From the cabinet paper the following proposal looks interesting:
I also propose that officials consider whether additional mechanisms to ensure the legislation is in practice capturing the activities that should be regulated. For example, one option could be to enable the FMA to designate activities as advice, subject to a set of guiding principles.
Why is this power proposed? Well, that is based on the issue described in the earlier section in the paper as follows:
39.2 It may be allowing some activities which are intended to be captured to go unregulated by providers using the strict ‘letter of the law’. An example from the FMA’s 2015 review of Sales and advice is the cross-selling of financial products, where consumers who intended to purchase one financial product, such as a credit card or home loan, were sold additional products, such as life insurance or KiwiSaver and this was not treated as advice.
Another excellent example could be the replacement of existing insurance policies. While preserving the exemption for execution-only business, the new power could grant the FMA the ability to define replacement narrowly (as it is right now requiring a choice: either advising on replacement, or warning of the risks of no advice) or it could designate that any sale where a client discloses an existing product must be advised. There is also room for an intermediate setting between these two, say, designating only those cases of replacement where there is a disclosed health condition which would affect the price or terms.