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Financial adviser rules pass into law

Hon Lianne Dalziel
Minister of Commerce, Minister for Food Safety,
Associate Minister of Justice, MP for Christchurch East

Xx September 2008 Media Statement

Financial adviser rules pass into law

Financial advisers will be subject to tighter rules of professional conduct and competence and will be supervised by the Securities Commission under a Bill passed by Parliament today.

Commerce Minister Lianne Dalziel welcomed the passing of the Financial Advisers Bill, saying it was a further important step by the government to shore up investor confidence which had been shaken by recent finance company failures and the impact of the global credit crunch.

"I'm confident the new rules will help restore confidence, encourage market participation and facilitate investment growth. The Bill reduces potential compliance costs by making clear distinctions about who should and should not be covered by the regulation and who should and should not be authorised to provide advice on complex financial products," Lianne Dalziel said.

"This brings financial adviser regulation into the 21st century, aligns us with international best practice, and provides an appropriate level of investor protection in New Zealand. This is a remarkable achievement considering the regulatory wasteland that was the financial sector we inherited in 1999."

The Bill underwent significant changes in Select Committee which greatly improved the final outcome, Lianne Dalziel said. The main features of the Bill are:

• a focus on financial products, in contrast to financial decisions as was originally proposed;

• adoption of a tiered approach to the authorisation of financial advisers, to:
· ensure that category 1 advisers - those providing financial advice on complex products (e.g securities or futures contracts) - are approved as “Authorised Financial Advisers” (AFA); while category 2 advisers (who provide advice on simple products such as consumer credit contracts and insurance products) must comply with basic conduct and disclosure requirements, must be registered and belong to a dispute resolution scheme;
· enable the adoption of a “Qualifying Financial Entity” (QFE) model to reduce compliance costs for institutions with a large number of advisers; while ensuring there is appropriate regulatory coverage of advisers within these institutions; and

• ensure that the Bill provides clear and appropriate exemptions from the definition of a financial adviser;

• central supervision of financial advisers by Securities Commission rather than a co-regulatory model with industry as originally proposed. It establishes a Commissioner of Financial Advisers who will be a member of the Securities Commission; and a Code Committee and a Disciplinary Committee. Both Committees will include advisers with industry experience to make use of their expertise. The Code Committee will be responsible for developing a professional code of conduct.

Lianne Dalziel said she was pleased that some financial advisers and professional bodies who had earlier expressed concerns when the co-regulatory model was dropped in favour of central supervision by the Securities Commission had now written to her giving the new regime their support.

Lianne Dalziel also announced today that a working group will be established which will encompass representatives of the industry, the Ministry of Economic Development and the Securities Commission to provide feedback loop as we go forward.

In her final reading on the bill Lianne Dalziel reiterated her call to inexperienced investors to ensure that if they are taking advice on investment that they use an advisor who is a member of a professional organisation that can hold them to account. She also reminded them that the Securities Commission has a lot of free information about the sorts of questions investors should ask.

She also endorsed the need for improving levels of financial literacy.

“We can build a strong regulatory framework as we have done with this Bill, but inexperienced investors must still understand basic financial principles such as risk and return. And that is why the government is committed to the National Financial Literacy Strategy led by the Retirement Commissioner, engaging as it does with the private sector and the NGO sector as well.”

“This is really important because the government cannot legislate against risk and if we could we wouldn’t because investment drives innovation and economic growth and with no risk there would be no investment.”


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