FMA Releases Standard Conditions For Licensing Of Financial Advice

The Financial Markets Authority (FMA) has released the final standard conditions for a full Financial Advice Provider licence and confirmed three classes of financial advice service, following an extensive consultation with the industry.

Seven standard conditions for a full licence include: record keeping, internal complaints process, regulatory returns, outsourcing, business continuity and technology systems, ongoing requirements, and notification of material changes.

The FMA considered the industry’s feedback concerning costs of professional indemnity insurance, likely benefits for consumers and availability of cover. Professional indemnity insurance cover remains an important decision for each financial advice provider to consider, taking into account their own particular circumstances, and accordingly the FMA decided not to include professional indemnity insurance as a standard condition.

As proposed, three different types of financial advice provider classes are confirmed, with the names changed from ‘A, B and C’ to ‘1, 2 and 3’. The classes mean financial advice provider applicants can apply for the licence that best suits their circumstances, whether they are a sole adviser business, engage multiple advisers or authorised bodies, or a business that has nominated representatives.

John Botica, FMA Director of Market Engagement, said the consultation received a healthy response from the industry, with 55 written responses.

“Standard conditions play an important role in setting the bar for the businesses the FMA licenses. The consultation helped to ensure the standard conditions will be fit for purpose and we were pleased to see the industry was broadly very supportive of them,” Mr Botica said.

The FMA continues to process transitional licence applications, leading up to the commencement of the new financial advice regime. Anyone who still intends to apply for a transitional licence is encouraged to do so before the summer break to ensure their application can be processed before 15 March 2021.

As of Monday 2 November, the regulator had approved 1112 transitional licences and 420 authorised bodies, representing an estimated 7753 financial advisers and 7943 nominated representatives.

About transitional and full licensing

· From the start of the new financial advice regime on 15 March 2021, anyone who gives regulated financial advice to retail clients must either hold, or operate under, a Financial Advice Provider licence. There are two phases to the licensing process: transitional and full.

· Advice providers can currently apply for a transitional licence, which takes effect from 15 March 2021 and is valid for up to two years.

· The process for full licensing will be conducted online and more comprehensive than transitional licensing.

· The FMA will start accepting full licence applications from the beginning of the new financial advice regime (15 March 2021).

· Advisers who don’t have a transitional licence when the new regime begins will have to stop providing financial advice to retail clients until they obtain a full licence, unless they are engaged by a financial advice provider that holds (or is authorised under) a transitional licence.

· After two years, all transitional licences expire and financial advice providers must have a full licence (or be authorised under another entity’s full licence) to continue giving advice to retail clients.

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