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.
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.