.

6. What is the procedure for an Australian adviser applying to be an AFA through the exemption?

Advisers should first notify FMA that you are considering applying as an Australian adviser under the Exemption.

We will check if you meet the key criteria for Australian Qualified Advisers and review your Australian qualifications. We will discuss the New Zealand AFA licence scope and financial products you are eligible to apply for.

Once confirmed the procedure will be:

complete the usual application for registration as a financial adviser online on the Financial Service Providers website, including paying the registration fee
do not carry on to complete the AFA part of the online application. Instead, complete the Australian Qualified Advisers AFA application form we provide when notifying you are eligible to apply. You will be required to attach supporting documents.
The usual fees for AFA applications will be payable to FMA and FMA will confirm how these should be paid. See AFA fees

7. When does the exemption come into effect?

The exemption came into effect on 6 July 2012 and expires on 6 July 2015. During this period Australian advisers who meet the terms of the exemption may apply to be AFAs with certain licence scopes, and will be exempt from the Code's educational qualification requirements. If the licence term extends beyond the expiry date of the Exemption Notice, the Australian adviser will be required to comply on renewal of his/her licence with the Code's educational qualification requirements at that time (subject to any applicable exemption in place at that time).

8. Where can I find further information?

Please read the Exemption Notice or contact us for more information:

For further information on ASIC's recognition of New Zealand advisers:

Contact ASIC

Who Is Not Covered by the Financial Advisers Act 2008?

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The Act provides exemptions for specific groups of people who may provide financial adviser services as incidental to their job.

The Act provides exemptions for specific groups of people who may provide financial adviser services as incidental to their job. Their adviser activities fall outside the scope of the regulatory regime.

These people are not required to be registered or authorised. They are people who provide financial advice only as an incidental part of another business that is not a financial service, e.g. a sales assistant in a retail store giving advice to a consumer buying goods on hire purchase. See section 13 of the Act for further information.

There are also exemptions from registration and authorisation for other occupations/parties/entities who provide services which are not considered to be financial adviser services under the Act.

These include:

lawyers, incorporated law firms, conveyancing practitioners, chartered accountants, tax agents, real estate agents, registered legal executives and registered valuers providing a relevant service in the ordinary course of business of that kind
teachers, lecturers, journalists, State services employees providing a relevant service in the course of that occupation
non-profit organisations providing a relevant service without charge in the course of the organisation's activities
employers providing a relevant service to an employee in connection with a financial product made available through the employee's workplace
trustee corporations providing a relevant service in the ordinary course of providing legal or financial services relating to the preparation or drafting of a will and estate management and administration
those providing certain services in the course of a takeover offer under the Takeovers Code
rating agencies providing certain services.

This is not an exhaustive list. For a complete list of financial adviser services not covered by the Act, go to sections 13 and 14.

Does the Act apply to investment property consultants?

When referring to 'investment property consultant' or 'property consultant' we mean any person who advises clients on investing in property, whether through a seminar, website or through other means, and who may or may not be a licensed real estate agent.

Direct ownership of property is not a financial product under the Financial Advisers Act, but in some cases the requirements of the Act will still apply to investment property consultants and property consultants.

Advertising and scope of services offered

If a property consultant offers to for example, 'design a comprehensive investment plan' or 'take care of all of your investment goals' the requirements of the Act may apply. The offer might be in an advertisement, in a seminar, or to a potential customer.

Only an Authorised Financial Adviser can provide an 'Investment Planning Service' under section 11 of the Act. This is where an adviser offers to design a plan that is based on an analysis of a person's current and future overall situation and identifies investment goals then provides recommendations on how to realise those goals. There is an offence of holding yourself out to be an investment planner without being an AFA who is specifically authorised to provide investment planning services.

FMA will also look at advertising that suggests investments other than property will be considered by a property consultant. This type of misleading advertisement may give rise to an offence under the Act.

Type of property investment offered

Some property investments are category 1 products under the Act and generally require consultants to be authorised to provide advice to clients. These are investments that are more complex than where a person simply owns a house or a piece of land directly. Direct ownership in property is not a financial product under the Act.

Securities like property investment funds and certain contributory mortgage schemes are category 1 products as are land investment products. Land investment products are essentially schemes that involve an interest in land, are not otherwise category 1 products, and where the investor has no day to day control over the land involved. See the legal definitions of securities and land investment products.

Real Estate Agents

The exemption for real estate agents providing services in the ordinary course of business is only available to licensees under the Real Estate Agents Act. Real estate agents need to carefully consider whether any services they provide that include investment advice or planning could sensibly be considered as part of a real estate agent's job. Advice on complex property schemes or investment plans for example should be provided by AFAs who can conduct a proper suitability analysis for their clients.

Source of deposit and comparisons to financial products

Recommending or giving an opinion that a person should sell or vary a financial product, for example specific shares or KiwiSaver, to purchase a house is caught by the Act, as financial advice also includes advice on the disposal or variation of a financial product. FMA will look at situations where clients are being advised to dispose of financial products in order to invest in property.

In addition where there is an analysis by a property consultant that compares the merits of financial products with property, it is likely to be financial advice.

It is an offence for financial advice to be provided by entities other than registered entities, or personalised financial advice to be provided by individuals who are not personally registered as financial advisers (or are QFE advisers).

How to Get Licensed

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A link to the Financial Service Providers Register, plus the resources you need to become an AFA or to apply to be a QFE.

The process for licensing varies depending on what type of financial adviser you are.

Authorised Financial Advisers (AFAs)

AFAs need to first register on the Financial Service Providers Register. They also need to be authorised by the Financial Markets Authority and meet eligibility requirements, including minimum competence requirements and good character. They must develop an Adviser Business Statement before applying for authorisation.

AFAs apply for authorisation online at the Financial Service Providers Register.

See the AFA application resources and templates page.

Qualifying Financial Entities (QFEs)

To become a QFE, a business must:

demonstrate certain compliance capability through submission of an Adviser Business Statement and responding to enquiries from FMA
apply to FMA for QFE status through the Financial Service Providers Register
be registered as a financial service provider.

See more about becoming a QFE, including obligations, application resources and information for QFE Advisers

Becoming registered: Registered Financial Advisers and entities

Individuals and entities may register online as financial advisers on the Financial Service Providers Register. Financial advisers who provide services to retail clients will have to belong to a dispute resolution scheme, unless they are providing a service on behalf of someone else who is a member of a scheme.

See more about registration or visit the Financial Service Providers Register.

Brokers

Brokers need to register online on the Financial Service Providers Register.

Find out more about brokers.

Australian Advisers

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Australian regulated firms have been granted an exemption so they can continue providing financial adviser services for New Zealand based clients.

Australian advisers who provide financial adviser services to clients in New Zealand will be subject to the New Zealand financial adviser regime. This includes the requirement that only individuals that are permitted under the Financial Advisers Act may provide certain services (see the Flowchart below to determine if an individual needs to be authorised or registered).

Flowchart - What type of adviser am I?

However there are two exemptions which have been granted by the Financial Markets Authority (FMA) that Australian advisers may be able to utilise:

1. Financial adviser firms licensed and operating from Australia:

Under the Australian Licensees Exemption Notice an Australian licensed financial adviser firm which meets certain conditions will be able to provide certain financial adviser services to New Zealand retail clients without its specified representatives being registered or authorised.

2. Australian qualifications recognition for AFA applicants:

Under the Australian Qualified Advisers Exemption advisers who have certain Australian qualifications and who are applying to be Authorised Financial Advisers (AFA) are exempted from the Code's educational qualification requirements.
The applicants will remain subject to all other authorisation eligibility requirements and as AFAs will be subject to all applicable laws, including other provisions of the Code, the Financial Advisers Act, dispute resolution scheme requirements, terms and conditions of authorisation and monitoring by FMA.

TTMRA

There is a further avenue for Australian qualifications recognition under the Trans-Tasman Mutual Recognition Act. This is very limited in its application for financial advisers as it applies only to individuals (ie not firms) who are Australian licence holders when they apply to be authorised/registered under the New Zealand financial adviser regime. For further information on recognition through TTMRA contact FMA.

Australian Licensees Exemption

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Australian Licensees Exemption

Australian regulated firms have been granted an exemption so they can continue providing financial adviser services for New Zealand based clients provided certain conditions are met.

The fact sheet below explains the effect of the exemption.

Fact Sheet: Financial Advisers (Australian Licensees) Exemption Notice 2011

This fact sheet is intended to provide a summary of information relating to the Financial Advisers (Australian Licensees) Exemption Notice.

1. What is the purpose of the exemption?

The exemption allows Australian regulated firms to provide financial adviser services into New Zealand from Australia, provided certain conditions are met.

2. When does the exemption come into effect?

The exemption is effective from 1 July 2011 and expires on 30 June 2013. It is intended to be a temporary exemption to ensure Australian businesses can continue to provide services into New Zealand from 1 July 2011 when the new Financial Adviser laws come into force, and whilst more permanent mutual recognition arrangements are being considered with Australia.

3. Who can utilise the exemption?

Firms that hold current Australian financial services licences granted by the Australian Securities and Investments Commission (and their specified representatives) may utilise this exemption when providing personalised services to retail clients in New Zealand. They must not have a place of business in New Zealand and must provide the services from a place of business in Australia.

The exemption is a class exemption which means that all firms in similar situations can benefit from the exemption provided they comply with the conditions.

4. What other criteria must be met by the Australian licensee?

For this exemption, the entity seeking to utilise the exemption must meet all of the following criteria:

it must hold a current Australian Financial Services Licence from ASIC enabling it to provide financial product advice to retail clients in Australia
it must be in the business of providing financial services in Australia
it must not have a place of business in New Zealand
it must have notified FMA that it wishes to rely on the exemption

The entity wishing to rely on the exemption must also provide FMA with details of the specified representatives who will be providing the services on its behalf and must also provide a list of its New Zealand based clients.

5. Are there any other conditions?

There are several important conditions which a firm must meet and continue to meet whilst relying on this exemption, some of which are listed below:

a) the firm must be registered as a financial service provider on the Financial Service Providers Register in New Zealand

b) the firm must be a member of an approved dispute resolution scheme in New Zealand

c) the firm must ensure its specified representatives are adequately trained and competent (under Australian law) to provide personalised services to retail clients

d) written disclosure must be provided to New Zealand clients to explain that the firm and its representatives are exempt from the requirement to be registered and authorised and that they are regulated by ASIC under Australian laws. They must also provide contact details of their dispute resolution scheme

e) New Zealand clients must also receive the same disclosures that the firm or representative is required to make to its Australian clients

f) the firm must notify FMA of any material enforcement action or disciplinary action taken by ASIC or any overseas regulatory authority against the firm or its representatives

g) the firm must not actively market to clients in New Zealand - this means they can not engage in any conduct that might solicit or induce clients, or any conduct that might have that effect.

A full list of conditions can be found at clause 6 of the exemption notice.

6. Where can I find further information?

A copy of the exemption notice can be found here and information note for Australian licensees who wish to come within the exemption can be found here.

You can also contact us to enquire further about the exemption notice.

QFE Adviser Business Statement Guide

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This guide helps you decide if you want your business to become a QFE and, if so, how to go about applying for QFE status by preparing an Adviser Business Statement.

An Adviser Business Statement (ABS) allows FMA to assess an entity's capacity to ensure compliance by its financial advisers and maintain procedures for adequate consumer protection. It is:

A key document in an application to be a QFE. The QFE ABS Guide will also help potential applicants decide whether they want their business to become a QFE.

Maintained by a QFE on an ongoing basis, and forms part of a QFE's Annual Report to FMA. It allows FMA to tailor its ongoing monitoring of the QFE.

This Guide tells you how to go about preparing an ABS.

The current version (September 2010) has introductory comments that refer to dates that have now passed. However the content required in your ABS remains the same.

You can also read a summary of feedback that was prepared following the 2010/2011 QFE applications.

What Products Can QFE Advisers Sell?

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QFE Advisers can give financial advice to wholesale clients and can give class advice about any products to retail clients.

QFE Advisers can give financial advice to wholesale clients and can give class advice to retail clients. They can also provide personalised advice and discretionary investment management services for category 1 and category 2 products without being individually registered (and authorised), as follows:

QFE structure	QFE advisers	Ctegory 2 products	Category 1 products
A single entity QFE	Employees and nominated representatives of the QFE	Yes	Yes where QFE is product provider or for securities, the promoter
A QFE composed of partner entities	Employees of any partner entity and nominated representatives	Yes	Yes where any partner entity is product provider or for securities, the promoter
A QFE which has associated entities	Employees of the QFE (or its partner entities) and those of the associated entities and any nominated representatives	Yes	Yes where, OFE, partner entities or any of associated entities is the product provider, or for securities, the promoter

A QFE can extend the range of financial products or services that its advisers may provide by applying to the Financial Markets Authority to approve the addition of one or more entities as associated entities.

Employees of any entity in the QFE Group and the QFE's nominated representative can advise on category 1 products where any entity in the same QFE Group is the product provider or in the case of securities, the promoter, and any category 2 product, without being individually registered or authorised (see section 18 of the Act).

Advisers who work for QFEs still need to be individually registered and authorised if providing the following services to retail clients:

an investment planning service
personalised advice or personalised discretionary investment management service on category 1 products where the QFE is not the product provider or for securities, the promoter

Note, promoter has the same meaning as section 2 (1) of the Securities Act 1978. A QFE is not the 'promoter' just because the product carries a brand of the QFE Group.

For class and wholesale services, individuals providing only wholesale or class services (or both) are not expected to register, provided that their employer is a registered financial service provider (not necessarily a QFE) and remains registered.

Individuals who have voluntarily opted to be authorised for wholesale and class services will still need to register as individuals.

What is a nominated representative?

A QFE can nominate any individual adviser as a nominated representative (see section 74 of the Act). It does not have to nominate all of the agents who sell its products. A QFE can nominate advisers either in writing or if agreed by FMA via another mechanism. This will be included in the terms and conditions of its QFE status.

A person may not be a nominated representative of more than one QFE, except when the two QFEs are related companies, as this would cause confusion about which entity was responsible for the representative's conduct.

A QFE must provide FMA with a list of its nominated representatives, when requested. In addition, the terms and conditions of QFE status will specify how often the list must be provided.

Find out more about what responsibility a QFE takes for its nominated representatives.

What is an associated entity?

A QFE may apply to FMA to approve one or more entities as associated entities of the QFE (see section 65 and 67 of the Act). The QFE's application must state how it is connected to the associated entity. The QFE and its associated entities form a QFE Group.

If approved, the QFE is responsible for the advisers of the associated entity. The advisers in the QFE group can advise on products provided or promoted by the QFE and any of its associated entities without being individually registered and authorised.

What is a QFE Group?

A QFE Group is the term used for either:

a QFE and its associated entities
the partner entities that together form a QFE and any associated entities.

A QFE must choose a name for its QFE Group and submit it to FMA for approval (see section 69 of the Act). Employees of any entity in the QFE Group and its nominated representatives can advise on category 1 products where any entity in the same QFE Group is the product provider or in the case of securities, the promoter, and any category 2 product without being individually registered or authorised (see section 18 of the Act).

Overseas Advisers and Overseas Clients

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Overseas advisers and overseas clients.

The Financial Advisers Act 2008 applies to all financial advice received by clients in New Zealand, including advice provided by advisers based overseas. Certain sections of the Act also apply to New Zealand-based advisers giving advice to overseas clients. These include the obligation to act with care, diligence and skill and not to act in a misleading or deceptive manner.

Overseas advisers who provide advice only to wholesale clients in New Zealand may not be required to be registered or authorised if they are "overseas financial advisers" (a type of exempt provider). See sections 5 and 20 of the Act.

AFA Survey 2012

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AFA Survey 2012

AFA Survey 2012 - Summary of Findings and FMA response

AFA Questionnaire Summary of results non free text questions

Baseline Consulting - Synopsis of the AFA Report undertaken by the Financial Markets Authority in September 2012

Qualifying Financial Entities

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Qualifying Financial Entities (QFEs) are companies or organisations that are registered on the Financial Service Providers Register and have been granted QFE status.

Qualifying Financial Entities (QFEs) are companies or organisations that are registered on the Financial Service Providers Register and have been granted QFE status. An organisation that employs a number of financial advisers may want to become a QFE.

The benefits of becoming a QFE vary for each organisation depending on:

the product category on which advice is given
whether the product is provided by the QFE (or QFE group) or a third party, and
whether advisers also provide an investment planning service.

QFE status enables an organisation to streamline the registration, disclosure, dispute resolution and supervision arrangements that will apply to its advisers under the financial adviser regime. In return, the QFE takes responsibility for its advisers' compliance.

Further discussion on the benefits and obligations of QFE status is set out in the QFE Adviser Business Statement Guide.

Types of QFEs

The Financial Advisers Act 2008 provides for two types of QFE:

Single entity. The simplest QFE structure consists of a single legal entity employing a number of financial advisers. The QFE is responsible for the compliance of its advisers and nominated representatives with the Act.
Partner entities. Two or more entities can join to become a single QFE. To apply for QFE status in partnership the entities must be related bodies corporate. These partner entities are jointly and severally liable for the compliance of the QFE advisers in all of the partner entities, as well as for the conduct of their nominated representatives, i.e. they share collective responsibility.

Every QFE and every partner entity of a QFE must comply with the terms and conditions of its QFE status.

Once QFE status has been granted, employees and nominated representatives who provide financial advice do not have to be individually registered and authorised. However, some of the QFEs' advisers will still need to be registered and authorised if they provide an investment planning service or give advice on category 1 products that are not provided or promoted by the QFE or QFE group. Find out more about the products a QFE adviser can sell.

QFE advisers

QFE advisers are employees or nominated representatives of Qualifying Financial Entities (QFEs). A QFE is a business that takes responsibility for the conduct of its financial advisers once it has been granted QFE status.

If you work for a QFE - either as an employee or nominated representative - you only need to be individually authorised if you provide an investment planning service or provide a discretionary investment management service or give advice on category 1 products that the QFE or member of the QFE group does not provide or promote itself, that is, category 1 products from other providers.

See What products can QFE advisers sell?

If you are unsure whether your employer is a QFE or member of a QFE group, whether a QFE has nominated you as a representative or whether your QFE or QFE group provides or promotes the products you sell, please check with them before you decide whether to apply for authorisation.

Registered Financial Advisers

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Registered Financial Advisers are individual advisers who are required to be registered under the Financial Advisers Act 2008 but who do not need to become Authorised.

Registered Financial Advisers (RFAs) are individual advisers who are required to be registered under the Financial Advisers Act 2008 but who, because of the limited scope of their services and/or clients, do not need to become Authorised Financial Advisers.

RFAs can provide advice or a discretionary investment management service for category 2 products.

RFAs can provide services to wholesale clients and class services.

Authorised Financial Advisers

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Authorised Financial Advisers are individual advisers who can provide financial adviser services to retail clients, under certain conditions.

Authorised Financial Advisers (AFAs) are individual advisers who are permitted to provide personalised financial adviser services to retail clients, for category 1 and category 2 products, depending on the scope of their licence. They can also provide class services and wholesale services.

You need to become an AFA if you provide any of the following financial adviser services to retail clients:

give personalised financial advice on Category 1 products. Financial advice covers any recommendation or opinion about buying, selling (or refraining from buying or selling) a financial product
provide a discretionary investment management service in relation to category 1 products, i.e. you decide which financial products to buy and/or sell on behalf of a client, e.g. you are authorised to manage a client's investment portfolio.
provide an investment planning service, that is, if you design or offer to design a plan for an individual that:
- is based on an analysis of an individual's current and future overall financial situation
- identifies their investment goals, and
- includes recommendations or opinions to realise those goals.

The focus is on the nature of the service, rather than the product recommendations. A service that identifies the financial situation and goals of a group of people the individual belongs to can also be an investment planning service.

You do not need to be authorised if:

you only give advice or provide a discretionary investment management service for Category 2 products
you only provide a financial adviser service to wholesale clients, e.g. advice to advisers or brokers within the financial services industry, entities with more than one million dollars in net assets or turnover, local authorities, Crown entities, State enterprises or individuals who can be treated as 'eligible investors'. See section 5C and D of the Financial Advisers Act 2008 for the full definition of wholesale clients.
you only provide a class service to retail clients, e.g. generic product brochures and online resources. These services target a wide class of people rather than being specifically tailored to meet an individual's needs or situation.
you only provide a financial service which is incidental to another non-financial service, e.g. a sales assistant advising a customer on a hire purchase contract.
you are a member of certain professions providing a relevant financial service in the ordinary course of your professional business. This exemption applies to chartered accountants, lawyers, real estate agents and others.
you are a not-for-profit organisation providing a relevant financial service without charge.
you are an employer providing a relevant service to an employee in connection with a financial product made available through the workplace.

For a complete list of exemptions see s13 and s14 of the Act.

Categories of Licences for AFAs

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When applying for authorisation, an adviser needs to choose the categories of financial advice service or services they will provide.

When applying for authorisation, an adviser needs to choose the categories of financial adviser service or services they will provide (FAS Scopes). Your AFA licence will only cover you for those services.

Financial adviser service or services

Financial advice
Financial advice and investment planning services
Discretionary investment management services
Financial advice and discretionary investment management services
Financial advice, discretionary investment management services and investment planning services
Financial adviser services in relation to category 2 products only
Financial adviser services to wholesale clients and provision of class services

Category 1 or Category 2 Products

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The type of adviser you are, and what you need to do to comply, will partly depend on whether you offer category 1 or category 2 products.

Category 1 products have more of an investment focus and include securities, land investment products, futures contracts and investment-linked insurance contracts.

Category 2 products are generally less complex. They include bank term deposits, bonus bonds, call debt securities, call building society shares, call credit union shares, shares in co-operative companies, consumer credit contracts (within the meaning of s11 of the Credit Contracts and Consumer Finance Act 2003), a unit in a cash or term portfolio investment entity, insurance contracts, (except investment-linked insurance contracts), and life insurance policies (within the meaning of s2(1) of the Securities Act 1978) issued before 1 January 2009.

Category 1 and 2 products are described in s5 of the Financial Advisers Act 2008. Some category 1 and category 2 products are defined further in regulations. Additional products may be added to each category in the future, by regulations.
You can see a summary of these definitions in our category 1 and category 2 product definition guide.

Only Authorised Financial Advisers and QFE advisers can give personalised advice to retail clients on category 1 products. QFE advisers are limited to advice on category 1 products promoted or issued by their QFE.

Personalised advice on category 2 products can be given by Registered Financial Advisers and QFE Advisers. However, if advice on category 2 products is given as part of providing an investment planning service, then the adviser must be authorised as well as registered.

See the flowchart to help decide what type of financial adviser you are.

Eligible persons and eligible investors

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Eligible persons and eligible investors

Eligible persons
Eligible investors

The terms 'eligible persons' and 'eligible investors' are similar so it is important that financial market participants understand these terms come from different legislation and different tests, processes and consequences apply.

There are significant consequences of getting things wrong in both cases.

Eligible persons

Most Securities Act requirements that apply when securities are offered to the public will not apply if the only persons who are eligible to invest, and do invest, under an offer are 'eligible persons'. No prospectus or investment statement is required for such an offer.

'Eligible persons' are investors who are wealthy, experienced in investing and/or experienced in the business or industry to which the offered securities relate. The table below summarises the process for verifying the wealth or experience of an investor.

Who is an eligible person?

An individual or entity who meets one or more of the following:

Requirements to be met before an investor will be an 'eligible person'

Wealthy
Net assets of $2million or more or annual gross income of $200k or more for each of last two financial years

An independent chartered accountant certifies (within 12 months before the offer) that he or she is satisfied on reasonable grounds that the investor is wealthy under the test on the left.

Experienced in investing money

Experienced in the industry or business the security relates to

An independent financial service provider is satisfied on reasonable grounds that the investor's experience in investing money or in the industry or business the security relates to means the investor is able to assess:
• the offer's merits;
• the value of the security;
• the risks if the offer is accepted;
• their own information needs; and
• the adequacy of information provided about the offer.

Independent financial service provider gives the investor a written statement of his or her reasons for being satisfied about those matters before the security is allotted.

Investor signs written acknowledgement (before allotment) that they have not been given a registered prospectus or investment statement and they understand that they will not receive these documents or any other information usually provided in a public securities offer.

Sections 5(2CB) to 5(2CF) of the Securities Act 1978 provide detailed information on the eligible person exemption and on who is an 'eligible person'. Note that the term 'financial service provider' in the table above means a person whose principal business is giving investment advice or receiving investment money or property.

Eligible investors

Eligible investors are one type of 'wholesale client' under the Financial Advisers Act and Financial Service Providers (Registration and Dispute Resolution) Act 2008. Greater protections apply for retail clients than for wholesale clients. For instance, personalised advice on more complex financial products and investment planning services can generally only be provided to a retail client by an Authorised Financial Adviser. A financial service provider who provides services to retail clients is required to be a member of a dispute resolution scheme.

See more on wholesale vs retail clients.

Who is an eligible investor?

Under the Financial Advisers Act, an 'eligible investor' is a client for adviser services who has sufficient knowledge, skills or experience in financial matters to assess the value and risks of financial products and the merits of those services. The table below summarises the certification process for verifying whether a client is an eligible investor under that Act.

An individual or entity who meets the following criteria:

Requirements to be met before a client will be an 'eligible investor'

A client (individual or entity) who has sufficient financial knowledge, skills and experience to enable them to assess the value and risks of the financial products and the merits of the services to be provided.

Client certifies in writing (stating reasons) that they:
• meet the knowledge, skills and experience requirement on the left; and
• understand the consequences of giving the certificate (including that competency standards and the Code will not apply and a dispute resolution scheme may not be available).

A certificate can refer to a specific service or class of services or be general.

A financial adviser, QFE or broker is satisfied after considering the client's reasons for giving the certificate that:
• the client has received sufficient advice about the consequences of giving the certificate; and
there is no reason to believe the certificate is incorrect (or that further information or investigation is needed to determine this).

The financial adviser, QFE or broker has signed a written acceptance of the client's certificate.

Section 5D of the Financial Advisers Act provides detailed information on who are 'eligible investors' under that Act.

Who are eligible investors under the Financial Service Providers (Registration and Dispute Resolution) Act?

A slightly different definition and verification process applies under the Financial Service Providers (Registration and Dispute Resolution) Act.

Key differences include:

• A client completing an eligible investor certificate under the Financial Service Providers (Registration and Dispute Resolution) Act must certify they understand that, as a consequence of certifying that they are an eligible investor, the financial service provider may not be a member of an approved dispute resolution scheme.
• The client's knowledge, skills or experience in financial matters is not relevant to whether a person is an eligible investor.
• A financial service provider must consider the certificate and sign a written acceptance rather than a financial adviser, QFE or broker.

Section 49A of the Financial Service Providers (Registration and Dispute Resolution) Act provides detailed information on who are 'eligible investors' under that Act.

Where a financial adviser service is being provided financial advisers should ensure their eligible investor certificates comply with the Financial Advisers Act requirements so that these clients are wholesale clients under both Acts.

Types of Financial Adviser Services

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Types of advisory services.

The type of financial advice an adviser offers affects the type of adviser they are, and what they need to do to comply. The types of advisory services are:

Giving financial advice

Making a recommendation, or giving an opinion about acquiring, holding or disposing of a financial product. Providing factual information only about a financial product, in the absence of any recommendation or opinion would not be considered financial advice.

For more information see s10 of the Financial Advisers Act 2008.

The Guidance Note: Sale and Distribution of KiwiSaver focuses on factors FMA will take into account when considering whether advice is given on KiwiSaver, and, if so, whether the advice is class or personalised.

Providing an investment planning service

Designing or offering to design a plan that:

is based on an analysis of an individual's current and future overall financial situation and
identifies their investment goals and
includes recommendations or opinions on how to realise those goals.

The focus is on the investment nature of the service, rather than the product recommendations arrived at.

For more information see s11 of the Act.

Providing a discretionary investment management service

Deciding which financial products to buy and/or sell on behalf of a client, e.g. you are authorised to manage a client's investment portfolio.

For more information see s12 of the Act.

See the flowchart to help decide what type of financial adviser you are.

Retail or Wholesale Clients

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Different type of clients an adviser works with affects the type of adviser they are, and what they need to do to comply.

The type of clients an adviser works with affects the type of adviser they are, and what they need to do to comply. The types of client are retail and wholesale.

Retail

Retail clients are any clients who are not considered 'wholesale' clients.

Wholesale

Wholesale clients are defined in s5C of the Financial Advisers Act 2008 and include:

any other financial adviser or broker who receives the service in the course of business as a financial adviser or broker
a person who is in the business of providing any other financial service and receives the financial adviser service or broking service in the course of that business
a person whose principal business is the investment of money or who, in the course of and for the purposes of the person's business, habitually invests money
an entity to which at least one of the following applied at the end of each of the last two completed accounting periods
- at the balance date, the net assets of the entity exceeded $1 million
- the turnover of the entity (or a related body corporate) for the accounting period exceeded $1 million
a local authority, a Crown entity, a State enterprise, the Reserve Bank of New Zealand, and the National Provident Fund
a person who falls within one or more of the categories listed in section 3(2), 5(2CB) or 5(2CBA) of the Securities Act 1978 if the service relates to securities offered to that person or subscribed for by that person in a private offer of securities. The categories listed in these sections are:
• relatives or close business associates of the issuer or one of its directors
• recognised professional investors
• persons required to pay (or previously required to pay) a minimum subscription of $500,000
• other persons who have not been selected as members of the public
• persons invited to underwrite or sub-underwrite the offer of securities
• 'eligible persons'
an 'eligible investor'

Note: Wholesale clients are also defined in section 49(2) of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 for the purposes of determining whether a provider must be a member of a dispute resolution scheme. This definition is largely the same definition as the definition under the Financial Advisers Act, except for the eligible investor certificate requirements. However financial advisers should ensure their eligible investor certificates comply with the Financial Advisers Act requirements so that these clients are wholesale clients under both Acts.

Personalised or Class Services

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The type of adviser you are, and what you need to do to comply, will partly depend on whether you offer a personalised service or a class service.

Personalised service

A personalised service is one that is given to a client who is readily identifiable by the adviser and, either the adviser has taken the person's individual situation into account, or the client would expect their individual situation to be taken into account. For more information see s15 of the Financial Advisers Act 2008.

Class service

A class service is anything that is not a personalised service, e.g. brochures, seminars and internet material targeted towards a wide class of people rather than an individual. For more information see s15 of the Act.

Who can provide class services?

Authorised Financial Advisers, QFE Advisers and registered individuals or entities can all provide class service to retail clients, irrespective of which category of product the advice is about.

Note that advice provided about a class of products is not financial advice and is outside the regulatory scope of the Act. (See section 10.) This is a different concept than class service which is covered by the Act.

See the flowchart to help decide what type of financial adviser you are.

Who Needs to Comply

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Information on what a financial adviser is, who needs to comply, and a flowchart to help individuals work out their adviser type.

All financial advisers must comply with the requirements of the Financial Advisers Act 2008. This includes disclosure obligations which are set out in regulations.

Financial advisers are people who give advice about investing and other financial services and products as part of their job or business. They include financial planners, mortgage and insurance brokers and people working for insurance companies, banks and building societies that provide advice about money, financial products and investing.

The compliance requirements for financial advisers depend on the type of services you provide. If you are an individual, you can use our flowchart to work what type of financial adviser you are.

Types of financial adviser

Registered Financial Advisers (RFAs)

RFAs are individuals and they can give advice or provide discretionary investment management services for category 2 products. They can also provide class services and services to wholesale clients.

Find out more about registering and your obligations

Authorised Financial Advisers (AFAs)

AFAs can provide the same services as an RFA, but can also provide services in relation to category 1 products, and can provide an investment planning service.

Find out more about AFAs

Qualifying Financial Entities (QFEs)

QFEs are businesses that provide financial adviser services. QFEs take responsibility for the conduct of the financial advisers they employ and any nominated representatives.

Find out more about QFEs

QFE Advisers

A QFE Adviser is an employee or a nominated representative of a QFE.

Find out more about QFE advisers and what they can sell

Other business providing financial adviser services

Other (non-QFE) businesses providing financial adviser services have to be registered as a financial service provider. They may only provide personalised services to retail clients through an individual who is appropriately authorised or registered.

Find out more about registering

Brokers

A broker is an individual or a company that receives, holds, pays or transfers client money or property acting as an intermediary for a client. All brokers need to be registered and must also comply with the brokers' conduct and disclosure obligations in the Financial Advisers Act. These provisions apply to anyone providing broking services, whether they are a financial adviser or not. See more about brokers.

Who is not covered by the Financial Advisers Act?

The Act provides exemptions for specific groups of people who only provide financial adviser services in the ordinary course of their jobs or as incidental to their jobs. Their adviser activities fall outside the scope of the regulatory regime. See more.

Overseas advisers and overseas clients

See the provisions that apply. Overseas advisers and overseas clients

Also read about the exemptions for Australian advisers.

What Type of Financial Adviser Am I?

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To work out which type of adviser you are (or want to be) you need to think about these things.

To work out which type of adviser you are (or want to be) you need to think about:

the types of financial adviser services you offer
whether you advise retail or wholesale clients
whether you provide personalised or class services
whether you provide advice on category 1 or category 2 products.

This flowchart helps you decide what type of financial adviser you are, and whether you have to register or not.

Money Laundering and Financing Terrorism

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Guidance Notes

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The approach FMA takes to interpreting various requirements under legislation.

Guidance Note: Securities Trustees and Statutory Supervisors

This guidance note is for persons wishing to apply to FMA for licences under the Act. It explains the key steps involved in licensing and the licensing timetable. It also specifies the licensing criteria and describes the information FMA requires to determine whether an applicant is capable of effectively performing the functions of a trustee or statutory supervisor for the security or retirement village covered by the licence for which it is applying.

Guidance Note: Securities Trustees and Statutory Supervisor Licensing

2013-03-27T18:37:57+13:00

The purpose of the Act is to protect the interests of security holders and of residents of retirement villages

Part A - Introduction
Part B - About licensing
Overview
Temporary licences
Applying for a full licence
Licence duration and conditions
Appeal rights
Part C - Licensing criteria
General
Business details
Good character
FSP (RDR) Act Compliance
Trustee and statutory supervisor function
Experience, skills and qualifications
Compliance controls
Compliance monitoring
Whole business
Financial resources
Other resources
Independence
Governance
Professional indemnity insurance
Other matters
Appendix 1 - Securities Trustees and Statutory Supervisors Act 2011 - definitions and relevant sections

Appendix 2 - Relevant financial markets legislation as set out in Schedule 1 of the Financial Markets Authority Act 2011

Appendix 3 - Revenue tables

PART A - INTRODUCTION

1.    The Securities Trustees and Statutory Supervisors Act 2011 (Act) and accompanying Securities Trustees and Statutory Supervisors Regulations 2011 (Regulations) came into effect on 1 October 2011.

2.    The purpose of the Act is to protect the interests of security holders and of residents of retirement villages, and to enhance investor confidence in the financial markets and retirement villages by:

a.    requiring persons that wish to be appointed as trustees or statutory supervisors to be capable of effectively performing the functions of trustees or statutory supervisors;
b.    requiring trustees and statutory supervisors to perform their functions effectively; and
c.    enabling trustees and statutory supervisors to be held accountable for any failure to perform their functions effectively.

3.    The Act requires a person that wishes to be appointed as a trustee or statutory supervisor, in respect of a security or retirement village, to apply to the Financial Markets Authority (FMA) for a licence to do so.

What is this guidance note for?

4. This guidance note is for persons wishing to apply to FMA for licences under the Act. It explains the key steps involved in licensing and the licensing timetable. It also specifies the licensing criteria and describes the information FMA requires to determine whether an applicant is capable of effectively performing the functions of a trustee or statutory supervisor for the security or retirement village covered by the licence for which it is applying .

Confidentiality of information provided by applicants

5. Information held by FMA is subject to the Official Information Act 1982 (OIA). The Financial Markets Authority Act 2011 imports an obligation of confidence on all information supplied or disclosed to FMA under the FMA Act or any financial markets legislation. This will apply to information provided in licence applications. In addition, there is likely to be good reason to withhold information provided in licence applications under the OIA including where it is commercially sensitive.

PART B - ABOUT LICENSING

Overview

6. The licensing process begins with the automatic granting of temporary licences to those persons that are already acting as trustees or statutory supervisors. They must then complete full licence applications and submit these to FMA, along with the fee. Applicants will then typically have a further period to complete the submission of all documents and information required.

7. Persons not already acting as trustees or statutory supervisors and that wish to be licensed to do so can also apply from 1 October 2011. The temporary licence provisions will not apply to new applicants.

Temporary licences

Trustees and statutory supervisors

8.    A temporary licence for a trustee or statutory supervisor will be automatically granted as follows:
a.    If on 30 September 2011, the person is a trustee or a statutory supervisor in respect of a security, or a statutory supervisor in respect of a retirement village and either:
i.    is approved under the Securities Act 1978, the Unit Trusts Act 1960 or the Retirement Villages Act 2003 in relation to that security or retirement village; or
ii.    does not have to be approved or is otherwise lawfully appointed,
that person will be deemed to hold a temporary licence in respect of that security or retirement village for the purposes of the new licensing regime under the Act.

9.    The temporary licence held by a trustee or statutory supervisor will expire upon the earliest of:
a.    The temporary licence being cancelled by FMA; or
b.    The trustee or statutory supervisor being issued with a licence under the Act; or
c.    FMA rejecting the trustee's or statutory supervisor's application for a licence; or
d.    30 September 2012.

KiwiSaver trustees

10.    A temporary licence for a trustee of a KiwiSaver scheme will be automatically granted as follows:
a.    If the effective date of the KiwiSaver scheme occurs on or after 1 October 2011, the person that is the KiwiSaver trustee on the effective date will be deemed to have a temporary licence for the purposes of the new licensing regime under the Act.

11.    The temporary licence held by a KiwiSaver trustee will expire upon the earliest of:
a.    The temporary licence being cancelled by FMA; or
b.    The trustee being issued with a licence under the Act; or
c.    FMA rejecting the trustee's application for a licence; or
d.    30 September 2012.

Applying for a full licence

12. There are two timelines set out below in respect of submitting licence applications. Applicants should note that KiwiSaver trustees have a different timeframe for submitting licence applications. Persons not already acting as a trustee or statutory supervisor and who wish to be licensed to do so can also apply from 1 October 2011. The temporary licence provisions do not apply to new applicants.

Trustees' and statutory supervisors' application timeline

13. Trustees and statutory supervisors with temporary licences must submit their applications for full licences by 1 November 2011.

14. Each applicant will need to complete an application form (see form TRU1.1) and pay the fee detailed below. It will then have until 12 December 2011 to submit the accompanying documentation required by FMA. Failure to meet the TRU1.1 application deadline will result in a temporary licence being cancelled. The timeline for application is shown below.

Key date	Action
1 October 2011	Temporary licence automatically granted
1 November 2011	Submit TRU1.1 application form
12 December 2011	Submit all other material and information in support of licence application
As required	Address any queries and provide any additional information arising from FMA's licence application review
30 September 2012	Final date for application assessment outcome

KiwiSaver trustees' application timeline

15. Trustees of KiwiSaver schemes with temporary licences must submit their applications for full licences no later than 1 July 2012.

16. Each applicant will need to complete an application form (see form TRU1.1 in Appendix 3) within one month of the effective date of the KiwiSaver scheme and pay the fee detailed below. Failure to meet the TRU1.1 application deadline will result in a temporary licence being cancelled. Accompanying documentation must be submitted within six weeks of the application. However, in all circumstances the application form and all accompanying documentation must be submitted to FMA no later than 1 July 2012. The timeline for application is shown below.

Key date	Action
1 October 2011	Temporary licence automatically granted
One month after effective date of KiwiSaver scheme	Submit TRU1.1 application form
Six weeks after submission of TRU1.1	Submit all other material and information in support of licence application
1 July 2012	Final date for submitting full application, including all supporting material and information
As required	Address any queries and provide any additional information arising from FMA's licence application review
30 September 2012	Final date for application assessment outcome

Licence fee

17. The licence fee is determined in the Financial Markets Authority (Fees) Regulations 2011 and is $4,320.00 (exclusive of GST). The same fee applies for all application types. The fee must be paid by direct credit or cheque with the initial licence application. A licence application will not be considered until the licence fee has been paid. The licence fee is not refundable if the licence application is rejected. Please note there is no fee for a temporary licence.

Form of licence application

18.    Licence applications must be made on application form TRU1.1 (see draft form Appendix 3). This form is available on FMA's website page 'Getting Licensed'.

19.    Supporting information requirements are detailed in this guidance note under Part C: Licensing criteria. Please carefully note the requirements. For example, full policies and procedures should not be submitted with a licence application unless specifically requested. Instead, applicants will often be asked to provide descriptions of how their underlying policies and procedures demonstrate that they meet the applicable licensing criteria.

20.    Supporting information must be submitted along with the relevant accompanying forms (TRU 2.1 and DIR 1.1) as described in the 'Getting Licensed' web pages.

Licence duration and conditions

21.    FMA may grant licences for up to eight years. The duration licences will be granted for will be assessed on a case-by-case basis.

22.    The Act enables FMA to impose conditions on a licence. The applicant will be notified of the proposed licence conditions prior to the licence being granted and will have an opportunity to comment upon these. FMA will also seek information on how the applicant will comply with the proposed conditions.

23.    FMA is not restricted by the Act in relation to the conditions it can impose. However, it is likely that FMA will impose conditions that restrict the scope and extent of an applicant's licence; for example, in the case of trustees of securities, to a particular class of securities and/or to a maximum value for supervised interests that are securities; and in the case of a statutory supervisor of retirement villages, limiting the number of retirement villages the statutory supervisor may supervise under a licence. Conditions may also tie to the original application criteria as set out in section 16 of the Act and Regulations.

24.    If FMA contemplates the imposition of industry-wide conditions, it will consult on these conditions generally.

25.    FMA is required to consult:
a.    The Reserve Bank of New Zealand for licence applications that cover debt securities issued by deposit takers
b.    The Registrar of Retirement Villages for licence applications that cover retirement villages.

Appeal rights

26. In the event that FMA considers that a licence should be declined, or a licence should be granted that differs from the one applied for, FMA will give the applicant written notice before making a final decision (section 18 of the Act). The notice will state why FMA is considering declining or varying the licence applied for and give the applicant the opportunity to make a written submissions, and to be heard on the matter. FMA is required to give the applicant at least ten working days' notice within which the applicant can make a written submission and be heard.

27. If FMA does reject a licence application, the applicant may appeal to the High Court within 20 working days of receiving such a decision from FMA.

Part C - LICENSING CRITERIA

Overview

28.    Section 16 of the Act sets out matters:
a.    Of which FMA must be satisfied
b.    That FMA must assess
    prior to making a decision to grant a licence.

29.    The Regulations supplement the Act by further specifying matters to be considered by FMA in making a decision under section 16.

30.    The Regulations do not limit the matters FMA may consider in making an assessment of an applicant under section 16. The licensing criteria outlined below include the information required by the Act and Regulations, and the additional information FMA will consider in assessing the application.

31.    The pages that follow set out each of the licensing criteria described in section 16 of the Act. The relevant Act and, where applicable, Regulation requirements are described in the box headings. The information described under the heading 'FMA requirements' specifies the information FMA requires from an applicant in order to assess the applicant against the licensing criteria in the Act and Regulations.

32.    Please refer to FMA's 'Getting Licensed' website page for information on how to submit this documentation.

33.    The licensing criteria can be divided into three main types
a.    Licensing criteria: General - matters of which FMA must be satisfied:
i.    Business details
ii.    Good character
iii.    Compliance with the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP (RDR) Act)
b.    Licensing criteria: Trustee and statutory supervisor function - matters FMA will assess that relate only to that part of the applicant's business that performs the trustee or statutory supervisor function:
i.    Experience, skills and qualifications
ii.    Compliance controls
iii.    Compliance monitoring
c.    Licensing criteria: Whole business - matters FMA will assess relating to the applicant's entire business:
i.    Financial resources
ii.    Other resources
iii.    Independence
iv.    Governance
v.    Professional indemnity insurance
vi.    Other matters

LICENSING CRITERIA: GENERAL

34. The general matters of which FMA must be satisfied.

Business details

Relevant Act requirements
16(2)(a)
FMA may not issue a licence unless the FMA is satisfied that the applicant meets the following requirements -
a) the applicant is -
(i) a body corporate that is incorporated in New Zealand; or
(ii) an overseas company (as defined in the Companies Act 1993) registered under that Act.

Relevant Regulation requirements
n/a

FMA requirements

35.    The applicant must provide:
a.    A copy of its certificate of incorporation; or
b.    If an overseas company, as defined in the Companies Act 1993, a copy of its certificate of registration.

Good character

Relevant Act requirements
16(2)(b)
FMA may not issue a licence unless the FMA is satisfied that the applicant meets the following requirements -
b)    every director and senior manager of the applicant is of good character.

Relevant Regulation requirements
Reg 4
(1)     The matters that the FMA must consider in satisfying itself that every director and senior manager of an applicant is of good character for the purposes of section 16(2)(b) of the Act are whether any of those persons have been -
a)    convicted of any offence of dishonesty
b)    convicted of any offence under financial markets legislation ; or
c)    refused registration or other entry into, or restricted from the right to carry on, any profession or occupation that is relevant to the role of a director or senior manager; or
d)    the subject of any disciplinary action taken by a disciplinary body in respect of any profession or occupation.
(2)    To avoid doubt, the matters referred to in this regulation do not limit the matters that the FMA may consider in satisfying itself that every director and senior manager of an applicant is of good character for the purposes of section 16(2)(b) of the Act.

FMA requirements

36.    The applicant must provide a statutory declaration for every director and senior manager on form DIR 1.1.

37.    FMA will also consider other sources of information at its discretion.

38    The good character of senior managers and directors is a fundamental licensing requirement. If FMA receives adverse information relating to a director's or senior manager's character, FMA will consider whether licensing the applicant is likely to contribute to the Act's purpose as set out in section 3 of the Act .

39.    FMA will consider on a case by case basis applicants who have a history of criminal convictions or other adverse information that relates to character, taking into account:
a.    the relevance of convictions or information to the role of trustee of statutory supervisor; and
b.    the seriousness and the circumstances of the surrounding conviction(s) or conduct; and
c.     evidence of any rehabilitation.

40.    FMA will not issue a licence to any applicant where FMA has outstanding questions or concerns about the good character of its directors and/or senior management. Any such issues will be raised by FMA with the applicant when it considers the applicant's licence application.

FSP (RDR) Act compliance

Relevant Act requirements
16(2)(c)
FMA may not issue a licence unless the FMA is satisfied that the applicant meets the following requirements -
In the case of an application for a licence that covers a security -
(i)    that the applicant is registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP (RDR) Act); or
(ii)    complies with section 13(a) and (b) of the FSP (RDR) Act; or
(iii)    in the case of a licence for a retirement village, that the applicant complies with section 13(a) of the FSP (RDR) Act.

Relevant Regulation requirements
n/a

FMA requirements

41.    The applicant must provide:

a.    Proof of its registration under the FSP (RDR) Act; or
b.    Proof of compliance with section 13(a) and (b) of the FSP (RDR) Act; or
c.    If the licence application covers a retirement village, proof of compliance with section 13(a) of the FSP (RDR) Act.

42.    Please see the TRU2.1 form in relation to this licensing requirement.

LICENSING CRITERIA: TRUSTEE AND STATUTORY SUPERVISOR FUNCTION

43. The matters FMA must assess in relation to that part of the applicant's business that carries out the trustee or statutory supervisor functions.

Experience, skills and qualifications

Relevant Act requirements
16(3)(a)
the experience, skills and qualifications of the applicant (including, in particular, of the applicant's directors and senior managers)

Relevant Regulation requirements
Reg 5(1)
FMA must, in assessing the matters referred to in section 16(3)(a), take into account -
a.    the number of years of experience that the applicant's directors and senior managers have -
(i)    in the roles that they hold in the applicant; and
(ii)    in the financial or retirement village industry; and
(iii)    in business generally; and

b.    the extent to which the applicant's directors and senior managers of the applicant are members of relevant professional bodies (for example, the New Zealand Institute of Chartered Accountants, the New Zealand Law Society, and the Institute of Directors in New Zealand (Inc)).

FMA requirements

44.    The applicant must provide a description of its business, including:
a.    The length of time it has been in business as a trustee or statutory supervisor
b.    In the case of an applicant seeking to supervise securities:
i.    A description of the types of security and the business sector (if any) that the applicant's business specialises in supervising
ii.    Whether, in the past seven years, any of the applicant's supervised issuers has had a material default event, moratorium proposal or restructuring proposal to avoid a default event, materially breached a trust deed or deed of participation, or suffered any other event that led to any regulator conducting any investigation of the applicant in relation to its supervisory functions, and if so, a brief description of what occurred in each instance
c.    A description of the applicant's business plan and strategy in respect of its corporate trustee or statutory supervisor business (please note only applicants who are applying for unrestricted licences in respect of securities or retirement villages are required to provide this information).
d.    A description of its business continuity plan
e.    A description of the capacity and systems the applicant has in place to conduct its trustee or statutory supervisor business and how the applicant assesses the adequacy of that capacity and those systems.

45.    The applicant must also provide a curriculum vitae for each director and senior manager. The curriculum vitae should contain -
a.    Details of qualifications and memberships with relevant professional bodies held (please see form DIR 1.1 in relation to memberships with professional bodies)
b.    A brief description of relevant past roles as they relate to Regulation 5(1)(a) (i) to (iii)
c.    A summary of how those roles are relevant to the duties and functions carried out by the applicant in the provision of its trustee or statutory supervisor service.

46.    The applicant should also advise of any known impending departures of its directors and senior managers.

Compliance controls

Relevant Act requirements

16(3)(d)
the applicant's procedures for ensuring that the applicant complies with the licensee obligations.

Relevant Regulation requirements
Reg 5(4)
FMA must, in assessing the matters referred to in section 16(3)(d), take account of the applicant's practices of peer review and oversight of junior staff.

FMA requirements

47.    Compliance with licensee obligations is a fundamental part of a trustee's or statutory supervisor's role.

48.    FMA expects the applicant to demonstrate how it will comply with its licensee obligations. Specifically the applicant must describe:

a.    The policies, procedures and key controls established by the board of directors and senior management that will be in place to ensure the new reporting obligations under the Act are met . As a minimum the description of these policies, procedures and key controls should include information on:
i.    How regularly compliance is reviewed
ii.    Who undertakes the review
iii.    Any internal or external auditing undertaken
iv.    The person responsible for compliance
v.    What occurs when non-compliance is identified
vi.    The escalation framework
vii.    Any systems the applicant has in place to track and monitor compliance
b.    The key controls in place to provide assurance that the applicant is complying with its licensee obligations and that non-compliance with the licensee obligations, if identified, is rectified
c.    The key controls in the applicant's risk management framework, including the controls and systems it has in place to identify, monitor and control the risks associated with its trustee or statutory supervisor business
d.    How the applicant assesses the effectiveness of its peer review and junior staff oversight practices and procedures.

Compliance monitoring

Relevant Act requirements
16(3)(e)
the applicant's procedures for ensuring that -
(i)    in the case of a licence relating to securities, issuers of those securities comply with the issuer obligations; and
(ii)    in the case of a licence relating to retirement villages, operators of those retirement villages comply with operator obligations.

Relevant Regulation requirements
Reg 5(5)
FMA must, in assessing the matters referred to in section 16(3)(e), take account of -
a.    the reporting obligations that the applicant proposes to require of different types or classes of proposed supervised entities in relevant governing documents; and
b.    the applicant's systems to track whether it has received on time all required documentation from proposed supervised entities; and
c.    the applicant's systems to record its consideration of reports received from proposed supervised entities and any action taken as a result.

FMA requirements

49.    Monitoring and tracking issuer or retirement village operator compliance with issuer or operator obligations is a fundamental aspect of the trustee or statutory supervisor role.

50.    FMA will be looking for evidence of how a culture of compliance and, where relevant, proactive investigation is instilled and maintained.

51.    To help in this assessment, the applicant must provide:
a.    A description of the reporting obligations the applicant requires from its supervised entities in relevant governing documents, including:
i.    Its standard reporting requirements by class of supervised interest and a description of when it would consider tightening or relaxing these
ii.    Reporting lines from the supervised entities to the applicant and in what circumstances the applicant would report matters and concerns to a supervised entities board
iii.    Who within the supervised interest has overall responsibility for signing off on the required reports, and whether the applicant requires management sign-off, and on which matters
b.    A description of the systems and controls that demonstrate how all reports required from supervised entities are received on time and are appropriately reviewed, assessed and acted upon
c.    Policies for providing feedback to supervised entities to improve the quality of materials and information received, and controls to ensure applicant compliance
d.    A description of the policy in relation to determining whether the terms and conditions in the supervised entities' governing documents are adequate and suitable for the nature of the supervised entities' businesses, and how often the applicant assesses this. This should include a description of the process for new mandates, existing mandates and newly established governing documents
e.    A summary of the processes in place to ensure supervised entities are complying with their issuer or operator obligations, including how and how often compliance is reviewed. It should also include a description of any systems relied upon, or used, in monitoring compliance
f.    A description of the policies and procedures in place to ensure that supervised entities are complying with any corrective actions imposed by the trustee or statutory supervisor, including a description of how the trustee or statutory supervisor monitors compliance with an action plan
g.    A summary of the procedures in place to deal with varying levels of supervised interest distress through to the failure of an issuer/operator, including how such issues are monitored and escalated by the applicant
h.    A summary of the applicant's policy in respect of receiving and handling investor complaints.

52.    Given the collapse of finance companies from 2005, FMA also expects applicants that were providing debt security trustee services from that period to provide brief descriptions of whether they have updated internal systems or procedures in the past six years. If so, the applicants should describe the impacts that any updates have had on the manner in which they perform their trustee and statutory supervisor functions.

LICENSING CRITERIA: WHOLE BUSINESS

53. The matters FMA must assess in relation to the applicant's whole business.

Financial resources

Relevant Act requirements
16(3)(b)
the financial resources available to the applicant

Relevant Regulation requirements
Reg 5(2)
FMA must, in assessing the matters referred to in section 16(3)(b), take into account -
a)    the assets of the applicant, the form the assets take, and the ratio of liquid to illiquid assets; and
b)    whether the applicant would be able to absorb the cost if one or more of the proposed supervised entities were to fail and if the applicant were not paid for its services; and
c)    any bank overdraft resource available to the applicant; and
d)    the financial strength of the applicant's shareholders or owners; and
e)    any arrangements or guarantees that the applicant has with any associated persons; and
f)    the estimated assets and liabilities of the proposed supervised entities.

FMA requirements

54.    The applicant must demonstrate to FMA that it has sufficient financial resources and independence to support and develop its trustee or statutory supervisor business. The applicant must also demonstrate that it has appropriate financial risk management policies, including the ability to withstand financial shocks such as the failure of an issuer that it supervises.

55.    The applicant must be able to demonstrate that arrangements are in place to ensure adequate resources will be applied to the trustee or statutory supervisor function and to provide the required level of supervision under the Act.

56.    To show this, the applicant must provide:
a.    A copy of its most recent financial statements prepared in accordance with the Financial Reporting Act 1993, including a general description of all the assets of the applicant and the ratio of liquid to illiquid assets
b.    A general description of the applicant's revenue streams, including details of its fee structure
c.    A description of its liquidity risk, credit risk and capital risk management policies
d.    A list of individual supervised entities that comprise 5% or more of the applicant's revenues and a description of how dependencies and other risks associated with these revenue concentrations are managed
e.    Details of any other material revenue dependencies not captured by the information provided in (d.) (for example where multiple supervised entities are controlled by the same party). The applicant is required to complete the form in Appendix 3 illustrating the percentage of the applicant's revenue contributed by individual supervised entities
f.    A description of the key terms of significant funding facilities and other sources of committed finance available to the applicant (including details of the undrawn balance as at the date of application), including:
i.    The counterparty
ii.    The total amount of the facility
iii.    The term of the facility
iv.    Security for the facility
g.    A list of the applicant's owners (including the controlling owner (as the term is defined in section 4 of the FSP (RDR) Act)) or shareholders, including a general description of their financial positions and whether the applicant's owners or shareholders regularly provide support to or otherwise guarantee any of the obligations of the applicant
h.    A summary of arrangements or guarantees (both provided to and given by the applicant) the applicant has in place with any associated persons
i.    A list outlining for each proposed supervised interest an estimate of:
i.    Total assets
ii.    Total liabilities
iii.    Unit holders' funds/equity.

Other resources

Relevant Act requirements
16(3)(c)
The other resources available to the applicant.

Relevant Regulation requirements
Reg 5(3)
FMA must, in assessing the matters referred to in section 16(3)(c), take account of -
a)    the number of staff employed by the applicant who are involved in trustee or statutory supervisor work, and the training those staff have received; and
b)    the number of support staff employed by the applicant; and
c)    the applicant's access to legal and other professional services; and
d)    the applicant's office facilities and infrastructure.

FMA requirements

57.    The applicant must provide:
a.    Information on the number of employees or contractors it has involved in trustee or statutory supervisor work, including support staff
b.    A brief description of the functions of those employees or contractors
c.    A brief summary of training plans and a brief description of training undertaken by the staff identified in (a.) in the previous 12 months
d.    How the staff identified in (a.) are separated from other functions in the applicant's business
e.    A brief description of the staff supervisory expertise in respect of each of the classes of security or retirement village for which the applicant has applied to be licensed
f.    The key controls the applicant has for managing 'key personnel' risk
g.    A description of the applicant's business succession and business growth plans
h.    Details of the applicant's infrastructure, including:
i.    The address(es) of office location(s)
ii.    The applicant's information technology system(s), including a brief description of the suitability of the system(s) for performing the functions of trustee or statutory supervisor and how the system(s) is audited
i.    A summary of how the applicant accesses legal advice and other professional services, including details of any appointed service providers.

Independence

Relevant Act requirements
16(3)(f)
the applicant's independence from issuers, or from operators covered by the licence.

Relevant Regulation requirements
Reg 5(6)
FMA must, in assessing the matters referred to in section 16(3)(f), take account of -
a)    the ownership of the applicant; and
b)    any relationships that the applicant has, or its directors and senior managers have, with the proposed supervised entities; and
c)    any other businesses carried out by the applicant, or any associated persons of the applicant, that may compromise the applicant's independence from the proposed supervised entities; and
d)    any other relationships that the applicant has, or its directors or senior managers have, that have the potential to compromise the applicant's independence from the proposed supervised entities.

FMA requirements

58.    The applicant must provide:
a.    Details of business ownership, including the controlling owner (as the term is defined in section 4 of the FSP (RDR) Act)
b.    Details of any existing relationships that the applicant, or its directors or senior managers, has with any of the proposed supervised entities, whether they have arisen due to personal relationships with personnel at the supervised entities or due to other businesses carried out by the applicant
c.    Details of any other businesses carried out by the applicant, or any associated persons of the applicant, that may compromise the applicant's independence from the proposed supervised entities
d.    Details of any other relationships that the applicant has, or its directors or senior managers have, that have the potential to compromise the applicant's independence from the proposed supervised entities
e.    A description of the applicant's policies and procedures for managing conflicts of interest or perceived conflicts of interest with supervised entities, including identifying who within the applicant's business has overall responsibility for managing and reporting on any events that compromise or may compromise the applicant's independence from its supervised interests
f.    Policies and procedures, if any, concerning the rotation of key staff involved in the day to-day discharge of the applicant's responsibilities under the governing documents
g.    For each supervised interest, the length of time the applicant has been appointed as trustee or statutory supervisor of that interest and who within the applicant's business has primary responsibility for that supervised interest and how long they have had that role
h.    Any other policies or processes that safeguard the applicant from capture by its supervised interests
i.    A summary of the applicant's policy concerning internal audits in relation to independence.

59.    FMA also expects information describing how the applicant ensures that the operational independence of the trustee or statutory supervisor business is maintained.

Governance

Relevant Act requirements
16(3)(g)
the applicant's governance structure

Relevant Regulation requirements
Reg 5(7)
FMA must, in assessing the matters referred to in section 16(3)(g), take account of -
a)    the balance of independent and executive directors on the applicant's board; and
b)    the nature, composition, powers, and functions of the applicant's board committees; and
c)    the applicant's succession plans, disaster recovery plans, and risk management policies; and
d)    whether the applicant has an internal auditor.

FMA requirements

60.    The applicant must, in respect of its whole business and where its trustee or statutory supervisor business has a separate governance structure, in respect of that trustee or statutory supervisor business:
a.    Identify those directors considered by the applicant to be independent
b.    Identify the executive directors on the applicant's board and note those who are resident in New Zealand
c.    Provide a description of the policy and procedures for determining board independence
d.    Provide a summary of its policies in relation to the balance and selection of board members, including the balance between independent directors and non-independent directors and executive and non-executive directors
e.    Provide a description of the policies and key controls in place in relation to board conflict management
f.    Provide a description of the applicant's policy on how board performance and the performance of individual directors are assessed and kept under review
g.    Identify the nature, composition, powers, functions and structure of the board committees
h.    Provide a summary of the applicant's policy for the engagement of external auditors and a brief description of the functions of the applicant's business that are externally audited. If external auditors are not engaged, the reasons for this should be provided
i.    Provide a brief description of the applicant's succession plans, disaster recovery plans and risk management policies
j.    Provide an organisational chart showing the position of the trustee or statutory supervisor business in the overall business framework
k.    Describe how the trustee or statutory supervisor business is separated and maintains operational independence from any other business operated by the applicant.

Professional indemnity insurance

Relevant Act requirements
16(3)(h)
the applicant's professional indemnity insurance.

Relevant Regulation requirements
Reg 5(8)
FMA must, in assessing the matters referred to in section 16(3)(h) of the Act, to the extent that the applicant is reasonably able to provide such information in accordance with the terms of the relevant insurance contract, take account of -
a)    the amount for which the applicant is insured, and how it compares to the applicant's overall risk of exposure to liability; and
b)    the coverage of the applicant's insurance policy and its exclusions; and
c)    how often the insurance is reviewed.

FMA requirements

61.    The applicant must provide:
a.    A description of the amount of, coverage provided by and exclusions in its professional indemnity insurance, including how the amount insured compares with the applicant's overall risk of exposure to liability
b.    Details on any material conditions attached to insurance policies
c.    The policies in place for ongoing assessments of risk exposure
d.    Details of who within the applicant's business has overall responsibility for determining and approving the amount of insurance carried
e.    Details about any insurance cover that has been declined, and if so why
f.    Current certificates of insurance from the insurer.

Other matters

Relevant Act requirements
16(3)(i)
other prescribed matters relating to the applicant, securities, or retirement villages covered by the licence, and issuers or operators covered by the licence.

16(3)(j)
any other matter that the FMA considers is material

Relevant Regulation requirements
Reg 6
The matters that FMA must assess under section 16(3)(i) of the Act are as follows -
a)    whether the applicant previously had a licence, and, if so, the applicant's record under the licence, including any contravention of the terms of the licence or financial markets legislation; and
b)    the applicant's due diligence processes when deciding whether or not to accept new appointments as a trustee or supervisor; and
c)    whether the applicant delegates any of its functions to another entity, and if so, how the applicant ensures that the function is effectively performed.

FMA requirements

62.    The applicant must provide:
a.    Advice as to whether the applicant has previously held a licence granted under the Act, a description of the applicant's record under any licence and whether the applicant breached any of the terms of the licence, or any applicable financial markets legislation
b.    A description of the policy and process for new mandates (including a summary of the due diligence framework)
c.    A description of the policy and process for determining an appropriate risk management framework for each supervised interest to help the trustee or statutory supervisor perform its functions (for example, FMA would expect to be advised how the applicant sets capital requirement or covenants for an issuer) and how the applicant satisfies itself as to the appropriateness of that framework
d.    A summary of any delegated functions and how the applicant manages delegated functions.

63.    In addition, applicants must provide any other information required by FMA, for example overseas criminal convictions and whether the applicant has in the previous seven years been, or is currently, the subject of any material litigation in its capacity as trustee or statutory supervisor, or has in the previous seven years or is currently, in its corporate capacity, the subject of any litigation that has, or could affect the financial position of its trustee or statutory supervisor business and if so details of the litigation and any findings.

Appendix 1 - Securities Trustees and Statutory Supervisors Act 2011 - definitions and relevant sections

associated person

    In these [the Regulations], unless the context otherwise requires, a person is associated with another person if -
    (a)    they are acting jointly or in concert; or
(b)    either person acts, or is accustomed to act, in accordance with the wishes of another person; or
(c)    they are related companies within the meaning of section 2(3) of the Companies Act 1993; or
(d)    either person is able, directly or indirectly, to exert a substantial degree of influence over the activities of the other; or
(e)    they are both, directly or indirectly under the control of the same person; or
(f)    one person is a director of the other person (being a company or other body corporate).

deed of participation
    means a deed of participation relating to a participatory security that is required under section 33(3) of the Securities Act 1978 and includes every instrument that amends the deed of participation

deed of supervision
    has the meaning given in section 5 of the Retirement Villages Act 2003 and includes every instrument that amends the deed of supervision

director
    has the meaning given in section 126 of the Companies Act 1993, but also includes, in the case of a body corporate that is not a company, a person (including a delegate) who occupies a position comparable with that of a director

governing document means, as the context requires:
a.    A trust deed
b.    A deed of participation
c.    A deed of supervision

issuer obligation
means an obligation imposed on the issuer of a security by or under all of the following:
i.    The governing document that relates to the security
ii.    The terms of any offer of the security
iii.    A court order relating to the security
iv.    This Act
v.    The KiwiSaver Act 2006
vi.    Part 5D of the Reserve Bank of New Zealand Act 1989
vii.    The Securities Act 1978
viii.    The Unit Trusts Act 1960

licensee obligation
    means an obligation imposed on a licensee by or under any or all of the following:
a.    Every governing document
b.    The terms of the offer of the security
c.    A court order relating to a supervised interest
d.    This Act
e.    The KiwiSaver Act 2006
f.    Part 5D of the Reserve Bank of New Zealand Act 1989
g.    The Retirement Villages Act 2003
h.    The Securities Act 1978
i.    The Unit Trusts Act 1960

offence of dishonesty means:
a.    A crime described in any of the sections 104, 105B, 108 to 117 and 217 to 266 of the Crimes Act 1961

b.    An offence described in any of the sections 15 to 20 of the Summary Offences Act 1981

operator obligation
    means an obligation imposed on the operator by or under any or all of the following:
a.    Every deed of supervision that relates to the retirement village
b.    A court order relating to the retirement village
c.    This Act
d.    The Retirement Villages Act 2003

Section 3 Purpose
    The purpose of this Act is to protect the interests of security holders, and of residents of retirement villages, and to enhance investor confidence in financial markets and retirement villages, by-
a.    requiring persons who wish to be appointed as trustees or statutory supervisors to be capable of effectively performing the functions of trustees or statutory supervisors; and
b.    requiring trustees and statutory supervisors to perform their functions effectively; and
c.    enabling trustees and statutory supervisors to be held accountable for any failure to perform their functions effectively.

Section 25 Licensee must deliver regular reports to FMA

1.    A licensee must deliver a report to the FMA-
a.    by a date determined by the FMA when a licence is issued, which must be between 6 and 12 months after the date on which the licence is issued; and
b.    at least once every 6 months after that date.
2.    The report must contain-
a.    prescribed information about the following:
i.    the requirements referred to in section 16(2):
ii.    the matters referred to in section 16(3):
iii.    the licensee's compliance with any conditions imposed on the licence:
iv.    the supervised interest:
v.    the licensee's compliance with the terms of every governing document that relates to a supervised interest:
vi.    other prescribed matters; and
b.    any information required by a condition imposed on the licence.

Section 26 Licensee must report breach of licensee obligation, etc
1.    This section applies if a licensee believes that-
a.    the licensee has, or may have, breached a licensee obligation; or
b.    a material change of circumstances has occurred, may have occurred, or is likely to occur in relation to the licensee; or
c.    the information on which the FMA based the decision to issue or vary the licence was, or may have been, wrong, misleading, or incomplete.
2.    For the purposes of subsection (1)(b) and (c), the licensee must consider any matters notified by the FMA under sections 18(3)(c) and 30(5)(d).
3.    The licensee must, as soon as practicable after the licensee forms the belief referred to in subsection (1), deliver a report to the FMA containing details of the belief and the licensee's grounds for the belief.

senior manager
    in relation to an applicant, means a person (including a delegate) who is not a director but occupies a position that allows the person to exercise significant influence over the management or administration of the applicant (for example, a chief executive or a chief financial officer)

trust deed
a.    In relation to a debt security, has the meaning given in section 2(1) of the Securities Act 1978 and includes every instrument that amends the trust deed
b.    In relation to a KiwiSaver scheme, has the meaning given in section 4(1) of the KiwiSaver Act 2006
c.    In relation to a unit trust, has the meaning given in section 2(1) of the Unit Trusts Act 1960

Appendix 2 - Relevant financial markets legislation as set out in Schedule 1 of the Financial Markets Authority Act 2011

Financial Advisers Act 2008
Financial Service Providers (Registration and Dispute Resolution) Act 2008
Parts 4 and 5 and Schedules 1 and 2 of the KiwiSaver Act 2006
Securities Act 1978
Securities Markets Act 1988
Securities Transfer Act 1991
Superannuation Schemes Act 1989
Unit Trusts Act 1960

Part 2

Anti-Money Laundering and Countering Financing of Terrorism Act 2009
Building Societies Act 1965
Companies Act 1993
Co-operative Companies Act 1996
Corporations (Investigation and Management) Act 1989
Sections 220, 228, 229, 240, 242 and 256 to 260 of the Crimes Act 1961
Financial Reporting Act 1993
Friendly Societies and Credit Unions Act 1982
Industrial and Provident Societies Act 1908
Limited Partnerships Act 2008
Part 5C of the Reserve Bank of New Zealand Act 1989
Trustee Companies Act 1967

Appendix 3 - Revenue tables

Concentration of revenue by individual supervised interest

Percentage of total revenue	Number of individual supervised interests that contribute annual revenue in this band
0-5%
6-10%
11-15%
16-20%
21-25%
26-50%
51-75%
76-100%

Breaches and Offences

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Securities trustees and statutory supervisors may be liable for penalties for breaches of their obligations

Under the Securities Trustees and Statutory Supervisors Act 2011, securities trustees and statutory supervisors may be liable for penalties of up to $200,000 for breaches of their obligations under:

any relevant trust deed, deed of participation, or deed of supervision
the Securities Trustees and Statutory Supervisors Act 2011
a court order relating to a supervised security or retirement village
Part 5D of the Reserve Bank of New Zealand Act 1989 (which regulates non-bank deposit takers)
the Securities Act 1978
the Unit Trusts Act 1960
the Retirement Villages Act 2003
the KiwiSaver Act 2006.
the terms of offer of a relevant security.

In addition, securities trustees and statutory supervisors may also be liable to pay compensation to investors arising out of any such breaches.

Any person acting as a securities trustee or statutory supervisor without a licence (when a licence is required under the Act) commits an offence and may be liable on summary conviction for a fine of up to $300,000.

Monitoring and Surveillance

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Monitoring and Surveillance Trustees

FMA monitors that trustees are compliant with their obligations. See FMA's overall compliance focus for 2013.

Licensed Trustees and Statutory Supervisors

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Licensed Trustees and Statutory Supervisors

Under the Securities Trustees and Statutory Supervisors Act 2011, securities trustees and statutory supervisors have to be licensed.

Under the Act entities acting as trustees and statutory supervisors on 1 October 2011 were deemed to have a temporary licence. This temporary licence was in force until the earlier of;

a grant of a full licence, subject to conditions,
the decline of a licence application,
1 October 2012.

The following entities have been granted a licence. A link to each licence certificate, including the licence conditions, is set out below.

Effective Disclosure

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Guidance Note: Effective Disclosure

This guidance note was released in June 2012 following a formal consultation process.

• See submissions on second consultation draft (issued April 2012) and our response to submissions

• See submissions on first consultation round (issued January 2012) and our response to submissions

Guidance Note: Disclosing non-GAAP financial information

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Guidance Note: Disclosing non-GAAP financial information

Who Needs to Comply

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Defines the types of trustees and statutory supervisors covered by the Act

Trustees are appointed to look after investors' interests for certain securities. Trustees covered by the Securities Trustees and Statutory Supervisors Acts are:

Debt security trustees

Unit trustees

KiwiSaver trustees.

Restricted KiwiSaver schemes are not currently covered by the Act.

Statutory supervisors are appointed to look after investors' interests for participatory securities (a catch-all term for securities other than equity securities, debt securities or investments in a managed fund).

Statutory supervisors of retirement villages are also covered by the Act.

Pre-prospectus publicity - some practical guidance for issuers and their advisers.

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Guidance Note: Pre-prospectus publicity - some practical guidance for issuers and their advisers.

This guidance note was released in September 2012.

How Long Does It Take?

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It generally takes about four to six weeks to process applications from when we have been provided with all the information we need. This may be longer.

It generally takes about four to six weeks to process applications from when we have been provided with all the information we need. This may be longer, though, if questions of policy arise.

Exemption notices come into force as soon as FMA grants them. You do not need to wait for them to be published in the Gazette.

If your application is urgent, you must provide the timeframes within which the decision is needed. You must also provide reasons for requesting urgent consideration.

What Exemptions Won't Be Granted?

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FMA considers that its exemption power only extends to compliance provisions, not to liability provisions.

While the Securities Act 1978 and the Financial Reporting Act 1993 give the Financial Markets Authority broad powers to exempt certain persons or transactions from compliance with specific provisions of those Acts, FMA considers that its exemption power only extends to compliance provisions, not to liability provisions.

FMA is also unlikely to exempt issuers from the general prohibition in the Securities Act against the distribution of deceptive, misleading or confusing advertisements, or from section 18 of the Financial Reporting Act, which requires issuers to register financial statements with the Registrar of Companies.

Format for an Application for an Exemption - Section 35A Financial Reporting Act 1993

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Outline of exemption application.

Who is applying?

Give the full name, address and corporate status of the person(s) seeking the exemption.

Describe how the applicant is an 'issuer' within the definition provided by the Financial Reporting Act.

State the jurisdiction in which the applicant is incorporated or constituted, and any securities exchanges upon which its securities are listed.

What securities are being offered?

Describe any offers of securities which the applicant has made and any securities which have subsequently been allotted, which are relevant to the application. It would be helpful to give some background to the transactions and then specific details e.g. the type of securities, details of the offer, parties to the offer, details of target subscribers, etc.

State whether the applicant has relied upon any exemptions from the Securities Act 1978 in making these offers and allotting the securities.

What do you want an exemption from?

Give the provisions of the Act from which the exemption is sought and any conditions of exemption you consider appropriate.

Please note that FMA must not grant an exemption to directors of an overseas issuer unless it is satisfied that the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption.

Why are you seeking this exemption?

Explain, for each provision of the Act from which the exemption is sought, why the exemption is wanted and give full reasons which may justify an exemption.

Are there any precedents?

Identify any existing exemption notices which are similar to the exemption sought and which may provide a precedent for your application. State how the notices are similar to and different from the exemption you are seeking.

What effects will there be on prospective investors?

Describe how your proposed exemption may affect prospective investors and any costs and benefits to them.

What effects will there be on the issuer?

Describe the effects on the issuer, and the relative costs and benefits, of (a) having and (b) not having the exemption.

Please note that FMA cannot grant an exemption to directors of an overseas issuer unless it is satisfied that the exemption would not cause significant detriment to subscribers for the securities of the issuer that are members of the public in New Zealand, having regard to the financial reporting requirements that must be complied with in relation to the issuer under the law in force in the country where the issuer is incorporated or constituted.

Factors to particularly address when making application under section 35A

When assessing an application for an exemption under section 35A of the Financial Reporting Act, FMA will take into account the following (along with any other matters relevant to a particular application):

the financial reporting requirements in force in the country where the issuer is incorporated;
the legal standing of the financial reporting requirements;
the enforceability of the financial reporting requirements;
the ease with which New Zealand authorities could, if necessary, obtain cooperation from home jurisdiction in any investigation.

To assist it to consider an application, FMA will require a detailed description of these matters as they apply to the applicant and the applicant's jurisdiction.

Factors which FMA has identified that may also be relevant in making its assessment under section 35A include:

whether under section 14 of the FRA 1993 the Registrar of Companies has accepted financial statements that comply with the law of the overseas country in question on the basis that the requirements of that law are substantially the same as those of the FRA 1993;
whether FMA has previously granted an exemption for overseas issuers from the disclosure, record keeping, audit, and registry obligations of the Securities Act 1978 on the basis that FMA has undertaken a similar assessment as would be required under section 35A(2) of the FRA 1993. FMA notes that in relation to these jurisdictions it would have to reassess the same factors but from the point of view of financial reporting obligations rather than securities law only;
the additional cost that would be associated with preparing information which meets the full requirements of the FRA 1993, and whether this outweighs the benefit that would be achieved by having that information available for investors; and
the breadth of the exemption required in any particular case.

Please ensure you provide information which addresses these factors in full.

Supporting documents

You need to supply the relevant documents to support your application. These could include the following documents or most recent drafts:

the most recent financial statements
details of incorporation
copies of applicable financial reporting laws and standards, or references to where these can be obtained electronically.
a draft exemption notice

Time frame

If your application is urgent specify the dates when a decision is needed and when any exemption granted needs to be gazetted. Give reasons for seeking urgent consideration.

Format for an Application for an Exemption - Section 4B Financial Reporting Act 1993

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Outline of exemption application.

Who is applying?

Give the full name, address and corporate status of the person(s) seeking the exemption.

Describe how the applicant is a 'recipient of funds from a conduit issuer' within the interpretation provided by the Financial Reporting Act.

What securities are being offered?

Describe any offers of securities in respect of which the applicant is a conduit issuer and any securities which have subsequently been allotted, which are relevant to the application. FMA will require information about the background to the transactions and then specific details e.g. the type of securities, details of the offer, parties to the offer, parties who are "recipients of money from a conduit issuer", details of target subscribers, etc.

Please note whether the applicant relied upon any exemptions from the Securities Act 1978 in making these offers and allotting the securities.

What do you want an exemption from?

Give any conditions of exemption you consider appropriate.u seeking this exemption?

Why are you seeking this exemption?

Explain why the exemption is wanted and give full reasons which may justify an exemption.

In particular address how the circumstances of the issuer or the conditions suggested will ensure that investors still receive adequate information about their investment and the entity or entities for whose use the money has been raised.

Are there any precedents?

What effects will there be on prospective investors?

Describe how your proposed exemption may affect prospective investors and any costs and benefits to them.

What effects will there be on the issuer?

Describe the effects on the issuer, and the relative costs and benefits, of (a) having and (b) not having the exemption.

Supporting documents

You need to supply the relevant documents to support your application. These could include the following documents or most recent drafts:

the prospectus and investment statement provided to investors by the applicant;
the most recent financial statements of the applicant and other members of the applicant's group;
a draft exemption notice.

Time frame

If you application is urgent specify the dates when a decision is needed and when any exemption granted needs to be gazetted. Give reasons for seeking urgent consideration.

What Are the Charges?

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The charges for Issuers applying for exemptions differ depending on the type of exemption.

Exemption applications under Securities Act 1978

A cheque for $1,265.00 should accompany each application. This covers the application fee of $100 set out in the Securities (Fees) Regulations 1998 and an advance of $1,000 for fees and costs to be incurred, plus GST.

The regulations set out charging rates of $200 plus GST per hour for time spent by Financial Markets Authority board members and $145 plus GST per hour for time spent by staff.

Exemption applications under Financial Reporting Act 1993

A cheque for $1,265.00 should accompany each application. This covers the application fee of $100.00 set out in the Financial Reporting (Fees and Forms) Regulations 2007 and an advance of $1,000 for fees and costs to be incurred, plus GST.

The regulations set out charging rates of $200 plus GST per hour for time spent by FMA board members and $145 plus GST per hour for time spent by staff.

FMA can also recover the cost of independent expert assistance sought in relation to particular applications

Applicants must also reimburse FMA for the costs of printing and gazetting the exemption notice at the rate of 55 cents per word including GST.

What Exemptions Can I Apply For?

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Issuers may apply for exemptions from parts of the Securities Act 1978, Securities Markets Act 1988, and the Financial Reporting Act 1993.

You may apply to the Financial Markets Authority for an exemption from specific provisions of:

Part 2 of the Securities Act 1978 (which regulates how offers of securities may be made to the public) and any regulations made under that Act
Part 2 of the Securities Markets Act 1988 (which contains disclosure obligations of directors and officers, and substantial security holders, of public issuers) and any regulations made under that Part
the Financial Reporting Act 1993, which relate to overseas issuers and recipients of money from conduit issuers.

How Do I Make an Application?

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You apply for an exemption by sending an application in writing to FMA.

You apply for an exemption by sending an application in writing to the Financial Markets Authority. There are no forms to fill out, but we recommend that, where possible, you use the following formats for making exemption applications:

You can send your application by email but a hard copy should also be forwarded, together with the cheque for the application fee.

See contact us for details on where to send your application.

Format for an Application for an Exemption - Securities Act 1978, Securities Markets Act 1988

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Outline of exemption application.

Who is applying?

Give the full name, address and corporate status of the person(s) seeking the exemption:

What securities are being offered?

Describe the offer of securities for which the exemption is being sought. It would be helpful to give some background to the transactions proposed and then specific details e.g. the type of securities, details of the offer, parties to the offer, details of target subscribers, etc.

What do you want an exemption from?

Give the provisions of the Act and/or Regulations from which the exemption is sought and any conditions of exemption you consider appropriate:

Why are you seeking this exemption?

Explain, for each provision of the Act or Regulations from which the exemption is sought, why the exemption is wanted and give full reasons which may justify an exemption:

Are there any precedents?

What effects will there be on prospective investors?

Describe how your proposed exemption may affect prospective investors and any costs and benefits to them:

What effects will there be on the issuer?

Describe the effects on the issuer of the securities, and the relative costs and benefits, of (a) having and (b) not having the exemption:

Supporting documents

You need to supply the relevant documents to support your application. These could include the following documents or most recent drafts:

the prospectus and investment statement
the most recent financial statements
a copy of the trust deed or deed of participation
details of incorporation
any other documents relating to the offer of securities relevant to the application
a draft exemption notice

Time frame

If your application is urgent specify the dates when a decision is needed and when any exemption granted needs to be gazetted. Give reasons for seeking urgent consideration.

Exemptions

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The exemptions that can apply and how to make an exemption application

The Financial Markets Authority has wide powers to exempt persons (or types of persons) or transactions (or types of transactions) from some requirements in the Securities Act 1978, Securities Markets Act 1988, Financial Reporting Act 1993 and associated regulations.

What exemptions can I apply for?
How do I make an application?
What are the charges?
How long does it take?
What exemptions won't be granted?
What if I want to exclude commercially sensitive information from my application?

Find out more about exemptions, including exemptions already granted.

Consultation on class exemptions

FMA is currently undertaking a review of 44 class exemption notices expiring this year. It has completed an initial round of public consultation on the expiring class exemption notices. The original consultation paper can be found here.

We would like to update interested parties on decisions made, the continuing work on notices, and the further feedback we are seeking.

Applications to Exclude Commercially Sensitive Information from Material Contracts

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New Zealand law requires issuers to make copies of certain material contracts available for public inspection as part of offer of securities to public requirements.

New Zealand securities law requires issuers to make copies of certain material contracts available for public inspection as part of the requirements for an offer of securities to the public. From time to time FMA receives an exemption application from an issuer who seeks to exclude from its material contracts information that it considers to be commercially sensitive.

In considering such applications, FMA needs to determine the appropriate balance between the investors' need to know the sensitive information and the potential competitive harm to the issuer in disclosing that information.

This note sets out current FMA policy in this area.

Requirement to Disclose Material Contracts

The Securities Regulations 2009 require disclosure of material contracts as follows:

Clause 17 of the First Schedule to the Regulations (and equivalent provisions in other Schedules) requires disclosure in the prospectus of certain prescribed information about the issuing group's material contracts;
Regulation 18(1)(a) requires a registered prospectus to have attached to it, or be accompanied by, copies of the material contracts (which will then be available for public inspection at the Companies Office); and
Clause 25(c) of the First Schedule (and equivalent provisions in other Schedules) requires that the prospectus state the times and places where copies of the material contracts may be inspected by any person on payment of any fee.

Policy

The starting point for consideration of exemption applications of this nature is that FMA aims for full disclosure, and it will only permit deletion of commercially sensitive information from material contracts in exceptional circumstances. Such exceptional circumstances must be clearly identified in any application for exemption.

No exemption will be granted where exclusion of the information in question means the prospectus will be likely to deceive, mislead or confuse with regard to any particular that is material to the offer, including by failing to refer, or give proper emphasis, to adverse circumstances.

FMA may be willing to grant an exemption that will permit an issuer to exclude commercially sensitive information from the disclosure copies of material contracts, if it is satisfied that disclosure of the information will be seriously detrimental to the issuer, and that detriment outweighs the benefit arising from publication. Each application will be considered on a case by case basis.

FMA is unlikely to grant such an exemption where:

disclosure of the information is required by any other law or the listing requirements of New Zealand or any other jurisdiction to which the issuer is subject; or
disclosure of the information would be detrimental to the issuer solely because of a duty of confidence owed to a third party.

Any exemption granted will be in respect of the particular information determined to be sensitive, and to meet the above criteria, rather than being an exemption applying to the whole contract.

Any exemption granted can be expected to be conditional upon the prospectus stating, at the appropriate point in the statutory information section:

that information has been deleted from the particular contract; and
the reasons why the information has been deleted; and
the general nature of the material information that has been deleted.

Fees and Levies

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Fees and Levies are payable for registering documents and for exemption applications

Fees

Issuers will need to pay fees to the Companies Office to register a prospectus (or an amendment to a prospectus) and to register financial statements.

See the Companies Office website for more information

Fees are payable to the Financial Markets Authority for applications for exemptions from the Securities Act and its regulations, the Financial Reporting Act, and the Securities Markets Act.

See more about exemption application fees.

Levies

Class 8 - Public issuers
Class 10 - Registered exchanges
Class 11 - Authorised futures exchanges
Class 13 - Overseas auditors

These organisations and individuals will be contacted by the FMA, after the regulations have come into effect on 1 August 2012.

Breaches and Offences

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The offence and breach provisions of the relevant legislation and our enforcement powers

The Securities Act, the Securities Markets Act and the Financial Reporting Act each contain offence and breach provisions relevant to issuers.

Securities Act 1978

Generally, any allotment of securities to the public made without a registered prospectus (or an exemption) is invalid and of no effect. There are other requirements in the Securities Act which if not complied with will make an allotment void. These include allotments made under an investment statement or prospectus when the Financial Markets Authority has prohibited or suspended allotment due to a defect in those documents. These are known as 'void irregular allotments'.

Generally, an allotment of securities to the public can also, on written request of a subscriber, be made invalid if among other things:

the subscriber did not receive an investment statement before subscribing
at the time of allotment, the investment statement or registered prospectus is known by the issuer (or a director of the issuer) to be false or misleading by failing to properly emphasise adverse circumstances, such as such as risks.

These are known as 'voidable irregular allotments'.

Following void and voidable irregular allotments, the issuer is required to repay investors' money. In some circumstances, directors of issuers can also be liable for repaying subscriptions and interest.

Issuers, directors of issuers, and promoters, can also have civil and criminal liability where prospectuses or advertisements contain untrue statements, or where securities are offered or allotted in breach of the Act. This can result in a fine or imprisonment.

Persons can also be fined for more minor offences under the Act, such as failures to comply with record keeping obligations.

FMA has broad powers under the Act to prohibit distribution of advertisements (including investment statements), and to suspend or cancel the registration of prospectuses, where those offering documents are likely to confuse or mislead, or where certain procedural requirements have not been met.

Find out more about FMA's enforcement powers.

Securities Markets Act 1988

Issuers and other persons can be required to pay a fine or compensation where they are in breach of their obligations under the Securities Markets Act.

Issuers can be liable to pay up to $1,000,000, where they have breached their obligations to continuously disclose price sensitive information to the market. FMA or the Court may make a compulsory disclosure or correction orders to remedy that breach.

In some circumstances, the Court may require the issuer to compensate or refund a person where the issuer's breach of its continuous disclosure obligation has caused loss.

The Act also contains further penalties of up to $10,000 for procedural breaches, such as failure to maintain the required interests registers.

Financial Reporting Act 1993

Directors of issuers can also be liable for breaches of their financial reporting obligations under the Financial Reporting Act.

Every director of an issuer is liable for a fine of up to $100,000 if the financial statements or group financial statements:

are not completed and signed within the timeframes in the Act
fail to comply with financial reporting standards
contain financial information that does not comply with financial reporting standards
are not audited, or are not delivered to the Registrar of Companies as required by the Act.

Money Laundering and Financing Terrorism

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Money laundering is how criminals disguise the illegal origins of their money.

See Anti-Money Laundering and Countering Financing of Terrorism.

Prospectus Registration

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Prospectus registration and checks, allotments and amendments. How to register trust deeds and deeds of participation

Prospectuses must be registered with the Registrar of Financial Service Providers, through the Companies office website.
Once a prospectus is registered, it may be reviewed by FMA, to confirm that it complies with the Securities Act 1978 and the Securities Regulations.

Except where the registered prospectus is a continuous issue prospectus, issuers may not allot (or accept subscriptions) for a period of five working days after registration.

The purpose of this period (called the consideration period) is to provide FMA with the opportunity if it so chooses to review the prospectus. FMA can extend this period for a further five working days. It can also waive some or all of the consideration period, allowing securities to be allotted earlier.

How do you register a prospectus?

For information on how to register a prospectus see the Companies Office website.

What do issuers have to do once a prospectus is registered?

Within five working days of registration, issuers need to update their websites to let the public know that the prospectus has been registered.

The website needs to contain a reasonably prominent statement, or reasonably prominent link to a statement, that the prospectus has been registered, and describe where a copy of that prospectus can be found.

Pre-registration review by FMA

From the end of March 2012 FMA is no longer providing this service. For more information click here.

Post-registration review by FMA

Once a prospectus is registered, FMA may review the document to determine whether it:

complies with the Securities Act and the Securities Regulations
contains any material incorrect descriptions or errors, or any material matter that is not clearly legible
is false or misleading, or omits any material particular.

FMA is not obliged to review every registered prospectus, and may choose not to review in some circumstances. FMA takes a risk-based approach to selecting prospectuses for review.

During the review of a prospectus, FMA may contact the issuer to ask questions about its disclosure and may ask the issuer to correct or improve its prospectus.

Following a review, or at any time later, if FMA thinks a registered prospectus does not comply with the Securities Act and the Securities Regulations or does not contain satisfactory disclosures, we can prohibit allotment and/or cancel the registered prospectus.

If FMA is considering whether to cancel a prospectus we can make an interim order which can be in force for 15 to 30 working days.
Securities cannot be allotted while an interim order is in force. FMA can make an interim order without giving notice to the issuer, though if we do this we will allow the issuer to make submissions after we have made the order.

Under the Financial Markets Authority Act 2011, nothing FMA does can be taken as a guarantee or representation that a prospectus complies with the law, or that FMA has reviewed a prospectus. FMA can exercise its powers to cancel a prospectus at any time, even if it has undergone pre-registration vetting or post-registration review.

When can you allot?

Unless your registered prospectus is a continuous issue prospectus, you cannot allot (or accept subscriptions) until the end of the consideration period. Usually this is five working days after the prospectus is registered, although FMA can extend this to 10 working days. We may also notify you that the period has been shortened, and securities can be allotted.

If your registered prospectus is a continuous issue prospectus you may allot from the date of registration. FMA may determine (by advance notice) that certain classes of continuous issue prospectuses are still subject to the post-registration stand down period for allotment.

If your registered prospectus relates to securities for which there is already a registered prospectus, securities may be allotted and subscribed for under that original prospectus, despite the replacement registered prospectus still being subject to review.

How do you register an amendment to a registered prospectus?

You register an amendment to a registered prospectus in the same way you would register a prospectus. See the Companies Office website.

There is no stand down period for allotment in these circumstances.

Issuers will also be required to update their websites within five working days of registration, to notify the details of the amendment.

How do you register trust deeds and deeds of participation?

See the Companies Office website for information on registering trust deeds and deeds of participation, and any amendments to those deeds.

FMA is notified when a trust deed or deed of participation is registered. We may, at any time, prohibit allotment or cancel a prospectus where we determine that a trust deed or deed of participation:

does not comply with the Securities Act or the Securities Regulations
contains any material incorrect descriptions or errors, or any material matter that is not clearly legible.

What about prospectuses and deeds registered under the old registration regime?

These will continue to be treated as registered prospectuses and deeds.

An issuer with an existing registered prospectus won't have to notify registration on its website. But they will need to comply with the new process for amending an existing registered prospectus.

Pre-registration checking of prospectuses

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From the end of March 2012, FMA is no longer providing this service.

From the end of March 2012, FMA ceased to provide this service.

For further information on our guidance note on Effective Disclosure, please refer to our media release.

In case of difficulty, please contact us through our website contacts portal and we will reply promptly.

Who Needs to Comply

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Anyone offering securities to the public needs to comply. Defines offers, securities, the public and explains the legislation that applies.

Anyone offering securities to the public needs to comply with a range of financial markets legislation. In particular they will need to comply with the:

Securities Act 1978 and the Securities Regulations 2009
Securities Markets Act 1988
Financial Reporting Act 1993.

Who needs to comply, and the extent of that person's legal obligations, depends on the nature of the offer, and the scope of the relevant piece of financial markets legislation.

The information below describes:

what is, for the purposes of the Securities Act, an 'offer of securities to the public'
who has legal obligations when securities are offered to the public.

Find out more about your obligations.

What is an offer?

An offer includes an invitation and any proposal to make an offer. It can also include the distribution of offering documents (such as an investment statement or prospectus).

It need not be a formal offer in any contractual sense. There need not be any advertising or public notification, and an offer can occur simply by a person creating securities, and then letting it be known those securities are for sale.

What is a security?

A security is an interest or right to participate in any capital, assets, earnings, royalties or other property.

Common types of securities include equity securities (shares in a company) and debt securities (e.g. deposits or bonds).

Other types of securities include:

units in unit trusts
interests in superannuation schemes
life insurance policies.

See more about superannuation schemes.

Who is the public?

The Securities Act 1978 and its regulations are primarily concerned with offers of securities to 'the public'. These are often referred to as 'retail offers'. If an offer is not made to the public, it does not need to comply with the Act or its regulations (but it will need to comply with other financial markets legislation).

Even if only one person who is offered securities is a member of the public the whole offer will nevertheless be considered an offer to the public, and so will need to comply with the Act and its regulations.

When is an offer of securities to 'the public'?

An offer of securities to the public includes an offer to:

any section of the public
individual members of the public randomly selected
persons known to those making the offer as a result of an advertisement.

An offer can still be to the public if it is aimed at a target group of people, and not the public in general, and even if those persons are selected for certain reasons (for example, employees of the person issuing or promoting the securities).

When is an offer of securities not to 'the public'?

An offer will not be made to the public if the only persons securities are offered to are:

relatives or close business associates of the issuer or of a director of the issuer;
recognised professional investors
persons required to pay (or previously required to pay) a minimum subscription of $500,000
any other person who has not been selected as a member of the public; or
a person invited to enter into an agreement to underwrite or sub-underwrite the offer of securities.

Offer to 'eligible persons'

Most provisions of the Act relating to offers of securities do not apply if the only persons who are eligible to invest, and do invest, are wealthy, experienced in investing and/or experienced in the business or industry to which the offered securities relate. However, the issuer must have followed the process in the Securities Act for verifying the wealth or experience of the investors.

Find out who is an 'eligible person'.

Who has legal obligations when securities are offered to the public?

Issuers and promoters under the Securities Act 1978 and the Securities Regulations 2009

The persons with obligations under the Securities Act and Regulations are, primarily, issuers and promoters.

Who is an issuer?

For equity or debt securities, the issuer is the person on whose behalf money paid for the securities is received
For participatory securities or units in a unit trust, the issuer is the manager of the scheme or trust
For an interest in a contributory mortgage, the issuer is the contributory mortgage broker
For a life insurance policy, the issuer is the life insurance company liable under the policy
For a superannuation scheme, the issuer is the superannuation trustee of the scheme.

Who is a promoter?

A promoter is a person who is instrumental in forming a plan under which securities are offered to the public. Where a promoter is a company, the directors of that company will also be promoters.

Directors of issuers are not promoters, and nor are persons who are acting solely in their professional capacity, such as legal or financial advisers.

Issuers under the Securities Markets Act 1988

Under the Securities Markets Act, 'public issuers' also have obligations. A 'public issuer' is an entity that is party to a listing agreement with a registered exchange. Currently, the only registered exchange in New Zealand is NZX Ltd.

Entities enter into listing agreements when they want to have their securities traded on an exchange.

Find out more about issuer's obligations

Issuers under the Financial Reporting Act 1993

Issuers also have financial reporting obligations under the Financial Reporting Act, and are required to prepare and register audited financial statements each year.

Find out more about issuer's financial reporting obligations from the Companies Office website.

Help Me Comply - Financial Markets Authority

Guidelines and Codes of Practice

Identity Verification Code of Practice

Risk Assessment Guideline

Ordinary Course of Business Guideline

AML/CFT Programme Guideline

Guide for small financial adviser businesses

Designated Business Group - Scope Guideline

Designated Business Group - Formation Guideline

Countries Assessment Guideline

Guideline: Issuers of securities and participants in issues

Guideline for audits of risk assessments and AML/CFT programmes

Guideline: Territorial scope of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009

Beneficial Ownership Guideline

Client Funds Regulations and Exemptions

What are the client funds obligations?

What exemptions can I apply for?

How do I make an application?

How long is an exemption granted for?

Publication of exemptions

List of existing exemptions

Your Obligations

Conditions of authorisation

Client Funds obligations

How to Become Authorised

Approval by an exchange

Reliance on a class exemption notice

Individual entity authorisation by FMA

Who Needs to Comply

Overseas dealers

Money Laundering and Financing Terrorism

Breaches and Offences

Applying for Client Funds Exemptions

What information do I need to provide?

Disclosure of information about my application

How long does it take to process an application?

What are the fees and costs?

Can I withdraw my application?

Do I need a lawyer?

How to contact us:

List of Authorised Futures Dealers

Fees and Levies

Applications Fees for FMA authorisation

Levies on futures dealers

Monitoring and Surveillance

Capital

Client funds

Compliance

Monitoring findings

Declarations

What is a declaration?

Background information

Declarations for CFDs in respect of shares

How does my entity apply for a declaration?

How long does it take?

Find out more about declarations already made

Title

SR Series

Varying an existing licence

How to apply

Assessment of the application

Variations to include a new class of licence

Need help?

Getting Licensed

Application form

Supporting documentation

Licence duration and conditions

Applying for a variation of licence

Fees and Levies

Fees

Levies

Reports on issuer breaches - Section 46 reports

When to report

What to report

Your Obligations

Your Obligations

Obligations under the Securities Act 1978 and Securities Regulations 2009

Obligation to prepare offering documents

Prospectus

Investment statement

Guidance Note: Effective Disclosure

Guidance Note: Disclosing non-GAAP financial information