Understanding the finer details of FSLAA, and more daily news

MBIE released more information on FSLAA in mid-December. Penny Sheerin, partner at Chapman Tripp, has said that these changes are finer details but did highlight that there would be changes to the FSP register to ensure the reduction of registry misuse.

“The Ministry of Business, Innovation and Employment last week released the regulatory requirements that underpin FSLAA.

Penny Sheerin, partner at Chapman Tripp says that any advisers reeling at the updates needn’t worry too much if they are already on board with the changes.

“Really these updates are just the finer details. Tidy-ups to some of the wording of the regulation. Updating terminology to reflect the new regime and a number of other quite administrative points. A lot of it is not ground-breaking new content.”

But Sheerin notes that there is one area which advisers need to pay heed too.

“One thing to note are the changes to the FSP Register, specifically around limitations that have been put in place to limit the misuse of the register. These changes have been talked about for a while but now they are manifesting in the upcoming regulations.””

The Financial Markets Conduct Amendment Regulations 2020 has been updated to change:

  • “Replacing terminology from the Financial Advisers Act 2008 (FAA).
  • Replacing references to financial advisers with references to financial advice providers and including transitional provisions to give affected providers time to update documents.
  • Prescribing eligibility criteria for an entity that wants to be an authorised body under a licence that covers a financial advice service.
  • Carrying over the effect of the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 but with some updates and clarifications, and clarifying when assurance reports for assurance engagements must be obtained by custodians.
  • Prescribing limited circumstances in which a provider of a client money or property service is not required to hold client money and property separate from firm money or property including duties to protect the interests of clients.
  • Prescribing when firm money that is held together with client money is to be treated as client money.
  • Prescribing requirements for the record of nominated representatives that must be maintained by providers.
  • Prescribing the statement that lenders can give to make clear to consumers that the limited exclusion from the financial advice regime relating to lender responsibilities applies.
  • Continuing duties imposed under the FAA for former authorised financial advisers and qualifying financial entities to retain records.
  • Carrying over exemptions contained in regulations under the FAA.
  • Updating a cross-reference in the financial advice disclosure regulations so that financial advice providers are able to refer to their website for information about their legal duties.
  • Enabling financial advice providers to provide contingency discretionary investment management services (DIMS) without being subject to DIMS licensing requirements (and providing for transitional arrangements). This carries over and updates an existing licensing exemption for contingency DIMS provided by authorised financial advisers.
  • Dis-applying certain provisions of the Trusts Act 2019 to trusts relating to portfolio investment entity (PIE) call fund units and PIE term fund units.
  • Updating the information that must be disclosed to investors about the tax consequences of investing in managed investment schemes that are PIEs.
  • Amending the Financial Markets Conduct (Asia Region Funds Passport) Regulations 2019, including a new exemption from the licensing requirement for financial advice services.”

The Financial Markets Authority (Levies) Amendment Regulations (No 2) 2020 has been changed so that:

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

The Anti-Money Laundering and Countering Financing of Terrorism (Definitions) Amendment Regulations 2020 was enhanced to ensure:

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

The Financial Service Providers (Registration) Regulations 2020 has been changed to include:

  • “A requirement for additional information to be displayed on the Register.
  • New measures to address misuse of the Financial Service Providers Register.”

The Financial Service Providers (Exemptions) Amendment Regulations 2020 has been updated so that:

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

In other news

[The Wrap] What's the point of the FADC?


Legal and regulatory update for the life and health insurance sector

16 Dec 2020 – The FMA published its Annual Report for the year ended June 2020. https://www.fma.govt.nz/news-and-resources/media-releases/fma-publishes-2020-annual-report/

17 Dec 2020 – FMA released its latest regular monthly update, which included advice of two consultations expected to commence in the first quarter of 2021, being:

  • Review of the Wholesale Investor $750,000 Minimum Investment Exclusion Exemption Notice 
  • Potential exemption relief for restricted schemes from certain disclosure requirements

The FMA also advised in the update of the publication of two information sheets as follows:

Further FMA guidance identified as published on the FMA website during Dec 2020 includes:

17 Dec 2020 – MBIE advised of the publication of various regulations to support the Financial Services Legislation Amendment Act 2019 and other recent legislation changes, including:

• replacing terminology from the Financial Advisers Act 2008, such as references to “category 2” financial products and authorised financial advisers. Note:
The existing treatment under the Financial Markets Conduct Regulations 2014 in relation to category 2 products (for example in relation to whether a PDS needs to be given) is preserved.
Transitional provisions have been included to give affected providers time to update documents that refer to “authorised financial advisers” and “financial advisers”;
• carrying over the effect of the Financial Advisers (Custodians of FMCA Financial Products) Regulations 2014 with some updates and clarifications;
• prescribing limited circumstances in which client money and firm money can be held together, to reflect the effect of existing FMA exemptions for NZX brokers and Non-NZX brokers;
• prescribing when firm money that is held together with client money is to be treated as client money;
• prescribing the statement that lenders can give to make clear to consumers that the limited exclusion from the financial advice regime relating to lender responsibilities applies;
• prescribing requirements for the record of nominated representatives that must be maintained by providers;
• requiring AFAs and QFEs that continue operating in the industry to retain records that were required to be held under the Financial Advisers Act 2008;
• carrying over exemptions contained in regulations under the Financial Advisers Act 2008;
• updating a cross-reference in the financial advice disclosure regulations so that financial advice providers are able to refer to their website when disclosing information about their legal duties;
• enabling financial advice providers to provide contingency DIMS without being subject to DIMS licensing requirements. This carries over and updates an existing licensing exemption for contingency DIMS provided by authorised financial advisers. The regulations also include transitional arrangements where an authorised financial adviser named in a contingency DIMS investment authority is engaged by a financial advice provider;
as well as the following in relation to financial products more generally:
• providing that certain provisions of the Trusts Act 2019 do not apply to PIE call fund unit trusts and PIE term fund unit trusts;
• updating the disclosure information that must be given by managed investment schemes to reflect changes in the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 relating to tax refundability.

17 Dec 2020 – Privacy Commissioner released the December version of Privacy News, which included information on the release on 8 Dec 2020 of guidance to Ministers and departments to help them determine when personal information can be disclosed to a Minister by a government department. https://privacy.org.nz/publications/guidance-resources/guidance-to-ministers-and-government-departments/


Legal and regulatory update for the life and health insurance sector

2 Dec 2020 – IRD advised that the Minister of Revenue David Parker introduced the Taxation (Income Tax Rate and Other Amendments) Bill into Parliament on 1 Dec 2020. Parliament agreed to accord the Bill urgency. The Bill contains four main measures:

  • introducing a new top personal income tax rate of 39%
  • introducing increased disclosure requirements for trusts
  • increasing the Minimum Family Tax Credit threshold for the 2020–21 tax year, and
  • clarifying more generally that Inland Revenue can request information solely for tax policy development purposes.

All parliamentary stages, including the Third Reading, were completed on 2 Dec 2020. https://taxpolicy.ird.govt.nz/news/2020/2020-12-02-introduction-taxation-income-tax-rate-other-amendments-bill

2 Dec 2020 – Financial Services Council released the third and final part in its Money and You research series - ‘Breaking through the Advice Barrier’ - focused on what is stopping people from getting financial advice, and why it’s important that more New Zealanders have access to it. https://www.fsc.org.nz/bulletin_display/x_blog_code/2121.html

2 Dec 2020 – Good Returns story on an Australian report released by Key Person Risk Management on the potential costs and implications for the life insurance industry of removing commissions and replacing them with a fee for service basis. https://www.goodreturns.co.nz/article/976517905/australian-report-raises-alarm-over-life-insurance-s-future.html

3 Dec 2020 – Department of Internal Affairs issued an AML/CFT update on expiring regulations timeframe and the impact on independent audit obligations. The Ministry of Justice has advised that the timeframes for amending these regulations has changed and the Ministry now aims to have new regulations in force by July 2021. Note the resultant impact on timeframes for reporting entities with an independent audit due prior to July 2021. https://www.dia.govt.nz/AML-CFT-Update-to-expiring-regulations-timeframe


Legal and regulatory update for the life and health insurance sector

21 Oct 2020 – Department of Internal Affairs published a new webinar on the AML/CFT enhanced customer due diligence obligation on its website. https://www.dia.govt.nz/Enhanced-Customer-Due-Diligence-Webinar

22 Oct 2020 - Simone Robbers, RBNZ Assistant Governor & General Manager of Governance, Strategy and Corporate Relations, delivered a speech to the 16th Annual Financial Markets Law Conference titled “Working together to support economic recovery, strengthen resilience, and develop culture”. https://www.rbnz.govt.nz/news/2020/10/working-together-to-support-economic-recovery-strengthen-resilience-and-develop-culture

22 Oct 2020 – FMA released a consultation titled “Recognition of Australian adviser qualifications”, relevant to the upcoming financial advice provider regime, with submissions closing on 20 Nov 2020. https://www.fma.govt.nz/compliance/consultation/consultation-recognition-of-australian-adviser-qualifications/

20 Oct 2020 – MBIE published information on its website an update on COVID-19-related business relief measures, noting that some have been extended, while others are no longer available or are soon to expire. https://www.mbie.govt.nz/about/news/update-on-covid-19-related-business-relief-measures/

21 Oct 2020 - The first statement defining the purpose of New Zealand’s retirement income system was released by the Retirement Commissioner. https://cffc.govt.nz/news-and-media/news/purpose-of-nz-retirement-income-system-defined/


Legal and regulatory review for the life and health insurance sector

16 Oct 2020 – Privacy Commissioner website provided details for the next PrivacyLive Forum to be held during Privacy Week on 5 November 2020, with the presentation focused upon the Privacy Act 2020, due to come into effect on 1 Dec 2020. https://www.privacy.org.nz/resources-2/forums-and-seminars/privacy-live-our-speaker-series/

19 Oct 2020 – FIU released the monthly AML/CFT September 2020 Suspicious Activity Report including, for example, a link to the FATF September 2020 report titled “Virtual Assets Red Flag Indicators”. https://www.police.govt.nz/sites/default/files/publications/fiu-monthly-report-sep-2020.pdf


Legal and regulatory update for the life and health insurance sector

2 Oct 2020 – Government released the Request for Proposal documents to appoint the next set of KiwiSaver default providers. https://www.mbie.govt.nz/about/news/kiwisaver-default-provider-rfp-opens/

5 Oct 2020 – Department of Internal Affairs posted on its AML/CFT News and Information website information on some of the risks associated with compliance with election financing laws. https://www.dia.govt.nz/AML-CFT-Election-financing-laws

5 Oct 2020 – The Financial Advisers Disciplinary Committee website has again been amended such that the “Next Hearing” has been changed from 5 Oct 2020 to 2 Nov 2020, again with no further information provided. https://fadc.govt.nz/upcoming-hearings/


Legal and regulatory updates for the life and health insurance sector

21 Sept 2020 – FIU posted to its website the August 2020 AML/CFT Suspicious Activity Report.

21 Sept 2020 – The Takeovers Panel released the latest version of CodeWord, Issue 51, containing commentary on:

  • Being careful with the Code if holding shares through different entities
  • Recent guidance updates, including:
    • Schemes of Arrangement
    • Lock-up Agreements
    • Exemptions
    • Creeping Acquisitions
  • New Class Exemption – Voting Agreements for Schemes of Arrangement
  • Covid-19 Class Exemption
  • No more cheques

Legal and regulatory updates for the life and health insurance sector

15 Sept 2020 – NZ Police FIU and ACAMS issued invitations to the 2020 AML/CFT conference to be held between 10-11 November 2020, providing for both on-site and virtual conference access. https://www.police.govt.nz/advice-services/businesses-and-organisations/financial-intelligence-unit-fiu/fiu-acams-conference

17 Sept 2020 – RBNZ released the outcomes from a COVID-19 stress test of New Zealand banks. https://www.rbnz.govt.nz/news/2020/09/stress-test-reinforces-importance-of-bank-capital

18 Sept 2020 – DIA advised on its website of the release of an AML/CFT Supervisors updated enhanced CDD guideline, dated August 2020, noting also the intent to shortly publish a webinar on its website which will deep dive into the enhanced CDD obligations. https://www.dia.govt.nz/AML-CFT-Updated-enhanced-CDD-guideline


Legal and regulatory update for the life and health insurance sector

28 Aug 2020 – FMA released updated guidelines for financial services businesses and staff under Covid-19 Alert Level 2.

https://www.fma.govt.nz/news-and-resources/covid-19/financial-services-operating-at-level-2/

31 Aug 2020 – DIA released three AML/CFT items as follows:

  • Real Estate regulatory findings
  • FIU Suspicious Activity Report for July 2020 (Previously noted on this blog)
  • Webinar available on Independent AML/CFT audits

https://www.dia.govt.nz/AML-CFT-News


AML procedures during self-isolation

The Department of Internal Affairs advice to ADLS is as follows.

March 2020 – Response received from Department of Internal Affairs to the ADLS Property Law Committee’s Query concerning AML customer due diligence in view of COVID-19 published, as follows:

If a reporting entity is unable to conduct customer due diligence (CDD) because the customer or client is in self-isolation due to Covid-19, then the following points should be considered in dealing with the situation:

  • A reporting entity may trigger exception handling procedures provided that the customer demonstrates that they are unable to comply with the requirements under Part 1 or Part 2 of the Amended Identity Verification Code of Practice (IVCOP) 2013 (click here).
  • Reporting entities are recommended to document the customer's circumstances.
  • It is possible for a customer to be verified through electronic identity verifications (Part 3 of IVCOP).
  • Reporting entities may complete delayed verification (under section 16(3) of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009) provided the following two criteria are met:
  1. Verification of identity is completed as soon as practicable; and
  2. ML/TF risks must be effectively managed through procedures of transaction limitations and account monitoring or through other appropriate risk management procedures.