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Financial Service Providers (Pre-Implementation Adjustments) Bill Government Bill As reported from the Commerce Committee Commentary Recommendation The Commerce Committee has examined the Financial Service Providers (Pre-Implementation Adjustments) Bill and recommends that it be passed with the amendments shown.

Introduction This bill seeks to amend the Financial Advisers Act 2008 (FAA) and the Financial Service Providers Act 2008 (FSPA).
The intent is to ensure that these Acts provide for responsible regulation of the fi- nancial services sector and robust consumer protection, in order to restore confidence and trust in the financial services sector.

The fi- nancial services sector plays an important role for businesses to raise capital.

This legislation is about protecting unsophisticated investors.

A significant amount of funds was lost in about 30 finance company collapses in the past four years.
Many of those who lost money as a result of the failures were “mum and dad” investors who did not 109—2 2 Financial Service Providers (Pre-Implementation Adjustments) Bill Commentary appreciate the risks they were taking and would have benefited from knowledgeable, robust financial advice.

The recommended amendments set out below would strengthen the provisions of both Acts to ensure they serve their purposes.
We have focused on protecting retail consumers and on enhancing confidence and encouraging participation in capital markets.

We re- ceived a significant number of very high quality submissions and we took the unusual step of authorising ongoing discussions between our advisers, Parliamentary Counsel, and stakeholders; and a process which included leave of the House to release the departmental report to submitters.

We have made significant changes to the bill as a re- sult.
While views differed as to the potential effect of the legislation we have sought to give more certainty to the sector.

We have remained mindful of the harm the legislation is intended to address and the need for the regulatory response to be proportionate to the risk.

Supplementary Order Paper The Minister of Commerce released Supplementary Order Paper 113 to the bill and referred it to the committee, which we considered alongside the main bill.
SOP 113 proposes a number of additional amendments to regulate broking services under the FAA: • • requiring all brokers to register under the FSPA 2008 imposing statutory money-handling and disclosure obligations on brokers excluding activities that do not pose a risk to clients’ funds or property from the scope of the bill charging the Securities Commission with enforcing these obli- gations allowing dispute resolution schemes and the Securities Com- mission to share information about brokers.
• • • We heard submissions on SOP 113 in conjunction with the bill, and we have incorporated the SOP’s amendments into the bill.

Commentary Financial Service Providers (Pre-Implementation Adjustments) Bill 3 Scope of the regime Financial adviser services We recommend amending clause 7 so that in new section 9 the FAA only applies if a financial adviser service is provided in the ordin- ary course of business, or in the course of business of any registered financial service provider.
This distinction is important so that the legislation does not apply to situations in which a consumer would not expect to be receiving professional financial advice.

Financial advice We recommend amending clause 7 so that the word “guidance” is removed from the FAA definition of financial advice.

Submitters were concerned that the existing definition was too broad and did not distinguish between information and advice.

We believe the removal of the word “guidance” would clarify this matter.
We have sought to specifically clarify that a number of other forms of discussion and activity would not constitute “advice” for the pur- poses of the FAA.

These activities serve a useful purpose in the mar- ketplace but do not, in and of themselves, pose a significant risk to consumers and investors, and so should not be subject to regulation.

Internal advice We recommend adding a requirement that only financial advice which has been provided to a client be caught by the regime.
This is to ensure that advice within an organisation, for example between a qualifying financial entity (QFE) and its nominated representatives as a part of the QFE’s business, would not be subject to regulation under the FAA.

Incidental advice We recommend that any financial advice which is provided inciden- tally to another non-financial service be exempt from the Act.
A large number of the submissions we received were from individu- als or organisations concerned that incidental advice they provide as part of their core, non-financial service business would require them to be authorised as financial advisers.

A person offering financial advice when they were already a financial service provider would 4 Financial Service Providers (Pre-Implementation Adjustments) Bill Commentary still be caught, even when the advice is incidental.
We believe this new approach would be preferable to specifying types of businesses or organisations to be exempted, for example, rental car companies routinely discussing car insurance with prospective clients or retail assistants discussing hire purchase arrangements.

Product classifications We recommend that in clause 6(2) a number of simple products be reclassified as category 2, including shares in co-operative companies and call credit union shares.
We recommend narrowing the capture of advice in respect of an es- tate or interest in land.

This should ensure that advice on property investment schemes was still regulated, while avoiding capturing the wide range of people involved in giving advice on land for other pur- poses.
They include people such as engineers and architects, when making assessments of the value of a building, and mortgage bro- kers, when giving advice in respect of a mortgage (which should be treated as advice on credit rather than investment).

Financial planning services We recommend amending clause 7 to make it clear that a financial planning service is not provided if the adviser does not address the investment planning needs of a client.
This is intended to ensure that only financial advisers offering investment planning services are caught.

We chose to focus on the investment nature of the service and on whether the service is held out as an investment planning service, rather than the product recommendations arrived at.

Submitters sug- gested restricting the provision to services that would lead to advice in respect of two or more products and/or involved advice on cat- egory 1 products.
But a comprehensive planning service could result in a recommendation to purchase or dispose of only one product, or to only purchase or dispose of category 2 products, depending on the situation and the needs of the client.

The holding-out provisions are designed to prevent people from describing themselves as financial or investment planners if they are not authorised to do so.
Commentary Financial Service Providers (Pre-Implementation Adjustments) Bill 5 Exemption-making powers We recommend amending clause 27C which inserts section 148 ex- tending the exemption-making powers of the Securities Commission in the FAA to allow it to exempt any person, class of persons, or activ- ity from complying with any section of the Act.
We also recommend amending the Act’s regulation-making powers to allow regulations exempting any person from the Act’s scope or from any obligations under the Act.

We also recommend similar changes to the regulation-making powers of the FSPA to allow the expansion of the list of services exempt from the Act’s provisions.

Specific exemptions There are a number of specific occupations exempted from the Act.
However, the exemption would only apply when they are providing advice in the ordinary course of their business.

Although they are probably already excluded from the regime through the new “inci- dental” provision, we have chosen to specifically exclude not-for- profit organisations providing financial adviser services.

We do not consider such services to be an intended target of the regime.
We are also of the view that such services are provided by various kinds of not-for-profit organisations, so an exemption by category is prefer- able to exemptions for specific organisations.

The changes we have made make it clear that the activities currently undertaken by Citizens Advice Bureaux are not caught by the Act.
We recommend extending the exemption for certain documents to cover all documents required under other enactments, whether re- quired directly or as a condition of carrying out a certain activity.

This includes documents provided to subscribers of securities as part of offers that are outside of the scope of the Securities Act, and trust deeds in respect of debt securities.
Specific documents can be named as exempt through regulations, in order to future-proof the regime and avoid unnecessary compliance costs.

Territorial scope We recommend that the bill be amended to make it clear that the FAA applies to all finance advice received in New Zealand, including advi- sory services provided from overseas.
We also recommend that New 6 Financial Service Providers (Pre-Implementation Adjustments) Bill Commentary Zealand-based advisers providing a service to overseas customers be bound by sections 33 and 34 of the Act, which require an adviser to exercise due care and skill and impose a duty not to mislead.

We recommend that the FSPA apply to all people providing finan- cial services based in New Zealand, regardless of where the client is located.
It should also apply to any person providing a licensed ser- vice under the FSPA, to allow for slightly different territorial scopes under these separate licensing regimes.

Advice to wholesale clients We recommend that advisers working with sophisticated clients be exempt from many of the bill’s provisions.

Wholesale clients are highly financially literate and we do not believe they are the sector of the market this legislation aims to protect.
Advice given to whole- sale investors would still be subject to statutory conduct obligations, such as an obligation to act with due care, skill, and diligence and a requirement not to engage in misleading or deceptive behaviour.
We recommend that wholesale investors be defined as follows in new clause 6A: • people who receive financial advice in the course of their business and whose business is defined as a financial service provider or financial adviser a person whose principal business is the investment of money or who habitually invests money in the course of and for the purposes of their business medium and large entities who can prove that during the last two accounting periods they have gross assets of $1 million or an annual turnover of at least $1 million local authorities, State enterprises, and Crown entities, and specified statutory financial institutions “eligible clients,” which might be either entities or individuals, who have certified in writing that they have sufficient know- ledge, skills, or experience in financial matters to assess the value and risks of financial products and the merits of the service and that they are aware of the protections being lost through certification.
To be eligible, this certification must be accepted by an authorised financial advisor or QFE who is permitted to accept the certification because they are sub- • • • • Commentary Financial Service Providers (Pre-Implementation Adjustments) Bill 7 ject to authorisation requirements.
Other advisers could also accept a client’s self-certification, but this would be subject to additional enforcement provisions to prevent unscrupulous persons who were not authorised financial advisers or QFEs from attempting to persuade clients to self-certify inappropri- ately.

Persons receiving advice in relation to what is generally understood to be a private offer of securities should be treated as wholesale clients, whether or not they fit into the above categories.
This would ensure that the FAA fitted appropriately with the Securities Act 1978.

There was significant debate about how a wholesale investor should be defined.

As a number of submitters pointed out, having a large amount of money does not necessarily mean a person has an ad- vanced understanding of financial markets.

We believe these defini- tions would redress the balance between providing protection to retail customers and avoiding stifling the sophisticated end of the market.
We consider that there is merit in keeping all types of financial ad- viser within the regime.

This would be consistent with international practice.

However, we recommend that financial advisers who pro- vide services only to wholesale clients should • • • • • Overseas-based wholesale advisers would not be required to regis- ter under the FSPA.
Although we do not consider this a particularly onerous obligation, we are acutely aware that any such regulatory im- position could reduce wholesale advisers’ access to overseas-based advice.

Such advice can be given on an informal or one-off basis, relative to which the process of registration would be unduly bur- densome.
not need to be individually authorised be able to register at the entity level if they choose not be subject to the code of conduct not be required to belong to a dispute resolution scheme not be required to make disclosure.

Advice from entities Class advice We recommend amending clause 7, which inserts section 19, amend- ing the FAA to ensure that entities issuing class advice are not break- 8 Financial Service Providers (Pre-Implementation Adjustments) Bill Commentary ing the law.
This type of advice includes generic product brochures and online planning services.

These publications and internet tools are prepared for a wide “class” of people, as distinct from advice specifically tailored to an individual’s needs and situation.

Entities would still be obliged to act with due care and skill and not act in a misleading or deceptive manner.
We also recommend amending clause 12 to provide an option of imposing additional obligations through regulations on persons providing class advice.

This would create the flexibility to set additional controls in the future should they be needed.
Personalised services from entities We recommend amending clause 14 to make it clear in the FAA that entities are permitted to provide financial adviser services, provided (in the case of personalised services for retail clients) they are pro- vided through an appropriate individual financial adviser.
Qualifying financial entities We recommend amending the bill to allow a group of entities to op- erate under the umbrella of a single QFE, so that employees of group members could provide advice under that umbrella without each en- tity requiring QFE status.

This responds to submitters’ concern that it is common for companies to operate in a group structure, which the QFE model in the FAA does not accommodate.
We also recom- mend that the FAA requires, when entities enter into a group QFE arrangement, that the group state which entities are responsible for the group’s compliance.

These “lead partner entities” would be made jointly and severally liable for compliance with FAA obligations, so that the Securities Commission could use its powers effectively against a group when a breach occurred.
To provide additional flexibility, two QFE groups would be able to share some entities, provided control could be demonstrated effect- ively by both.

Where this option was used, the “partner entities” of both groups would be jointly and severally responsible for the shared entities and advisers, which should facilitate enforcement.
Commentary Financial Service Providers (Pre-Implementation Adjustments) Bill 9 Nominated representatives In order to accommodate the group QFE model, we recommend that clause 7 be amended to allow an employee or nominated representa- tive of a QFE to provide advice on a product issued or promoted by another entity within the same QFE group.
Many of the submissions heard by the committee requested clarifica- tion as to whether a nominated representative could be a nominated representative of more than one QFE.

We do not believe this should be permitted, except when the two QFEs are related companies, as anything wider would create significant risks and confusion around where responsibility for the representative’s advice would lie.
Consumer protection benchmark We further recommend amending clause 14, which introduces new section 66, to make it clear that the code should be the benchmark for consumer protection outcomes with regards to financial advisers pro- viding personalised services on category 1 products to retail clients.

Notwithstanding this standard, we recognise that QFEs are required to have robust internal procedures that are tailored to the scope of their products.
We recommend that the assessment of QFEs’ cap- acity to ensure adequate consumer protection outcomes take account of this fact.
Securities Commission powers We recommend that new clause 27A be inserted to strengthen the Security Commission’s power to monitor and enforce the FAA: • the power to place a temporary ban on any person from of- fering advice and related services if they have persistently breached the FAA or Securities Act or have been subject to a similar ban overseas the ability to take enforcement action against individuals and QFEs who breached their obligations, even if they have sub- sequently cancelled their authorisation, registration, or QFE status the ability to publicise any action taken against advisers or QFEs • • 10 • • • • • • Financial Service Providers (Pre-Implementation Adjustments) Bill Commentary wider powers to apply to the High Court to make orders to restrain a person from breaching the FAA or to make orders to third parties to prevent losses following a breach of the code, FAA, or other relevant law by a financial adviser or broker (for example, an order for a bank to freeze the account of a broker who has been funding business expenses with clients’ funds) powers to apply to the High Court to ban from providing ser- vices regulated under the FAA a person who has committed certain relevant offences in New Zealand or overseas more flexibility regarding the ability to review an authorised financial adviser’s or QFE’s periods of renewal and terms and conditions of registration and authorisation when the author- ised financial adviser or QFE makes a material change to its business (for example, an insurance business starting to issue securities) or when the commission learns of a market practice that will have a material impact on achieving the purposes of the FAA discretion for the commission to re-authorise an individual or entity that has breached the code of conduct, for example when a breach has been the result of a technicality measures to speed up the criminal record checks for authorised financial adviser applications powers to limit an authorised financial adviser’s scope of prac- tice so that advisers who chose not to provide certain services and not to meet any superfluous code requirements could have their authorisation correspondingly limited.
Disclosure Added flexibility and clarity We recommend that the regulation-making power be expanded to in- crease the flexibility of the disclosure regulations.

In particular, regu- lations should be able to set out situations in which disclosure obli- gations would not apply, and to apply different disclosure obligations to different classes of authorised financial adviser.
This would allow Commentary Financial Service Providers (Pre-Implementation Adjustments) Bill 11 the regulations to make disclosure more user-friendly.

For example, regulations could provide for • no obligation to make disclosure after giving advice on a cat- egory 2 product over the phone if it does not result in a sale authorised financial advisers stepping temporarily into the role of a QFE adviser to make only QFE disclosure.
• Category 2 disclosure We also recommend amending clause 11 by inserting new section 23 so that regulation-making powers are inserted into the Act.

This would allow regulations to require the compulsory disclosure of com- missions, fees and other personal gain obtained by an adviser by sell- ing category 2 products.

Transitional amendments We recommend amending the commencement provisions of the FSPA to allow the Act to be phased in by Order in Council.
We also recommend amending the FAA so that financial advisers working for prospective QFEs do not have to register until the Act comes into force.

Many submitters raised concern about the lack of transitional ar- rangements for the implementation of the new regime; we believe these changes we propose would help ensure a smooth transition.
12 Financial Service Providers (Pre-Implementation Adjustments) Bill Commentary Appendix Committee process The Financial Service Providers (Pre-Implementation Adjustments) Bill was referred to the committee on 16 February 2010.

The closing date for submissions was 15 April 2010.

We received and considered 93 submissions from interested groups and individuals.

We heard 42 submissions.

We received advice from the Ministry of Economic Development.
We also sought additional comments from submitters on the amend- ments on Supplementary Order Paper 113 and in the departmental report.
Committee membership Hon Lianne Dalziel (Chairperson) John Boscawen Charles Chauvel David Clendon Clare Curran Te Ururoa Flavell Melissa Lee Peseta Sam Lotu-Iiga Katrina Shanks Jonathan Young Financial Service Providers (Pre-Implementation Adjustments) Bill Key to symbols used in reprinted bill As reported from a select committee text inserted unanimously text deleted unanimously Hon Simon Power Financial Service Providers (Pre-Implementation Adjustments) Bill Government Bill Contents Title Commencement Part 1 Amendments to Financial Advisers Act 2008 Commencement of provisions of principal Act Principal Act amended Purpose Purpose of Act Overview of Act Interpretation New sections 5A to 5H inserted Who are clients 5A Who are retail clients 5B Who are wholesale clients 5C Who is eligible investor 5D Acceptance of certification 5E How to opt out of being wholesale client 5F Meaning of acting ‘on behalf of B’s business’ and 5G ‘acting through A’ Territorial scope 5H New section 7 and subparts 1 and 1A of Part 2 substituted 7 Outline 109—2 Page 11 11 11 12 12 12 13 13 19 20 20 20 22 22 23 23 24 27 28 1 5A 5B 6 6A 7 Financial Service Providers (Pre-Implementation Adjustments) Bill Subpart 1—Key definitions for financial adviser services What are financial adviser services Who is financial adviser What is financial adviser service When person gives financial advice When person provides investment planning service When person provides discretionary investment management service Exemption for incidental
 service Other exemptions When financial adviser service is personalised service or class service When financial adviser service is personalised service or class service Subpart 1A—Restrictions on providing financial adviser services Types of financial adviser Restrictions on providing financial adviser services Who may provide financial adviser service Who is permitted to provide personalised service to retail clients Who is permitted to provide class service to retail clients Who may
 provide financial adviser service to wholesale clients 17 18 19 20 Restrictions on holding out 20A Who may hold themselves out as authorised financial adviser 20B Who may hold themselves out as financial planner or investment planner 20C Who may hold themselves out as QFE or having QFE status Persons acting in course of business of employers and principals 20D Who must be member of dispute resolution scheme 28 28 29 29 29 30 30 33 33 34 34 35 35 35 35 36 36 2 Financial Service Providers (Pre-Implementation Adjustments) Bill 20E Obligation to cease providing if employer or principal not permitted to provide 20F Who is responsible for financial adviser obligations 11 New heading and sections 21 to 25 substituted Disclosure obligations for personalised services for retail clients 22 21 What is disclosure obligation and when does it apply Financial adviser must make disclosure before providing personalised service to retail client What financial adviser must disclose 23 Disclosure statement 24 25 Disclosure by QFE New sections 32 and 33 substituted 32 What is conduct obligation and when does it apply Financial adviser must exercise care, diligence, and skill 33 Financial adviser must not engage in misleading or deceptive conduct New section 36 substituted 36 Regulations may impose specific conduct obligations for class retail services Authorised financial adviser must not recommend or receive money for acquisition of securities if offer for subscription illegal
 Sections 39 to 44 repealed New section 45A inserted 45A Authorised financial adviser must report breach of Act to Commission 11A 11B 12 12A 12B 12C 13 New heading and sections 46 to 48 substituted 46 47 Conduct obligations related to QFEs QFE must comply with terms and conditions of grant of QFE status QFE or member of QFE group must not engage in misleading or deceptive conduct in relation to financial adviser service by employee, agent, or nominated representative 36 37 38 38 38 38 39 39 40 40 40 41 41 41 41
 42 42 42 43 43 43 3 Financial Service Providers (Pre-Implementation Adjustments) Bill 48 Advertisement by QFE or member of QFE group in relation to financial adviser service must not be misleading, deceptive, or confusing Eligibility to be authorised New sections 55 and 55A substituted 55 Commission must approve or decline application for authorisation Variation of terms and conditions and period of authorisation 55A Renewal of authorisation New section 59A inserted 59A Commission’s power to ban financial adviser who is registered but not authorised Reasonable opportunity to be heard New sections 63 to 77 substituted 63 64 65 66 67 What is qualifying financial entity (QFE) Who may apply for QFE status Application for QFE status Eligibility for QFE status Commission must approve or decline application for QFE status Determination of application Name of QFE group Commission must notify Registrar of grant of QFE status Addition of associated entities Termination of status of associated entity Certification of QFE group Nominated representatives of QFEs or partner entities Variation of terms and conditions and period of grant of QFE status Termination of QFE status Commission may designate certain QFE products as beyond scope of QFE advisers Renewal of QFE status Commission’s powers in relation to default by QFE or by members of QFE group Commission’s powers in relation to QFE default Reasonable opportunity to be heard Commission may give QFE direction 68 69 70 71 72 73
 74 75 75A 75B 75C 75D 75E 75F 44 44 44 44 45 46 46 46 47 48 48 48 48 49 49 50 51 51 51 52 52 52 53 54 54 55 55 57 57 13A 13B 13C 13D 13E 14 4 Financial Service Providers (Pre-Implementation Adjustments) Bill 75G Other provisions concerning Commission’s powers in relation to QFE default QFE’s obligations 76 Ongoing obligations of QFEs and of partner entities QFE must provide annual report to Commission 77 New Part 3A inserted 17 Part 3A Brokers’ disclosure and conduct obligations Who is broker and what is
 broking service 77A Who is broker 77B What is broking service 77C 77D Exemption for incidental service Other exemptions Disclosure obligations for services for retail clients 77E What is disclosure obligation and when does it 77F apply Broker must make disclosure before receiving client money or client property from retail client 77G What broker must disclose and form of disclosure Disclosure must not be misleading, deceptive, or 77H confusing Disclosure of additional information No compliance with disclosure obligation if disclosure out of date 77I 77J Brokers’ conduct obligations 77K What is conduct obligation and when does it apply Broker must exercise care, diligence, and skill 77L 77M Broker must not engage in misleading or deceptive 77N 77O 77P conduct Advertisement of broking services must not be misleading, deceptive, or confusing Restriction on use of term sharebroker Broker must not receive client money if offer for subscription illegal 58 58 59 61 61 61 62 62 63 63 63 64 64 64 65 65 65 65 66 66 5 Financial Service Providers (Pre-Implementation Adjustments) Bill 77Q 77R 77S 77T 77U Trust accounting obligations for services for retail clients Broker must pay client money into separate trust account Broker must account for client money and client property Broker must keep records of client money and client property Restrictions on use of client money and client property Protection of client money and client property held on trust Persons acting in course
 of business of employers or principals 77V Who is responsible for broker obligations Commission’s direction in respect of breach of disclosure or conduct obligation 77W Commission may give broker direction in respect of breach of disclosure or conduct obligation Part 4 heading amended Content of code New section 94 substituted 94 New section 98 substituted 98 New heading and sections 114 to 116 substituted Code comes into force by Gazette notice Reference of complaint to disciplinary committee Offences:
 restrictions on providing services and holding out Offence of providing financial adviser service without being permitted to do so Offence of holding out as authorised financial adviser, financial planner, or QFE Offence of continuing to provide if employer or principal not permitted to provide 114 115 116 Disclosure offences: financial advisers, QFEs, and brokers Failure to make disclosure under or in accordance with disclosure obligation Heading above section 118 amended New sections 118 to 120 substituted 66 66 67 67 68 68 68 69 69 69 69 70 70 71 71 71 72 72 72 72 24D 6 Financial Service Providers (Pre-Implementation Adjustments) Bill 118 119 120 Offence of misleading or deceptive conduct by financial adviser or broker Offence of misleading, deceptive, or confusing advertisement by financial adviser or broker Offence of contravening restrictions on use of term sharebroker 24E 24F 25 Offence of recommending or receiving money in connection with offer of securities when subscription illegal Sections 122 to 125 repealed New heading and sections 129 to 134 substituted 129 130 131 132 133 Offences: QFEs and QFE groups only Offence of failing to comply with terms and conditions of QFE status Offence of misleading or deceptive conduct in relation to financial adviser service by employee, agent, or nominated representative Offence of misleading, etc, advertisement of financial adviser service by employee, agent, or nominated representative Offence
 of failing to comply with Commission’s direction Offence of failing to comply with obligations in relation to authorised financial advisers Offence of failing to provide annual report 26 26A 134 Offence of misleading, etc, advertisement of financial adviser service by employee or agent New heading and sections 134A to 134F inserted Offences: broking services only 134A Offence of receiving client money if offer for subscription illegal 134B Offence of contravening requirement to pay client money into
 separate trust account 134C Offence of failing to account for client money and client property 134D Offence in relation to records of client money and client property 134E Offence of breaching restrictions on use of client money and client property 134F Offence of failing to comply with Commission’s direction 27 New heading inserted 72 72 73 73 73 73 73 74 74 74 75 75 75 75 75 75 76 76 76 76 76 7 Financial Service Providers (Pre-Implementation Adjustments) Bill 27A New headings and sections 137A to 137Q inserted Subpart 4—Injunctions, banning orders, and other remedies Injunctions 137A Injunctions against contraventions 137B Undertaking as to damages not required by Commission 137C When Court may make banning order 137D Terms of banning orders 137E Offence of contravening banning order Orders to preserve assets to satisfy claims 137F When High Court may prohibit payment or transfer of money, securities, or other property 137G What orders may be made 137H Interim orders Relationship with other law 137I 137J Offence of breaching orders Pecuniary and compensatory orders for contravening wholesale certification requirement 137JA Pecuniary order for contravening wholesale certification requirement 137JB Compensation for contravention of wholesale certification requirement Temporary banning orders against financial adviser and broker 76 77 77 78 78 79 79 80 81 82 82 82 83 137K When Commission may make temporary banning 84 orders for financial adviser services or
 broking services 137L Terms of temporary banning order Process for Commission’s orders 137M Commission must follow steps before making orders 137N Commission may shorten steps for specified orders 137O Commission must give notice after making orders 137P General provisions on temporary banning orders 137Q Offence of failing to comply with Commission’s orders Right of appeal 27B 8 84 84 85 85 86 86 87 Financial Service Providers (Pre-Implementation Adjustments) Bill 27BA New heading and sections 147A to 147E
 inserted Standard conditions for incorporation in authorisation and grants 147A Approval of standard conditions for incorporation in authorisations and grants of QFE status 147B Requirement to consult on proposal to incorporate material by reference 147C Variation or revocation of standard conditions 147D When standard conditions come into force 147E Incorporation of changed standard conditions into existing authorisations or grants New sections 148 to 148B substituted 148 Commission may grant exemptions 148A Commission may vary or revoke exemption 148B Status of exemptions, variations, or revocations 27C 27CA Commission must notify reasons for exemption 27D 27E Levy Section 150 repealed New section 153 substituted 153 New section 154 substituted 154 General regulations Section 159 repealed New section 168 added 168 28 28B 29 30 Grant of authorisations in transitional period without prior inquiry into convictions Enactments amended consequential on principal Act Part 2 Amendments to Financial Service Providers (Registration and Dispute Resolution) Act 2008 Commencement of provisions of principal Act Principal Act amended Purpose Commencement Overview Interpretation 31 32 33 33A 33B 34 34B Meaning of financial service 35 New section 7 substituted 7 Application of Act New section 8A inserted Territorial scope 8A 35A Financial Service Providers (Pre-Implementation
9 Financial Service Providers (Pre-Implementation Adjustments) Bill No being in business of providing financial service unless registered No holding out that in business of providing financial service unless registered Qualifications for registration as financial service provider Application to be registered as financial service provider Registration of financial service provider New section 16A inserted 16A Registration of unincorporated body as financial service provider Amendment to registration New section 16B inserted 16B Duty to notify changes relating to
 financial service provider Deregistration of financial service provider Reregistration of financial service provider Purpose of register Contents of register Registrar must amend register in certain circumstances Registrar’s inspection powers Regulations under Part 1 and this Part Section 46 repealed Financial service provider must be member of dispute resolution scheme New sections 49 to 49E substituted 49 Who are retail clients 49A Who is eligible investor 49B 49C 49D Members of dispute resolution scheme must Acceptance of certification How to opt out of being wholesale client 49E comply with rules and binding resolutions Offence to fail to comply with District Court order Rules about approved dispute resolution scheme Duty to co-operate and communicate information in certain circumstances Appointment of reserve scheme New section 72A inserted 72A Duty to co-operate and communicate information in certain circumstances Section 77 and the heading above section 77 repealed Reserve scheme: rules about fees and charges 35B 35C 35D 36 36A 36B 36C 36D 36E 36F 36G 36H 37 37A 37B 38 38A 38B 38C 38D 38E 38F 38G 38H 10 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 3 38I New heading and new section 78A inserted Levy Levy 78A Regulations under this Part New sections 79A and 79B and heading inserted 38J 38K Pecuniary
 and compensatory orders for contravening wholesale certification requirement Pecuniary order for contravening wholesale certification requirement Compensation for contravention of wholesale certification requirement 79A 79B 39 Schedule 2 amended Schedule Enactments consequentially amended 111 111 112 113 113 114 114 115 The Parliament of New Zealand enacts as follows: 1 2 (1) (2) 3 Title This Act is the Financial Service Providers (Pre-Implementa- tion Adjustments) Act 2009.
Commencement Section 30 and the Schedule come into force on the com- 5 mencement of section 164(4) of the Financial Advisers Act 2008.

The rest of this Act comes into force on the day after the date on which it receives the Royal assent.

Part 1 Amendments to Financial Advisers Act 2008 10 Commencement of provisions of principal Act To avoid doubt, a provision of the Financial Advisers Act 2008 that is amended or enacted by this Part comes into force in 15 accordance with section 2 of that Act.
11 Part 1 cl 4 Financial Service Providers (Pre-Implementation Adjustments) Bill 4 5 Principal Act amended This Part amends the Financial Advisers Act 2008.

Purpose The purpose of this Part is to prepare for the effective and effi- cient implementation of the principal Act by making a number 5 of necessary and desirable amendments to that Act.
5A Purpose of Act (1) Section 3 is amended by— (a) omitting “financial advice” and substituting “financial adviser and broking services”: omitting “, by—”and substituting “and brokers”: revoking paragraphs (a) to (c).
(b) (c) Section 3 is amended by adding the following subsection as subsection (2): “(2) To this end, the Act— (2) “(a) “(b) requires financial advisers and brokers to take an appro- priate degree of care in providing services to investors and consumers and prohibits certain conduct by finan- cial advisers and brokers; and in addition— “(i) 10 15 20 “(ii) requires disclosure by financial advisers and bro- kers to retail clients, so ensuring that clients can make informed decisions about whether to use the financial adviser or broker and, in the case of an adviser, whether to follow a financial adviser’s 25 advice; and imposes competency requirements on financial advisers dealing directly with retail clients, so ensuring that there are available to retail clients financial advisers who have the experience, ex- 30 pertise, and integrity to match effectively a per- son to a financial product that best meets that per- son’s need and risk profile; and “(iii) ensures that financial advisers are held account- able for the services that they give to retail clients 35 and that there are incentives for financial advis- ers to manage conflicts of interest appropriately.” 12 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 6 5B Overview of Act (1) (2) 6 (1) Section 4 is amended by omitting “5 Parts” and inserting “6 Parts”.
Section 4 is amended by inserting the following paragraph after paragraph (c): “(ca) Part 3A (Brokers’ disclosure and conduct obliga- 5 tions):”.
10 Interpretation Section 5 is amended by inserting the following definitions in their appropriate alphabetical order: “acting through has the meaning set out in section 5G(2) “approved rating agency means a rating agency nominated or approved under the Reserve Bank of New Zealand Act 1989 or section 17 of the Insurance Companies (Ratings and Inspec- tions) Act 1994 “associated entity, in relation to a QFE, means an entity that, under an approval given under section 67(4) or 71, is an associated entity of that QFE “bonus bonds means a unit in an approved unit trust within the meaning of section 2 of the Finance Act (No 2) 1990 “broker has the meaning set out in section 77A “broking service has the meaning set out in section 77B “building society has the same meaning as in section 2(1) of the Building Societies Act 1965 “call building society share or call credit union share means 25 a share issued by a building society or credit union under which— “(a) 15 20 the shareholder, in the case of a building society, or member, in the case of a credit union, has a right to de- mand repayment of the value of the share in full at any 30 time; and the building society or credit union has an obligation to repay the value of the share in full not later than 1 working day after the demand is made; and the rate of dividend or interest payable or any other 35 benefit provided does not alter as a result of the demand being made; and “(b) “(c) 13 Part 1 cl 6 Financial Service Providers (Pre-Implementation Adjustments) Bill “(d)
 no fee or other amount is payable as a result of the prin- cipal sum not having been held by the issuer for a par- ticular period of time 5 “class of financial products means a group of financial prod- ucts with similar characteristics “class service has the meaning set out in section 15(3) “client money means money received from, or on account of, a client in relation to acquiring, holding, or disposing of a fi- nancial product “client property means property received from, or on account 10 of, a client in
 relation to acquiring, holding, or disposing of a financial product “controlling owner has the meaning set out in section 4 of the FSP Act “conveyancing practitioner has the same meaning as in sec- 15 tion 6 of the Lawyers and Conveyancers Act 2006 “credit union has the meaning set out in section 2(1) of the Friendly Societies and Credit Unions Act 1982 “discretionary investment management service has the meaning set out in section 12 “exempt provider means— “(a) 20 a financial adviser who is not resident, incorporated, or carrying on business in New Zealand and does not provide financial adviser services to any retail clients in New Zealand; and an entity that is, under the FSP Act, an affiliated entity; and any person who is exempted under this Act from the requirement to register under the FSP Act by virtue of providing financial adviser services 25 30 “(b) “(c) “financial service means a financial service as defined in sec- tion 5 of the FSP Act (but excluding financial services pro- vided by a person within section 7(2)(a) to (j) of that Act) “insurance product does not include a life insurance policy “investment-linked contract of insurance has the meaning 35 set out in the regulations 14 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 6 in accordance with section 68A 75, “investment planning service has the meaning set out in sec- tion 11 “local authority has the same meaning as in section 5(1) of the Local Government Act 2002
 “member of a QFE group means a partner entity or an asso- 5 ciated entity “nominated representative means an individual who has been nominated by a QFE or by a partner entity of a QFE group, to perform financial adviser services in respect of the QFE and whose 10 nomination has not been terminated under that section “non-profit organisation means any organisation, whether incorporated or not, that is carried on other than for the pur- poses of profit or gain to an owner, member, or shareholder “on behalf of
 the business of another person or on behalf of 15 another person’s business has the meaning set out in section 5G(1) “partner entity, in relation to a QFE, means an entity that is part of the QFE “personalised service has the meaning set out in section 15 20 “product provider means— “(a) “(b) the issuer, in the case of a security: the creditor, in the case of a consumer credit contract (as defined in the Credit Contracts and Consumer Finance Act 2003): the insurer, in the case of a contract of insurance (other than an investment-linked contract of insurance): the person specified by regulations, in the case of any other financial product specified by the regulations “promoter has the same meaning as in section 2(1) of the 30 Securities Act 1978 “QFE adviser means an individual who is not an authorised financial adviser and who is— “(a) an employee of a QFE or any member of a QFE group; or a nominated representative of a QFE or a partner entity “(b) “(d) “(c) 35 25 15 Part 1 cl 6 Financial Service Providers (Pre-Implementation Adjustments) Bill 5 “(b) “QFE group means a group of entities that consists of— “(a) the partner entities that are part of a QFE and the asso- ciated entities of that QFE, if any; or in the case of a QFE that does not come within para- graph (a), that QFE and its associated entities “registered legal executive means a person who is a member of the New Zealand Institute of Legal Executives Incorpor- ation and holds a current annual
 registration certificate issued by that body “relevant service has the meaning set out in section 14(3) “related body corporate has the meaning set out in section 5B(2) of the Securities Markets Act 1988 “retail client has the meaning set out in section 5B “standard conditions means standard terms and conditions for the time being approved by the Commission under section 15 147A or 147C and in force under section 147D “statutory officer means a person— “(a) holding or performing the duties of an office established
 by an enactment; or 10 “(b) performing duties expressly conferred on that person by 20 “(c) virtue of his or her office by an enactment; or holding office as the chief executive of a Crown organ- isation “term life insurance policy means a policy— “(a) under which an amount (other than an amount not ex- 25 ceeding the sum of the premiums paid to the insurer) is payable only if during the term of the policy the life in- sured dies or becomes ill or disabled; and that is for a specified term that is less than the life ex- pectancy of the life insured (measured in accordance 30 with generally accepted actuarial practice) at the time the policy is issued “(b) “trustee corporation means the Public Trust, the Maori Trustee, or any corporation authorised by an Act to admin- ister the estates of deceased persons and other trust estates 35 (and any wholly owned subsidiary of that corporation that is guaranteed by the corporation) “wholesale client has the meaning set out in section 5C”.
16 (2) Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 6 Section 5 is amended by repealing the definitions of approved dispute resolution scheme, call debt security, category 1 product, category 2 product, client, conduct obligation, disclosure obligation, entity, and life insurance policy qualifying financial entity, and security and inserting the 5 following definitions in their appropriate alphabetical order: “approved dispute resolution scheme has the same meaning as in section 4 of the FSP Act, but also includes the reserve scheme within the meaning of section 71 of the FSP Act “call debt security means a debt security under which— “(a) the security holder has a right to demand repayment of the principal sum in full at any time; and the issuer has an obligation to repay the principal sum in full not later than 1 working day after the demand is made; and the rate of interest payable or any other benefit provided does not alter as a result of the demand being made; and “(d) no fee or other amount is payable as a result of the prin- cipal sum not having been held by the issuer for a par- ticular period of time “(b) “(c) “category 1 product means any of the following products (other than a product that is a category 2 product): “(a) “(b) a security; or a land investment product (as defined in the regula- tions); or a futures contract; or an investment-linked contract of insurance; or any other product specified by the regulations; or a renewal or variation of the terms or conditions
 of an existing category 1 product “(c) “(d) “(e) “(f) a bank term deposit; or any bonus bonds; or any call building society shares; or “category 2 product means any of the following products: “(a) “(b) “(c) “(ca) a call credit union share; or “(d) a call debt security; or “(da) a share in a co-operative company (as defined in section 2(1) of the Co-operative Companies Act 1996); or 17 10 15 20 25 30 35 Part 1 cl 6 Financial Service Providers (Pre-Implementation Adjustments) Bill “(db) a unit in a cash or
 term portfolio investment entity (as “(e) “(f) “(f) “(g) “(h) “(i) 5 defined in the regulations); or a consumer credit contract (as defined in section 11 of within the meaning of the Credit Contracts and Con- sumer Finance Act 2003); or an insurance product, including a term life insurance policy; or a contract of insurance (other than an investment-linked contract of insurance); or a life insurance policy (within the meaning of section 10 2(1) of the Securities Act 1978) issued before 1 January 2009; or any other product specified by the regulations; or a renewal or variation of the terms or conditions of any existing category 2 product 15 “client has the meaning set out in section 5A “conduct obligation means,— “(a) in relation to a financial adviser, an obligation described in section 32: in relation to a broker, an obligation described in sec- 20 tion 77K “disclosure obligation means,— “(a) in relation to a financial adviser, an obligation described in section 21: in relation to a broker, an obligation described in sec- 25 tion 77E “(b) “(b) “entity— “(a) includes a body corporate and an unincorporated body (including partners in a partnership, members of a joint venture, or the trustees of a trust) and the sole trustee of 30 a trust acting in his, her, or its capacity as trustee of that trust; but “(b) does not include an individual “life insurance policy— “(a) means a policy other than a term life insurance policy 35 that— “(i) “(ii) includes— is a policy of
 life or endowment insurance; or secures an annuity; and “(b) 18 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 6A “(i) “(ii) a policy of insurance other than a term life insur- ance policy that is declared by regulations made under the Securities Act 1978 to be a life insur- ance policy for the purposes of that Act; and a renewal or variation of the terms or conditions 5 of any policy described in paragraph (a) or sub- paragraph (i) “QFE or qualifying financial entity means an
 entity de- scribed in section 63(1)(a) or a number of partner entities described in section 63(1)(b) “security— “(a) means— “(i) “(ii) any interest in, or right to participate in, any cap- ital, assets, earnings, royalties, or other property of any person: any interest in, or right to be paid, money that is, or is to be, deposited with, lent to, or otherwise owing by any person (whether or not the interest or right is secured by a charge over any property); but “(b) does not include— “(i) a security exempted from Part 2 of the Securities Act 1978 under any of paragraphs (b) to (h) of section 5(1) of that Act; or an investment-linked contract of insurance; or “(ii) “(iii) a life insurance policy (within the meaning of section 2(1) of the Securities Act 1978) issued before 1 January 2009”.
10 15 20 25 (3) (3) Paragraph (b) of the definition of trust account in section 5 is amended by inserting “, nominated representative,” after 30 “employee”.

Section 5 is amended by repealing the definitions of finan- cial planning service, investment transaction, life insur- ance policy, related company, and trust account.
6A New sections 5A to 5H inserted 35 The following sections and headings are inserted after section 5: 19 Part 1 cl 6A Financial Service Providers (Pre-Implementation Adjustments) Bill “5A Who are clients “(1) For the purposes of this Act, a client— “(a) means a person who receives a service (whether on pay- “(b) “(c) ment of a charge or not); and in relation to a broking service, means the person on 5 whose behalf the financial product is acquired or dis- posed of or the client money or client property is held (but excludes the product provider); but does not include a person who receives any service from another person if the service is both provided and re- 10 ceived in the course of, and for the purposes of,— “(i) “(ii) the same business; or the businesses of related bodies corporate (within the meaning of section 5B(2) of the Securities Markets Act 1988); or 15 “(iii) the businesses of members of a QFE group.
Example If a company employee (A) gives financial advice to the board of directors on investments to be made by the com- pany, the directors are not clients of A.

However, if A, in the 20 course of business, gives that same financial advice to an- other employee (B) in relation to B’s own investments, B would be a client of A for the purposes of this Act.
“(2) Subsection (1) applies whether the person providing or re- ceiving the service is the person carrying on the business, a 25 controlling owner, a director, an agent, or any other person.

“5B Who are retail clients A retail client is a client of a financial adviser or broker who is not a wholesale client.
“5C Who are wholesale clients “(1) The following clients of a financial adviser or broker are wholesale clients in respect of a financial adviser service or a broking service (unless the person has opted out from being a wholesale client under section 5F): 30 20 “(a) “(b) “(c) “(d) “(e) “(f) “(g) Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 6A any other financial adviser or broker who receives the service in the course of business as a financial adviser or broker: a person who is in the business of providing any other financial service and receives the financial adviser ser- 5 vice or broking service in the course of that business: a person whose principal business is the investment of money or who, in the course of and for the purposes of the person’s business, habitually invests money: an entity to which at least 1 of the following applied 10 at the end of each of the last 2 completed accounting periods: “(i) at the balance date, the net assets of the entity exceeded $1 million: the turnover of the entity for the accounting 15 period exceeded $1 million: “(ii) a related body corporate of an entity to which para- graph (d) applies: a local authority, a Crown entity, a State enterprise, the Reserve Bank of New Zealand, and the National Provi- 20 dent Fund (or a company appointed under clause 3(1)(b) of Schedule 4 of the National Provident Fund Restruc- turing Act 1990): a person who falls within 1 or more of the categories listed in section 3(2), 5(2CB), or 5(2CBA) of the Secur- 25 ities Act 1978 if the service relates to securities that may be offered to that person, or that have been subscribed for by that person, in a private offer of securities: an eligible investor under section 5D.
“(2) “(3) “(h) If subsection (1) applies to a person (A), it applies equally 30 to any controlling owner, director, employee, agent, or other person acting in the course of, and for the purposes of, A’s business to the same extent as it would apply to A.
In this section, a private offer of securities means an offer of securities that— “(a) does not constitute an offer of securities to the public under section 3 of the Securities Act 1978; or 35 21 Part 1 cl 6A Financial Service Providers (Pre-Implementation Adjustments) Bill “(b) is exempt from Part 2 (other than sections 38B and 58) of that Act under section 5(2CB) or 5(2CBA) of that Act.
“5D Who is eligible investor “(1) A client is an eligible investor if— 5 “(a) the client certifies in writing that— “(i) “(ii) the client has sufficient knowledge, skills, or ex- perience in financial matters to assess the value and risks of financial products and the merits of the service or services to be provided; and the client understands the consequences of certi- fying himself, herself, or itself to be an eligible investor (including that the competency stand- ards and requirements of the code will not be ap- plicable (if relevant) and that the financial adviser 15 or broker may not be a member of an approved dispute resolution scheme); and 10 “(b) “(c) the client states the reasons for this certification; and an authorised financial adviser, QFE, or other type of financial adviser or broker signs a written acceptance of 20 the certification in accordance with section 5E.
“(2) A certification may be specific to a particular service or class of services or may be general (but is not effective in relation to services provided before all the requirements of subsection (1)(a) to (b) are met).

25 “(3) A certification relating only to a discretionary investment man- agement service or a broking service (or both) does not need to certify as to the matters referred to in subsection (1)(a)(i).
“5E Acceptance of certification “(1) An authorised financial adviser, QFE, or other type of finan- 30 cial adviser or broker must not accept a certification unless he, she, or it, having considered the client’s reasons for the certi- fication,— “(a) is satisfied that the client has been sufficiently advised of the consequences of the certification; and 35 “(b) has no reason to believe that the certification is incor- rect; and 22 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 6A “(c) is satisfied that nothing indicates, or would indicate to a reasonable person, that further information or investi- gation is required as to the client’s reasons for the cer- tification.
“(2) The person who accepts the certification of a client may be the 5 financial adviser or broker for the client (but does not need to be).

“(3) A financial adviser (other than an authorised financial adviser or QFE) or broker who accepts a certification without having complied with subsection (1) contravenes a wholesale certi- 10 fication requirement.

“(4) Contravention of this section may give rise to a pecuniary penalty order or compensatory order (see sections 137JA and 137JB).
“5F How to opt out of being wholesale client “(1) A person may opt out of being a wholesale client, in relation to a financial adviser or broker, by giving the financial adviser or broker a signed notification to that effect.

15 “(2) A notification may be specific to a particular service, or class of services, or may be general for all services provided by the 20 financial adviser or broker to whom it is given.
“(3) A person may vary or revoke a notification in the same way as the notification may be given.

“(4) A notification (or variation or revocation of a notification) under this section is effective only in relation to services pro- 25 vided after it is given.
“5G Meaning of acting ‘on behalf of B’s business’ and ‘acting “(1) through A’ In this Act, a person (A) provides services acting on behalf of the business of another person (B) or on behalf of B’s 30 business if— “(a) A is a director, an employee, or an agent (including a nominated representative or a contractor) of B and is acting within the scope of his or her actual or apparent authority; or 35 23 Part 1 cl 7 Financial Service Providers (Pre-Implementation Adjustments) Bill “(b) A is acting at the direction or with the consent or agree- ment (whether express or implied) of— “(i) B; or “(ii) a director, an employee, or an agent (including a nominated representative or a contractor) of B 5 and the direction, consent, or agreement given is within the scope of the actual or apparent author- ity of the director, employee, or agent.
“(2) If A is providing services on behalf of B’s business, then B is acting through A to provide those services.

10 “5H Territorial scope “(1) This Act applies to a financial adviser service or broking ser- vice received by a client in New Zealand, regardless of where the person providing the service is resident, is incorporated, or carries on business.
15 “(2) Sections 33, 34, 49, and 118 also extend to any financial adviser service or broking service received by a client outside New Zealand if it is provided by a person who is ordinarily resident in New Zealand (within the meaning of section 4 of the Crimes Act 1961) or incorporated or carrying on business 20 in New Zealand.” Types of financial adviser Section 9(c) is amended by omitting “agent” and substituting “nominated representative”.
When advice or transaction by certain persons is not performing financial adviser service Section 12(l) is amended by inserting “or an employee of a Crown organisation” after “a Crown organisation”.
Section 12 is amended by repealing paragraph (p) and substi- tuting the following paragraph: “(p) an employer, or an employee of the employer, providing assistance to a person who is an employee of the em- ployer with the implementation of a decision to acquire or dispose of a financial product made available through the person’s workplace unless the assistance includes or 35 25 30 7 8 (1) (2) 24 (3) (4) (5) 9 (1) Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 9 is accompanied by a recommendation or opinion as to the suitability of the financial product; or”.
Section 12 is amended by repealing paragraph (q) and substi- tuting the following paragraph: “(q) a company or an employee of a company— “(i) giving advice, in the course of the company’s business, to no person other than a related com- pany; or 5 “(ii) making an investment transaction, in the course of the company’s business, on behalf of no person 10 other than a related company; or”.
Section 12(r) is amended by inserting “or an employee of the offeror or target company” after “the offeror or target com- pany”.
Section 12 is amended by inserting the following paragraph 15 after paragraph (t): “(ta) a rating agency, or an employee of a rating agency, giv- ing advice as part of, or in connection with, a rating that the agency is to complete or has completed, but only if the agency is approved under section 157J of 20 the Reserve Bank of New Zealand Act 1989 or under section 17 of the Insurance Companies (Ratings and In- spections) Act 1994; or”.
Meaning of financial advice clarified Section 13(1) is amended by inserting the following para- 25 graphs after paragraph (c): “(ca) a statement or report made to, or for the purposes of, a general meeting of the members of an issuer, or a report of the proceedings of such a meeting; or “(cb) a statement or report relating to the affairs of an issuer 30 made to any registered exchange for the purposes of compliance with the listing requirements relating to that registered exchange, by or on behalf of that issuer, or any report of such a statement or report; or”.
(2) Section 13(1) is amended by inserting the following paragraph 35 after paragraph (e): “(ea) any of the following documents relating to a company: 25 Part 1 cl 10 Financial Service Providers (Pre-Implementation Adjustments) Bill “(i) “(ii) the company’s annual report: the company’s records required to be kept under section 215 of the Companies Act 1993: “(iii) a notice of a meeting of the shareholders of the company; or”.
10 “17 New heading and sections 17 to 19 substituted Sections 17 to 19 and the heading above section 18 are re- pealed and the following sections and heading substituted: Individual who is QFE employee or nominated representative An individual (whether registered or not) who is an employee or a nominated representative of a QFE may, in the course of the QFE’s business, give financial advice or make an invest- ment transaction in relation to— “(a) “(b) a category 2 product; or a category 1 product of which the QFE is the issuer or promoter.
5 10 15 “Provisions relating to employers or principals of financial advisers “18 Employers or principals of financial advisers must be 20 registered If a person employs an employee or engages an agent (other than as a nominated representative) to perform 1 or more finan- cial adviser services in the course of the person’s business,— “(a) the person must maintain registration throughout the 25 time that the employee is so employed or the agent is so engaged; and the employee or the agent must not perform a financial adviser service in the course of the person’s business if the employee or the agent knows or ought to know that 30 the person is not currently registered.
“(b) If an entity with QFE status nominates a nominated represen- tative,— “(a) the entity must maintain its QFE status and its registra- tion throughout the time that the nominated representa- 35 tive is nominated; and “(1) “(2) 26 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 7 “(b) the nominated representative must not perform a finan- cial adviser service in the course of the entity’s business if the nominated representative knows or ought to know that the entity no longer has QFE status or is no longer registered.
5 “(3) This section does not apply to financial adviser services per- formed by an employee or agent (other than as a nominated representative) in the course of the employer’s or principal’s business for— “(a) the employer and, if the employer is a company, any 10 related company of the employer; or the principal and, if the principal is a company, any related company of the principal.

“(b) “(4) A person who contravenes this section commits an offence (see section 116).
15 “19 Certain employees and nominated representatives exempted from joining approved dispute resolution scheme “(1) A financial adviser who is an employee or a nominated repre- sentative is not required to be a member of an approved dis- 20 pute resolution scheme for the purposes of registration under the FSP Act if— “(a) the employer of the financial adviser, or the QFE that nominated the financial adviser as nominated represen- tative, is a member of an approved dispute resolution 25 scheme; and the financial services that the financial adviser performs are performed— “(i) in the financial adviser’s capacity as an employee of that employer or as a nominated representative 30 of that QFE; and in the course of the business of that employer or, as the case requires, of that QFE.” “(ii) “(b) “(2) This section overrides the FSP Act.” 7 New section 7 and subparts 1 and 1A of Part 2 substituted 35 Section 7 and subpart 1 of Part 2 are repealed and the following section and subparts substituted: 27 Part 1 cl 7 Financial Service Providers (Pre-Implementation Adjustments) Bill Outline “7 “(1) This Part is divided into 3 subparts.
“(2) Subpart 1 defines what a financial adviser service is and what financial advice is, and other key related definitions.

“(3) Subpart 1A sets out the restrictions on providing financial ad- 5 viser services and the restrictions on persons holding them- selves out as certain kinds of advisers.

“(4) Subpart 2 describes the disclosure and conduct obligations of a financial adviser under this Act and when they apply.
“Subpart 1—Key definitions for financial adviser services “What are financial adviser services “8 Who is financial adviser “(1) A financial adviser is a person who provides a financial adviser service.

“(2) See section 16 for the types of financial advisers and sec- tions 20D to 20F in the case of a person who provides a fi- nancial adviser service on behalf of another person’s business.
10 15 “9 What is financial adviser service “(1) A person (A) provides a financial adviser service if, in the 20 ordinary course of business, A provides any of the services listed in subsection (3) to a client.

“(2) A person (A) also provides a financial adviser service if, in the course of business of a financial service provider registered under the FSP Act, A provides any of the services in subsec- 25 tion (3) to a client.
“(3) The services are— giving financial advice (see section 10): “(a) “(b) providing an investment planning service (see section “(c) 11): providing a discretionary investment management ser- vice (see section 12).

30 “(4) A person does not provide a financial adviser service for the purposes of this Act if exempted under section 13 or 14.
28 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 7 “10 When person gives financial advice “(1) A person (A) gives financial advice if A makes a recommen- dation or gives an opinion in relation to acquiring or disposing of (including refraining from acquiring or disposing of) a fi- nancial product.

“(2) Whether or not advice is financial advice for the purposes of this Act is not affected by how the advice is given or commu- nicated.
“(3) However, a person does not give financial advice for the pur- poses of this Act merely by— “(a) providing information (for example, the cost or terms and conditions of a financial product); or “(b) making a recommendation or giving an opinion relating to a class of financial products; or 5 10 “(d) “(c) making a recommendation or giving an opinion about 15 the procedure for acquiring or disposing of a financial product; or transmitting the financial advice of another person (un- less A gives A’s own financial advice in doing so or holds out the transmitted financial advice as A’s own 20 financial advice); or recommending that a person consult a financial adviser.
“(e) “11 When person provides investment planning service A person (A) provides an investment planning service if A designs, or offers to design, a plan for an individual that— “(a) is based on, or purports to be based on, an analysis of the individual’s current and future overall financial situ- ation (including his or her investment needs) and iden- tification of the individual’s investment goals; and includes 1 or more recommendations or opinions on 30 how to realise those goals (or 1 or more of them).
“(b) 25 “12 When person provides discretionary investment management service “(1) A person (A) provides a discretionary investment management service if A— “(a) decides which financial products to acquire or dispose of on behalf of a client (B); and 35 29 Part 1 cl 7 Financial Service Providers (Pre-Implementation Adjustments) Bill “(b) in doing so is acting under an authority granted to A (or A’s employer or principal) to manage some or all of B’s holdings of financial products.
“(2) In determining whether A has that authority, it does not matter if B has the right to be consulted on, or to countermand, A’s 5 decisions.

“13 Exemption for incidental service “(1) A service is not a financial adviser service for the purposes of this Act if the service is provided only as an incidental part of another business that is not otherwise a financial service.
In this section, a service is incidental to another business if it is carried on to facilitate the carrying out of another business, or is ancillary to another business.

“(2) 10 Example A sales assistant in a retail outlet giving advice to a consumer 15 purchasing goods on a hire purchase contract.

“(3) Regulations may declare a class of service provided in the course of a class of business to be incidental, or that a class of business is not a financial service, for the purposes of sub- section (1)(a).
20 “14 Other exemptions “(1) None of the following is a financial adviser service for the purposes of this Act: “(a) “(b) “(c) “(d) “Other occupations a teacher, lecturer, journalist, or State services employee 25 giving financial advice in the course of that occupation: a Minister of the Crown giving financial advice in the course of his or her duties as a Minister of the Crown: a member of Parliament giving financial advice in the course of his or her duties as a member of Parliament: a lawyer, incorporated law firm, conveyancing prac- titioner, chartered accountant, tax agent, real estate agent, registered legal executive, registered valuer, or any other exempted class of service provider (as speci- 30 30 “(e) “(f) “(g) “(h) Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 7 fied in the regulations) providing a relevant service in the ordinary course of business of that kind: “Crown-related organisations and other statutory officers and organisations a statutory officer, Crown organisation (other than Pub- 5 lic Trust), or the Reserve Bank of New Zealand— “(i) discharging any duties or exercising any powers of the statutory officer, Crown organisation, or the Reserve Bank of New Zealand under any en- actment; or 10 “(ii) doing anything that is incidental to the discharge of the functions of the statutory officer, Crown or- ganisation, or the Reserve Bank of New Zealand under any enactment: 15 “Non-profit organisations, workplace financial products, and trustee corporations a non-profit organisation providing a relevant service if the relevant service is provided, without charge, in the course of the organisation’s activities: an employer providing a relevant service to an em- 20 ployee in connection with a financial product made available through the employee’s workplace: a trustee corporation providing a relevant service in the ordinary course of providing— “(i) legal or financial services relating to the prepar- 25 ation or drafting of a will; and estate management and
 administration services (and associated legal, financial, and other ser- vices carried out under the relevant enactment governing the trustee corporation): “(ii) 30 “(i) “(j) “(k) “Activities governed by other regulatory frameworks a principal officer of any entity providing a relevant ser- vice in the person’s capacity as a principal officer: the offeror or target company giving financial advice in the course of a takeover offer under the Takeovers Code: 35 an independent adviser giving financial advice in the course of that person’s functions under the Takeovers Code: 31 Part 1 cl 7 Financial Service Providers (Pre-Implementation Adjustments) Bill “(l) an approved rating agency giving financial advice in connection with a rating given or to be given by it: “(m) any form of communication made by or on behalf of an issuer that is contained in, or given in connection with, an offer of securities that— “(i) 5 does not constitute an offer of securities to the public under section 3 of the Securities Act 1978; or is exempt from Part 2 (other than sections 38B and 58) of that Act under section 5(2CB) or 10 5(2CBA) of that Act: “(ii) “(n) a person carrying on the business of dealing in futures contracts to the extent authorised to do so under sec- tion 38(1)(a) of the Securities Markets Act 1988 or if approved to do so under section 38(1)(b) of that Act: 15 “Documents required by law “(o) providing or making available to a person any of the “(ii) following documents or
 information: “(i) a prospectus, an investment statement, or an ad- vertisement within the meaning of section 2A of 20 the Securities Act 1978: a document or information that is required by law to be provided or made available (for example, an annual report of a company), whether directly or as a condition of carrying out any activity or as a 25 condition of an exemption from any enactment: “(iii) any other exempted document or information (as specified in the regulations): “(p) “Services provided to
 product provider a person providing a service to a product provider in 30 connection with a financial product of that provider in the course of an appointment by, or under a contract for services with, the product provider: “(q) “Other exemptions in regulations any other person providing a service in circumstances 35 exempted under the regulations.
“(2) If subsection (1) applies to a person (A), it applies equally to any controlling owner, director, employee, agent, or other 32 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 7 person acting in the course of, and for the purposes of, A’s business to the same extent as it would apply to A.

In this section, relevant services means services that, but for subsection (1), would be a financial adviser service.
“(3) “When financial adviser service is personalised service or class service 5 “15 When financial adviser service is personalised service or class service “(1) A financial adviser service is a personalised service if it is— “(a) “(b) given to, or in respect of, a named client or a client that 10 is otherwise readily identifiable by the financial adviser; and a client would, in the circumstances in which the ser- vice is provided, reasonably expect the financial adviser to take into account the client’s particular financial situ- 15 ation or goals (or any of them) in performing the service.
“(2) A service is not personalised merely because the client comes within a class of persons having predefined characteristics and the financial adviser takes the fact that the client comes within that class into account.

20 “(3) A financial adviser service is a class service if it is not a per- sonalised service.
“Subpart 1A—Restrictions on providing financial adviser services “16 Types of financial adviser Under this Act there are the following types of financial ad- viser: “(a) an individual who is authorised and registered (an au- thorised financial adviser): an individual who is registered but not authorised: an individual who is not an authorised financial adviser and who is an employee of a QFE or any member of a QFE group or a nominated representative of a QFE or a partner entity (a QFE adviser): a QFE or any other entity that is registered: “(b) “(c) “(d) 25 30 35 33 Part 1 cl 7 Financial Service Providers (Pre-Implementation Adjustments) Bill “(e) any other person (whether an individual or an entity) who is an exempt provider.
“Restrictions on providing financial adviser services “(a) “17 Who may provide financial adviser service “(1) A person must not provide a financial adviser service unless— the person is permitted to provide that service under sections 18 to 20; or the person is— “(i) “(ii) registered or an exempt provider; and acting through a person to whom paragraph (a) applies (other than a QFE adviser); or “(b) 5 10 “(c) the person is a QFE or a member of a QFE group acting through a QFE adviser to whom paragraph (a) applies.
“(2) Contraventions of this section may give rise to an offence (see 15 section 114).
“18 Who is permitted to provide personalised service to retail clients The following individuals are permitted to provide a person- alised service to a retail client: “(a) if giving financial advice or providing a discretionary investment management service in relation to a cat- egory 1 product,— “(i) “(ii) an authorised financial adviser: a QFE adviser (but only if the QFE or a member 25 of the QFE group is the product provider (or, in the case of a security, a promoter) of the relevant category 1 product): 20 “(b) “(c) if providing an investment planning service, an author- ised financial adviser: if giving financial advice or providing a discretionary investment management service in relation to a cat- egory 2 product,— “(i) “(ii) “(iii) a QFE adviser.
an authorised financial adviser: a registered individual: 30 35 34 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 7 “19 Who is permitted to provide class service to retail clients The following persons are permitted to provide a class service to a retail client: “(a) “(b) “(c) “(d) an authorised financial adviser: a QFE adviser: a registered person (whether an individual or an entity): an exempt provider (whether an individual or an entity), other than a person to whom paragraph (a) of the def- inition of exempt provider applies.
5 “20 Who may provide financial adviser service to wholesale 10 clients The following persons are permitted to provide a financial ad- viser service to a wholesale client: “(a) “(b) “(c) “(d) an authorised financial adviser: a QFE adviser: a registered person (whether an individual or an entity): an exempt provider (whether an individual or an entity).
“Restrictions on holding out “20A Who may hold themselves out as authorised financial adviser “(1) A person (A) must not hold out (whether directly or indirectly) that A or any other person (B) is an authorised financial adviser unless A or B (as applicable) is an authorised financial adviser.

“(2) Contraventions of this section may give rise to an offence (see section 115).
15 20 25 “20B Who may hold themselves out as financial planner or investment planner “(1) A person (A) must not hold out (whether directly or indirectly) that A or any other person (B) is— “(a) a financial planner or an investment planner unless A or 30 B (as applicable) is an authorised financial adviser who is authorised to provide investment planning services under section 55: “(b) offering a financial or an investment planning service unless A or B (as applicable) is— 35 35 Part 1 cl 7 Financial Service Providers (Pre-Implementation Adjustments) Bill “(i) “(ii) an authorised financial adviser who is authorised to provide investment planning services under section 55; or acting through an authorised financial adviser who is so authorised.
5 “(2) Contraventions of this section may give rise to an offence (see section 115).

“20C Who may hold themselves out as QFE or having QFE status “(1) A person (A) must not hold out (whether directly or indirectly) 10 that A or any other person (B) is a QFE or has QFE status unless A or B (as applicable) is a QFE.

“(2) Contraventions of this section may give rise to an offence (see section 115).
“Persons acting in course of business of employers and principals 15 “20D Who must be member of dispute resolution scheme A person (A) who provides a financial adviser service on be- half of the business of another person (B) need not be a mem- ber of an approved dispute resolution scheme for the purposes 20 of registration if— “(a) B is a member of an approved dispute resolution scheme; and “(b) A’s obligation to be a member of an approved dispute resolution scheme arises only by virtue of the financial 25 adviser services provided on behalf of B’s business.
“20E Obligation to cease providing if employer or principal not permitted to provide “(1) No QFE adviser (A) may provide a financial adviser service on behalf of the business of another person (B) if A knows that B 30 is— “(a) “(b) not currently registered or is not an exempt provider; or in the case of a QFE, either not currently registered or has lost its QFE status.
36 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 11 “(2) Contraventions of this section may give rise to an offence (see section 116).
“20F Who is responsible for financial adviser obligations “(1) “(b) If a financial adviser service is provided by a person (A) on behalf of the business of another person (B), the following 5 persons are treated as the financial adviser having the financial adviser obligation under this Act: “(a) if it is a personalised service provided to a retail client (unless paragraph (b) applies), both A and B: if A is a QFE adviser and B is the QFE or a member of 10 a QFE group, B only: in any other case, B only.
“(c) If B has a financial adviser obligation under subsection (1),— “(a) any act or omission by A is also treated as being done 15 by B; and if it is necessary to show the state of mind of B, it is sufficient to show that A had that state of mind.

“(b) “(2) “(3) However, subsection (1) does not apply to the financial ad- viser obligations in sections 37 and 45 (which apply to A 20 only).
“(4) Subsections (1) to (3) do not affect the liability of A or B under any other Act or rule of law for A’s actions.” 11 Disclosure by qualifying financial entity Section 26 is amended by repealing subsections (1) and (1A) 25 and substituting the following subsection: “(1) This section applies if a financial adviser (A) who is an em- ployee or a nominated representative of a QFE, but who is not an authorised financial adviser, performs, in the course of the QFE’s business, a financial adviser service (the financial ad- 30 viser service) in relation to— a category 2 product; or “(a) a category 1 product of which the QFE is the issuer or “(b) promoter.” 37 Part 1 cl 11 Financial Service Providers (Pre-Implementation Adjustments) Bill 11 New heading and sections 21 to 25 substituted The heading before section 21 and sections 21 to 25 are re- pealed and the following heading and sections substituted: “Disclosure obligations for personalised services for retail clients “21 What is disclosure obligation and when does it apply “(1) A disclosure obligation under this Part is an obligation to make disclosure under or in accordance with sections 22 to 31.
“(2) A disclosure obligation applies only to a personalised service provided for a retail client.

“22 Financial adviser must make disclosure before providing personalised service to retail client “(1) A financial adviser who provides a personalised service for a retail client must disclose prescribed information to the client, in accordance with this Act and the regulations,— “(a) “(b) before providing the service; or if not practicable before, as soon as practicable after providing the service.
“(2) Subsection (1) does not apply to a QFE adviser acting in that capacity.

“23 What financial adviser must disclose “(1) Regulations for the purposes of prescribing disclosure for fi- nancial advisers under section 22 may require disclosure,— for authorised financial advisers, in relation to any or all “(a) of the matters referred to in subsection (2).

for other financial advisers, in relation to any or all of the matters referred to in subsection (2)(a) to (g).
“(b) “(2) The matters are— contact details: the type of financial adviser: “(a) “(b) “(c) financial adviser services provided (including financial products in relation to which a financial adviser service is provided): fees: “(d) “(e) material interests, relationships, or associations: “(f) remuneration: 38 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 11 “(g) dispute resolution arrangements: “(h) professional or business experience relevant to per- formance of a financial adviser service: criminal convictions: disciplinary proceedings: adverse findings by a court or the Commission: bankruptcy or other insolvency proceedings: indemnity insurance: “(i) “(j) “(k) “(l) “(m) “(n) matters required to be disclosed by the authorised finan- 5 cial adviser’s terms and conditions of authorisation.
10 “24 Disclosure statement “(1) Disclosure under section 22(1) must be made by 1 or more disclosure statements in accordance with the regulations.
“(2) A disclosure statement must— “(a) “(b) “(c) be in writing; and state when it was prepared; and state the name, address, trading name (if any), telephone number, fax number, and email address of the financial adviser; and “(d) be— provided to the client; or “(i) “(ii) delivered or sent to the client at the client’s last known address or an address (including an elec- tronic address) specified by the client for that pur- pose.
“(3) Regulations may provide for the form that a disclosure state- ment must take.

15 20 25 “25 Disclosure by QFE “(1) A QFE or a member of a QFE group that, acting through a QFE adviser, provides a personalised service for a retail client must 30 ensure that prescribed information is disclosed to the client, in accordance with the Act or the regulations,— before the service is provided; or “(a) if not practicable before, as soon as practicable after the “(b) service is provided.
35 “(2) Regulations for the purposes of this section may require dis- closure in relation to any or all of the following matters: 39 Part 1 cl 11A Financial Service Providers (Pre-Implementation Adjustments) Bill contact details: the type of financial adviser: the QFE’s dispute resolution arrangements: “(a) “(b) “(c) “(d) matters required to be disclosed by the QFE’s terms and conditions of a grant of QFE status: 5 “(e) whether the QFE provides any other licensed service.
“(3) Regulations for the purposes of this section may provide for the form that the disclosure must take.” 11A New sections 32 and 33 substituted Sections 32 and 33 and the heading above section 33 are re- 10 pealed and the following sections substituted: “32 What is conduct obligation and when does it apply “(1) A conduct obligation under this Part is an obligation under sections 33 to 48.
“(2) The conduct obligations in— 15 “(c) “(a) “(b) sections 33 to 35 apply to all financial adviser ser- vices: section 36 applies to a class service provided to a retail client: sections 37, 38, 45, and 45A apply to an authorised fi- 20 nancial adviser, irrespective of the type of service: “(d) sections 46 to 48 apply to a QFE and (in some cases) members of a QFE group, irrespective of the type of service.
“33 Financial adviser must exercise care, diligence, and skill 25 A financial adviser, when providing a financial adviser service, must exercise the care, diligence, and skill that a reasonable financial adviser would exercise in the same circumstances, taking into account, but without limitation,— “(a) the nature and requirements of the financial adviser’s 30 client or (if it is a class service) of the clients intended to receive the service; and the nature of the service provided and the circumstances in which the service is provided; and the type of financial adviser.” 35 “(b) “(c) 40 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 12A 11B Financial adviser must not engage in misleading or deceptive conduct Section 34(1) is amended by omitting “the performance of” and substituting “the provision of”.
12 “(1) Restriction on use of term sharebroker Section 36 is amended by repealing subsection (1) and substi- tuting the following subsection: In any advertising or promotional material, the term sharebro- ker must not be used in connection with a person unless the person, or the person’s employer, is a member of a registered 10 exchange.” 5 12 New section 36 substituted Section 36 is repealed and the following section substituted: “36 Regulations may impose specific conduct obligations for class retail services A financial adviser must, when providing a class service to a retail client,— “(a) 15 20 (if required by regulations) ensure that the prescribed warning is given in the prescribed manner that the class service is not personalised; and ensure compliance with the prescribed requirements re- lating to the competency of, or the use of adequate care, diligence, and skill by, the persons involved in provid- ing the service (for example, a requirement to obtain a certificate from the principal officers of the adviser or a 25 requirement to obtain the approval of an authorised fi- nancial adviser or registered financial adviser to finan- cial advice); and comply with any prescribed record-keeping or proced- ural requirements relating to those matters.” 30 “(b) “(c) 12A Authorised financial adviser must not recommend or receive money for acquisition of securities if offer for subscription illegal The heading to section 38 is amended by omitting “or receive money for”.
(1) 35 41 Part 1 cl 12B Financial Service Providers (Pre-Implementation Adjustments) Bill (2) Section 38(1) is amended by omitting “, and must not receive money from a person in respect of the acquisition of secur- ities,”.

12B Sections 39 to 44 repealed Sections 39 to 44 are repealed.
5 12C New section 45A inserted The following section is inserted after section 45: “45A Authorised financial adviser must report breach of Act to Commission If an authorised financial adviser (A) reasonably believes that 10 a person has breached this Act or an obligation imposed under this Act (including the code) in a material respect, A must, as soon as practicable, report the breach to the Commission.
If A makes a report under subsection (1) in good faith,— “(a) no civil, criminal, or disciplinary proceedings may be 15 brought against A in respect of the report: “(b) no person may terminate the appointment or employ- “(c) “(d) ment of A by reason of the report: no tribunal, body, or authority that has jurisdiction in respect of the professional conduct of A may make an 20 order against, or do any act in relation to, A in respect of the report: the Commission must not disclose information that might identify A unless— “(i) A consents in writing to the disclosure of the in- 25 “(ii) formation; or the Commission believes that disclosure of the information is essential to the effective investi- gation of the alleged breach or is otherwise es- sential, having regard to the principles of natural 30 justice.” If A makes a report under subsection (1) (whether or not in good faith), the Commission must not disclose information that might identify a client of A unless— “(a) the client consents in writing to the disclosure of the 35 information; or “(1) “(2) “(3) 42 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 13 “(b) the Commission believes that disclosure of the infor- mation is essential to the effective investigation of the alleged breach or is otherwise essential, having regard to the principles of natural justice.
“(4) A breach of subsection (1) must be treated as a breach of the 5 code for the purposes of subpart 2 of Part 4.” 13 (1) (2) 13 QFE must not engage in misleading or deceptive conduct in relation to financial adviser service by employee or agent The heading to section 47 is amended by omitting “agent” and 10 substituting “nominated representative”.

Section 47(1) is amended by omitting “agent” and substituting “nominated representative”.
New heading and sections 46 to 48 substituted The heading above section 46 and sections 46 to 48 are re- 15 pealed and the following heading and sections substituted: “Conduct obligations related to QFEs “46 QFE must comply with terms and conditions of grant of QFE status “(1) Every QFE and every partner entity of a QFE must comply 20 with the terms and conditions of the QFE’s grant of QFE status.

“(2) Contraventions of this section give rise to the offences de- scribed in section 129.
“47 QFE or member of QFE group must not engage in misleading or deceptive conduct in relation to financial adviser service by employee, agent, or nominated representative 25 “(1) A QFE or a member of a QFE group must not engage in con- duct in relation to a financial adviser service by the QFE’s or the member’s employee, agent, or nominated representative 30 that is misleading or deceptive or likely to mislead or deceive.
“(2) Contraventions of this section give rise to the offences de- scribed in section 130.

43 Part 1 cl 13A Financial Service Providers (Pre-Implementation Adjustments) Bill “48 Advertisement by QFE or member of QFE group in relation to financial adviser service must not be misleading, deceptive, or confusing “(1) A QFE or a member of a QFE group must not advertise a financial adviser service in a way that is misleading, deceptive, 5 or confusing.
“(2) Contraventions of this section give rise to the offences de- scribed in section 131.” 13A Eligibility to be authorised Section 54(b)(i) is amended by omitting “due inquiry” and 10 substituting “making any inquiries that it considers appropri- ate”.
13B New sections 55 and 55A substituted Section 55 is repealed and the following sections are substi- tuted: 15 “55 Commission must approve or decline application for “(1) authorisation If an applicant for authorisation is eligible, the Commission must authorise that person in respect of 1 or more of the fol- lowing for a specified period: “(a) providing any financial adviser service, or specified kinds of financial adviser services, in relation to any category 1 product, specified category 1 products, or specified classes of category 1 product: 20 “(b) providing a discretionary investment management ser- 25 vice on behalf of clients, generally or in specified cases, in relation to any category 1 product, specified category 1 products, or specified classes of category 1 product: providing investment planning services generally or in specified cases.
“(c) 30 “(3) “(2) The authorisation may be subject to terms and conditions relat- ing to financial adviser services or broking services or to both.

If the Commission approves the application, the Commission must notify the applicant in writing of— “(a) “(b) the authorisation; and the terms and conditions (if any); and 35 44 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 13B “(c) the period of authorisation.
“(4) The Commission may incorporate, with any modifications it “(5) considers appropriate, the standard conditions.

If an applicant for authorisation is not eligible, the Commis- sion must— “(a) decline the application; and “(b) notify the applicant in writing of— 5 “(i) “(ii) the decision and the reasons for it; and the applicant’s right of appeal against the deci- sion.
10 “55A Variation of terms and conditions and period of authorisation “(1) An authorised financial adviser may apply to the Commission for a variation of the terms and conditions of the adviser’s authorisation.

“(2) The Commission may grant or decline the application.
“(3) The Commission may, by notice to an authorised financial ad- viser, propose a variation of the terms and conditions of the adviser’s authorisation or the period of the adviser’s author- isation, or both, on either or both of the following grounds: “(a) the business of the adviser has changed in a way that poses a material risk to consumers: the adviser has been involved in market practices that are, in material respects, inconsistent with the purpose of this Act.
“(b) 15 20 25 “(4) The Commission must specify in the notice a reasonable period for the adviser to respond in writing.

“(5) After considering any response received within the period spe- cified in the notice, the Commission may, by notice to the ad- viser, vary the terms and conditions of the adviser’s authorisa- 30 tion or the period of the adviser’s authorisation, or both.
“(6) The Commission may, in the notice under subsection (5), vary terms and conditions on a provisional basis and, if it does so, must, in the light of any changes in risk posed by the ad- viser’s business or market practices, review those terms and 35 conditions by a date stated in the notice.
45 Part 1 cl 13C Financial Service Providers (Pre-Implementation Adjustments) Bill “(7) On completion of the review, the Commission may do any of the following: “(a) “(b) “(c) confirm 1 or more of the variations effected by subsec- tion (5): cancel 1 or more of the variations effected by subsec- 5 tion (5): propose further terms and conditions by giving the au- thorised financial adviser a notice under subsection (3).
“(8) The Commission must give the authorised financial adviser 10 notice of any decision taken under subsection (7)(a) or (b).” 13C Renewal of authorisation “(4) Section 58 is amended by repealing subsection (4) and substi- tuting the following subsection: In addition to the matters specified in section 54, the Commis- 15 sion must be satisfied that— “(a) the applicant for renewal of authorisation has complied with the minimum professional standards for authorised financial advisers prescribed by the code; or any failure, on the part of the applicant, to comply with 20 those standards is not sufficiently serious or recent to preclude the renewal of the applicant’s authorisation.” “(b) 13D New section 59A inserted The following section is inserted after section 59: “59A Commission’s power to ban financial adviser who is registered but not authorised “(1) This section applies if the Commission is satisfied that an in- dividual (the affected individual)— “(a) is a financial adviser, other than a QFE adviser, who is registered but not authorised; and 25 30 “(b) has persistently breached his or her conduct obligations.
“(2) The Commission may, after following the procedure set out in section 60, order that the affected individual not provide any financial adviser services or not provide 1 or more specified classes of financial adviser service for a specified period that 35 does not exceed 5 years.

46 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 15 “(3) The Commission must give the affected individual a copy of the order.
“(4) The order takes effect when it is given to the affected indi- vidual.

“(5) The Commission must notify the Registrar in writing of the 5 terms of the order, and may also publicly notify those terms as it sees fit.

“(6) The Commission may, on application by the affected indi- vidual, after following the procedure set out in section 60, vary or revoke the order.
10 “(7) Subsections (3) to (5) apply, with any necessary modifica- tions, to an order that varies or revokes the original order.” 13E Reasonable opportunity to be heard Section 60 is amended by inserting “or section 59A” after “section 59(2)”.
15 14 “(2) Application for QFE status Section 65 is amended by adding the following subsection as subsection (2): If the entity proposes to nominate 1 or more individuals as nominated representatives, the application must state, or be 20 accompanied by a list that states, the name of each person pro- posed to be nominated.” 15 New section 68A inserted The following section is inserted after section 68: “68A Nominated representatives of QFEs “(1) In order to nominate an individual as one of its nominated representatives, a QFE must— “(a) comply with the method (if any) prescribed for that pur- pose in the terms and conditions of its grant of QFE sta- tus; or if those terms and conditions do not prescribe a method for that purpose, record the nomination in a written in- strument that— “(i) nominates the individual as a nominated repre- sentative of the QFE; and “(b) 25 30 35 47 Part 1 cl 14 Financial Service Providers (Pre-Implementation Adjustments) Bill “(ii) is dated and, if the nomination is to take effect on a later date, specifies that later date.” “(2) The QFE may terminate the nomination by giving written no- tice to the individual concerned and to the Commission.” 14 New sections 63 to 77 substituted Sections 63 to 77 are repealed and the following sections sub- stituted: 5 “63 What is qualifying financial entity (QFE) “(1) A QFE is— “(a) “(b) an entity that is registered and has QFE status; or a number of partner entities that are each registered and jointly have QFE status.
10 “(2) For the purposes of any powers or rights conferred, or obliga- tions or liabilities imposed, on QFEs by this Act, a QFE de- scribed in subsection (1)(b) is taken to be a separate entity 15 and a person.

“(3) Subsection (2) does not limit any obligation or liability im- posed on a partner entity.

“64 Who may apply for QFE status An application may be made to the Commission by— “(a) “(b) 2 or more related bodies corporate for joint QFE status.
a single entity for QFE status; or 20 “65 Application for QFE status “(1) An application for QFE status must— “(2) “(a) be in the prescribed form (if any); and “(b) be accompanied by the prescribed fee (if any).

If the applicant or applicants seek to have 1 or more entities approved as associated entities of the proposed QFE, the ap- plication must state the name of each entity sought to be ap- proved as an associated entity and how that entity is related to 30 the applicant or applicants.
25 “(3) The application must set out the procedures that the applicant or applicants have for— “(a) training employees and nominated representatives; and 48 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 14 “(b) setting standards for employees and nominated repre- sentatives; and “(c) monitoring those standards.
“66 Eligibility for QFE status “(1) The Commission may confer QFE status on a single entity ap- 5 plying under section 64(a) or on 2 or more entities applying under section 64(b) if it is satisfied that— “(a) each entity is registered or is entitled to be registered; and “(b) no entity is debarred from applying for QFE status; and 10 on the grant of QFE status and at all times while a QFE, “(c) the single entity that will be the QFE has, or the partner entities that will be the QFE together have, the capacity to, and will,— “(i) discharge its or their ongoing compliance obliga- 15 tions under section 76 and all other obligations on it under this Act or the regulations; and comply with the terms and conditions (if any) of the grant of QFE status; and “(ii) “(2) “(iii) maintain procedures to ensure that retail clients 20 of the QFE receive adequate consumer protec- tion.
In determining under subsection (1)(c) whether clients re- ceive adequate consumer protection, the Commission must, in relation to QFE advisers who provide personalised financial 25 adviser services that relate to category 1 products,— “(a) consider whether the clients will receive protection of a similar standard to that provided by advisers who are subject to the code; and in doing so, take into account the scope of category 1 30 products in respect of which those QFE advisers pro- vide financial adviser services.
“(b) “67 Commission must approve or decline application for QFE “(1) status If an applicant under section 64(a) is eligible, or if applicants 35 under section 64(b) are eligible, for QFE status, the Com- 49 Part 1 cl 14 Financial Service Providers (Pre-Implementation Adjustments) Bill mission must approve the application and grant the applicant or the applicants QFE status.

“(2) The grant of QFE status is subject to the terms and conditions specified or incorporated in the grant.
“(3) The Commission may incorporate, with any modifications it 5 “(4) considers appropriate, the standard conditions.

If the application also asks for the approval of 1 or more en- tities as associated entities of the QFE, the Commission may, by written determination, approve an entity as an associated entity of the QFE if that entity— “(a) “(b) is registered or is entitled to be registered; or is, under the FSP Act, an affiliated entity of one of the applicants.
10 “(5) Even though an entity is eligible under subsection (4), the “(6) Commission may decline to approve the entity for any reason, 15 including, without limitation, the absence of a direct connec- tion between the entity and the QFE or any of its partner en- tities.
If the Commission approves an associated entity, terms and conditions under subsection (2) may, without limitation, re- 20 late to— “(a) the kinds of financial adviser services that may be pro- vided by or on behalf of any associated entity: any conditions and restrictions that are to apply to the provision of those services: the way in which the QFE is to supervise any associated entity.
“(b) “(c) “(7) The Commission is not precluded from approving an entity as an associated entity of a QFE merely because the entity is, or is proposed to be, the associated entity of another QFE.

“68 Determination of application “(1) If the Commission approves an application for a grant of QFE status, the Commission must notify the entity or entities in writing of— “(a) “(b) “(c) the grant of QFE status; and the terms and conditions; and the period for which QFE status has been granted.
50 25 30 35 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 14 “(2) If an applicant under section 64(a) is not, or 1 or more of the applicants under section 64(b) are not, eligible for QFE status, the Commission must— “(a) decline the application; and “(b) notify the entity or entities of— “(i) “(ii) the decision and the reasons for it; and the right of an applicant under section 64(a) to appeal, and the right of applicants under section 64(b) jointly to appeal, against the decision.
“69 Name of QFE group “(1) A QFE group has the name that is approved by the Commis- sion and chosen by the applicant or applicants for QFE status that results in the formation of the group.

“(2) Every application for QFE status that would, if approved, re- 5 10 sult in the formation of a QFE group must submit a name for 15 the proposed group.

“(3) The Commission may ask the applicant or applicants to submit another name.
“70 Commission must notify Registrar of grant of QFE status “(1) If the Commission grants an entity or entities QFE status, the 20 Commission must notify the Registrar in writing of— “(a) the name of the entity, or the names of the partner en- tities, granted QFE status: the period for which QFE status has been granted: if a QFE group has been formed, the name of the group: 25 if associated entities of the QFE have been approved, the names of those entities.
“(b) “(c) “(d) “(2) The Commission may publicly notify the grant of QFE status and the other matters referred to in subsection (1) as it thinks fit.

30 “71 Addition of associated entities “(1) The QFE of a QFE group may apply to the Commission to approve the addition of 1 or more entities as associated entities of the QFE.
“(2) The application must— 35 51 Part 1 cl 14 Financial Service Providers (Pre-Implementation Adjustments) Bill be in the prescribed form (if any); and “(a) “(b) be accompanied by the prescribed fee (if any); and “(c) name the entities sought to be added as associated en- tities.

“(3) Section 67(3) to (5) apply with any necessary modifications.
5 “(4) The Commission may amend the terms and conditions of the QFE’s grant of QFE status to include, modify, or replace any terms and conditions of a kind described in section 67(6).

“(5) The QFE may withdraw the application at any time before it “(6) is determined.
If the Commission approves an entity as an associated entity under this section, the Commission— “(a) must notify the Registrar in writing of the name of the 10 entity; and “(b) may publicly notify the inclusion of the associated en- 15 tity in the QFE group as it thinks fit.
“72 Termination of status of associated entity The status of an associated entity terminates when— “(a) “(b) the entity ceases to be registered; or the Commission receives a written request from the en- 20 tity or from the relevant QFE or any partner entity to cancel its status as associated entity; or the QFE status of the relevant QFE is terminated.
“(c) “73 Certification of QFE group “(1) The Commission may issue a certificate stating that named 25 entities are, as at the date of the certificate, a QFE group or that named entities were, during a specified period, a QFE group.

“(2) A certificate issued under subsection (1) is, in the absence of proof to the contrary, evidence of its contents.
“74 Nominated representatives of QFEs or partner entities “(1) A QFE or a partner entity may nominate an individual as one 30 of its nominated representatives by— “(a) complying with the method (if any) prescribed for that purpose in the terms and conditions of the relevant grant of QFE status; or 35 52 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 14 “(b) if those terms and conditions do not prescribe a method for that purpose, recording the nomination in a written instrument that— “(i) nominates the individual as a nominated repre- sentative of the QFE or of the partner entity; and 5 is dated and, if the nomination is to take effect on a later date, specifies that later date.
“(ii) “(2) An individual may not be the nominated representative of 2 or more entities unless the entities are related bodies corporate.

“(3) The QFE or the partner entity may terminate the nomination 10 by giving written notice to the individual concerned and to the Commission.

“(4) Every QFE must keep an up-to-date record of its nominated representatives.
“75 Variation of terms and conditions and period of grant of 15 QFE status “(1) A QFE may apply to the Commission for a variation of the terms and conditions of the grant of QFE status.

“(2) The Commission may grant or decline the application.
“(3) The Commission may, by notice to a QFE, propose a variation 20 of the terms and conditions of the QFE’s grant of QFE status or the period of the grant on either or both of the following grounds: “(a) the business of the QFE or of the QFE group has changed in a way that poses a substantial risk to con- 25 sumers: the QFE or any member of the QFE group has been in- volved in market practices that are, in material respects, inconsistent with the purpose of this Act.
“(b) “(4) The Commission must specify in the notice a reasonable 30 period for the QFE to respond in writing.

“(5) After considering any response received within the period spe- cified in the notice, the Commission may, by notice to the QFE, vary the terms and conditions of the QFE’s grant of QFE status or the period of the grant, or both.
35 “(6) The Commission may, in the notice under subsection (5), vary terms and conditions on a provisional basis and, if it does 53 10 20 Part 1 cl 14 Financial Service Providers (Pre-Implementation Adjustments) Bill so, the Commission must, in the light of any changes in risk posed by the business or market practices of the QFE or any member of the QFE group, review those terms and conditions by a date stated in the notice.
“(7) On completing the review, the Commission may do any of the 5 following: “(a) “(b) “(c) confirm 1 or more of the variations effected by subsec- tion (5): cancel 1 or more of the variations effected by subsec- tion (5): propose new terms and conditions or a new period of grant by giving the QFE a further notice under subsec- tion (3).
“75A Termination of QFE status “(1) The QFE status of an entity or of partner entities terminates 15 when— “(a) “(b) “(c) “(d) the period of a grant of QFE status expires; or the Commission receives a written request from the QFE or from any partner entity requesting the Commis- sion to cancel the QFE status; or the entity that forms, or any of the partner entities that jointly form, the QFE ceases to be registered; or the Commission cancels its QFE status under section 75D(2).
“(2) The Commission must notify the Registrar in writing of the 25 termination of QFE status under subsection (1)(a), (b), or (d).
“75B Commission may designate certain QFE products as “(1) beyond scope of QFE advisers If, because of the complexity of a particular category 1 prod- 30 uct, the Commission has concerns about the provision of per- sonalised services in relation to that product by QFE advisers, the Commission may specify those concerns in a notice to the QFE or the partner entity whose QFE advisers provide those services.

35 “(2) A notice under subsection (1) may be given only in excep- tional circumstances.
54 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 14 “(3) The Commission must specify in the notice a reasonable period for the relevant entity to respond in writing and must ask the entity to satisfy the Commission that the QFE advisers are able to, and will, provide financial adviser services in rela- tion to the category 1 product concerned with the appropriate 5 level of professionalism and competence.
“(4) After considering the entity’s response, the Commission may, by notice to the entity, determine that a QFE adviser may not provide a personalised financial adviser service to a retail client directly in relation to the specified category 1 product.

“(5) A determination under subsection (4) has effect according to its tenor despite anything in section 18.

“(6) The Commission may at any time, by notice to the entity, re- voke a determination under subsection (4).
“75C Renewal of QFE status “(1) A QFE may apply for renewal of QFE status.

“(2) An application for renewal of QFE status must be— “(a) made in the prescribed form (if any); and “(b) accompanied by the prescribed fee (if any).

10 15 “(3) Sections 64 to 70 apply, with any necessary modifications, 20 “(4) to an application for renewal of QFE status.
If an application for renewal of QFE status has been made but not determined before the date on which the QFE status is due to expire, the QFE status continues until the application is determined.

“(5) The renewal of QFE status takes effect from the date of expiry of the previous grant of QFE status.
“Commission’s powers in relation to default by QFE or by members of QFE group “75D Commission’s powers in relation to QFE default “(1) This section applies if the Commission is satisfied that— “(a) “(b) a QFE or any partner entity of a QFE has ceased to be eligible for QFE status; or the QFE or any member of the QFE group has breached or is in breach of this Act or the regulations; or 25 30 35 55 Part 1 cl 14 Financial Service Providers (Pre-Implementation Adjustments) Bill “(c) “(d) “(e) the QFE or any member of the QFE group is in breach of a term or condition of the grant of QFE status; or the QFE or any partner entity of the QFE has failed to comply with a direction given to it by the Commission under section 75F; or the QFE or any partner entity of the QFE has failed to pay a fee or levy as required by this Act or the regula- tions.
5 “(2) In any case to which this section applies, the Commission may, after following the procedure set out in section 75E and sub- 10 ject to subsections (3) and (4),— “(a) “(b) cancel the QFE’s status; or cancel the QFE’s status and debar, for a specified period, the entity, any partner entity, and any associated entity of the former QFE from re-applying for QFE status; or 15 suspend the QFE’s status for a specified period or until the suspended QFE or any partner entity, or any asso- ciated entity of the suspended QFE, does any thing that the Commission requires; or amend the terms and conditions of the QFE’s grant of 20 status; or order that the QFE pay a fine not exceeding $50,000; or censure the QFE; or take no further action.
“(c) “(d) “(e) “(f) “(g) “(3) The Commission may take only 1 of the actions specified in 25 subsection (2), except that it may order the QFE to pay a fine not exceeding $50,000 in addition to taking an action under subsection (2)(d) or (f).

“(4) All partner entities of a QFE are jointly and severally liable for the payment of a fine that the QFE is ordered to pay under 30 subsection (2)(e).
“(5) The Commission must not order the QFE to pay a fine in rela- tion to an act or omission that constitutes an offence for which the QFE or any partner entity of the QFE has been convicted by a court.

If the Commission cancels or suspends the QFE status of an entity, the Commission must notify the Registrar in writing of the cancellation or suspension, and, in the case of suspension, the period of suspension.
“(6) 35 56 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 14 “(7) The Commission may publicly notify the action it takes under subsection (2) as it sees fit.
“75E Reasonable opportunity to be heard The Commission must not take any of the actions specified in section 75D(2) unless it has first— “(a) informed the QFE and any partner entities of the QFE in writing of the reasons for taking any of those actions; and “(b) given the QFE and any partner entities of the QFE or 5 their representatives a reasonable opportunity to make 10 written submissions and be heard on the question.
“75F Commission may give QFE direction “(1) This section applies if the Commission has reason to believe that a QFE is in breach of a disclosure or conduct obligation.

“(2) The Commission may give the QFE, and every partner entity 15 of the QFE, notice of its alleged breach and, if the Commission does give a notice of breach, the Commission must also give the QFE a reasonable opportunity to respond.
If the Commission concludes, after considering the QFE’s re- sponse, that the QFE is in breach, the Commission may give 20 the QFE a direction in writing.
“(3) “(4) The direction may— 25 “(a) “(c) “(b) direct the QFE, any partner entity, or any associated en- tity of the QFE to comply with the disclosure or conduct obligation: stipulate any steps that the QFE, any partner entity, or any associated entity of the QFE must take in order to comply with the disclosure or conduct obligation: require the QFE to report to the Commission within 28 days of the date of the direction stating how and by 30 when the Commission’s direction will be implemented.
If the QFE, any partner entity, or any associated entity of the QFE fails to comply with a direction by the Commission, the QFE and every partner entity commits an offence (see section 132).

35 “(5) 57 Part 1 cl 14 Financial Service Providers (Pre-Implementation Adjustments) Bill “(6) Nothing in this section precludes the Commission from exer- cising any of its other powers under this Act against a QFE.
“75G Other provisions concerning Commission’s powers in relation to QFE default “(1) A fine imposed by the Commission under section 75D(2)(e) 5 is recoverable in any court as a debt due to the Commission.

“(2) At the end of a period of suspension of QFE status, a QFE’s status is immediately revived, unless its QFE status has been further suspended or has been cancelled.
“(3) Suspension or cancellation is effective when a written notice 10 of the suspension or cancellation is sent to the QFE by the Commission.
“QFE’s obligations “76 Ongoing obligations of QFEs and of partner entities “(1) A QFE, and every partner entity of a QFE, must— “(a) ensure compliance by the QFE and, where the QFE is part of a QFE group, by every member of that group, and by each employee and nominated representative of the QFE and of every member of that group, with the terms and conditions of the grant of QFE status; and 15 20 “(c) “(b) where an associated entity is the associated entity not only of the QFE but also of another QFE, ensure com- pliance by the associated entity and by each employee of the associated entity with the terms and conditions of the grant of QFE status of that other QFE; and in relation to QFE advisers who are employees of the QFE or of a member of the QFE group, ensure compli- ance by each of those persons with his or her financial adviser obligations; and in relation to QFE advisers who are nominated repre- 30 sentatives of the QFE or of a partner entity, ensure com- pliance by each of those persons with his or her financial adviser obligations, whether or not the nominated rep- resentative acts for the QFE or for the partner entity or for any related company of the QFE or the partner en- 35 tity; and “(d) 25 58 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 14 “(e) “(f) in relation to advisers of the QFE or of a member of the QFE group who perform a financial adviser service that, by virtue of sections 17 and 18 only an authorised financial adviser is permitted to perform, ensure that
 each of those persons is authorised: provide the Commission, whenever reasonably required by the Commission and in any case in accordance with any requirements specified in the terms and conditions of its grant of QFE status, with an up-to-date list of the names of— “(i) the authorised financial advisers of the QFE and of any members of the QFE group; and the nominated representatives of the QFE and of any partner entity; and “(ii) 5 10 “(g) provide an annual report to the Commission in accord- 15 “(h) “(i) ance with section 77; and comply with a direction by the Commission given under section 72; and comply with its other obligations under this Act and the regulations.
20 “(2) A contravention of subsection (1)(e) gives rise to the of- fences described in section 133.
“77 QFE must provide annual report to Commission “(1) Within 5 months after the end of its financial year, a QFE must send to the Commission a written report in respect of that year 25 (the reporting year)— “(a) certifying that the QFE and every member of the QFE group has complied with its obligations under this Act and the regulations, and with the terms and conditions of the grant of QFE status; and if the QFE or any member of the QFE group has not complied with its obligations under this Act and the regulations, and with the terms and conditions of the grant of QFE status, stating those respects in which it has failed to comply; and if the QFE is aware of any breach of a financial adviser obligation by an employee, agent, or nominated repre- 30 35 “(b) “(c) 59 Part 1 cl 16 Financial Service Providers (Pre-Implementation Adjustments) Bill sentative of the QFE or of a member of the QFE group, stating— “(i) “(ii) the name of that person; and the nature of that person’s breach or breaches; and containing any other information required by the regu- lations; and containing the information (if any) that is required to be contained in the report by the terms and conditions of the grant of QFE status.
5 10 “(d) “(e) “(2) The report may be submitted by any partner entity of the QFE.

“(3) The report must be signed by either— “(a) “(b) a principal officer of the QFE; or a principal officer of a partner entity of the QFE.
“(4) Contraventions of subsection (1) give rise to the offences 15 described in section 134.” 16 New section 75 substituted Section 75 is repealed and the following section substituted: “75 Exemption from liability for employee or nominated representative of QFE “(1) This section applies if a financial adviser who is an employee or a nominated representative of a QFE, but who is not an authorised financial adviser, gives financial advice or makes an investment transaction, in the course of the QFE’s business, in relation to— “(a) “(b) a category 2 product; or a category 1 product of which the QFE is the issuer or promoter.
“(2) A financial adviser to whom this section applies is exempt 20 25 from liability under this Act for contravening a financial ad- 30 viser obligation.” QFE’s ongoing compliance obligations Section 76(1) is amended by omitting “agents” in each place where it appears and substituting in each case “nominated rep- resentatives”.
35 17 (1) 60 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 17 (2) 18 Section 76(1) is amended by inserting the following paragraph after paragraph (c): “(ca) provide the Commission, whenever reasonably required by the Commission and in any case in accordance with any requirements specified in the terms and conditions 5 of its grant of QFE status, with an up-to-date list of the names of the QFE’s nominated representatives; and”.
QFE must provide annual report to Commission Section 77(1) is amended by omitting “agent” in each place where it appears and substituting in each case “nominated rep- 10 resentative”.
17 New Part 3A inserted The following Part is inserted after Part 3: “Part 3A “Brokers’ disclosure and conduct obligations “Who is broker and what is broking service 15 “77A Who is broker “(1) A broker is an individual or an entity who carries on a business of providing or offering to provide a broking service to a client 20 (whether or not the business is the provider’s only business or the provider’s principal business).
“(2) See section 77V in the case of a person who provides a broking service on behalf of another person’s business.

“77B What is broking service “(1) A broking service is the receipt, holding, payment, or transfer of client money or client property by a person acting as an intermediary for a client.

25 “(2) A person acts as an intermediary if the person does not receive, hold, pay, or transfer the money or property on the person’s 30 own account.
“(3) The mere transmission of a non-transferable instrument payable to another person is not a broking service.

61 Part 1 cl 17 Financial Service Providers (Pre-Implementation Adjustments) Bill “77C Exemption for incidental service “(1) A service is not a broking service for the purposes of this Act if the service is provided only as an incidental part of another business that is not otherwise a financial service.
In this section, a service is incidental to another business if it 5 is carried on to facilitate the carrying out of another business, or is ancillary to another business.

“(2) “(3) Regulations may declare a class of service provided in the course of a class of business to be incidental, or that a class of business is not a financial service, for the purposes of sub- 10 section (1)(a).
“77D Other exemptions “(1) None of the following is a broking service for the purposes of this Act: “(a) a lawyer, incorporated law firm, conveyancing practi- 15 tioner, chartered accountant, tax agent, real estate agent, registered legal executive, or other exempted class of service provider (as specified in the regulations) provid- ing a broking service in the ordinary course of business of that kind: a statutory officer, Crown organisation (other than the Public Trust), or the Reserve Bank of New Zealand— discharging any duties or exercising any powers “(i) of the statutory officer, Crown organisation, or the Reserve Bank of New Zealand under any en- 25 actment; or 20 “(ii) doing anything that is incidental to the discharge of the functions of the statutory officer, Crown or- ganisation, or the Reserve Bank of New Zealand under any enactment: a designated settlement system under section 156N of the Reserve Bank of New Zealand Act 1989, and any operator of that system, receiving, holding, paying, or transferring client money or client property in accord- ance with the rules of the settlement system: an employer providing a broking service to an employee in connection with a financial product made available through the person’s workplace: 30 35 “(b) “(c) “(d) 62 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 17 “(e) any other person providing a service in circumstances exempted under the regulations.
“(2) If subsection (1) applies to a person (A), it applies equally to any controlling owner, director, employee, agent, or other person acting in the course of, and for the purposes of, A’s 5 business to the same extent as it would apply to A.

“Disclosure obligations for services for retail clients “77E What is disclosure obligation and when does it apply “(1) A disclosure obligation under this Part is an obligation to make 10 disclosure under or in accordance with sections 77G to 77J.
“(2) A disclosure obligation applies only to a broking service pro- vided for a retail client.

“77F Broker must make disclosure before receiving client money or client property from retail client A broker must disclose prescribed information to a retail client, in accordance with this Act and the regulations,— “(a) before receiving client money or client property from or on behalf of the client; or if not practicable before, as soon as practicable after 20 doing so.
“(b) 15 contact details: fees: “77G What broker must disclose and form of disclosure “(1) Regulations for the purposes of prescribing disclosure for bro- kers under section 77F may require disclosure in relation to any or all of the following matters: “(a) “(b) “(c) material interests, relationships, or associations: “(d) “(e) “(f) remuneration: dispute resolution arrangements: in relation to the broker and, if the broker is an entity, each principal officer,— “(i) “(ii) disciplinary proceedings: “(iii) adverse findings by a court or the Commission: criminal convictions: 25 30 35 63 Part 1 cl 17 Financial Service Providers (Pre-Implementation Adjustments) Bill “(iv) bankruptcy or other insolvency proceedings: “(g) procedures for handling client money or client property: “(h) indemnity insurance.
“(2) Regulations for the purposes of this section may provide for the form that the disclosure must take.

“77H Disclosure must not be misleading, deceptive, or confusing Disclosure under a disclosure obligation must not be mislead- ing, deceptive, or confusing at the time that the disclosure is made.

5 10 “77I Disclosure of additional information “(1) Disclosure of the matters that must be disclosed under a dis- closure obligation may be accompanied by disclosure of addi- tional information.
“(2) Additional disclosure that accompanies disclosure under a dis- 15 closure obligation must not be misleading, deceptive, or con- fusing at the time it is made.

“77J No compliance with disclosure obligation if disclosure out of date “(1) Previous disclosure does not discharge a broker from a disclos- 20 ure obligation if the previous disclosure is out of date when the client money or client property is received by the broker.
“(2) The previous disclosure is out of date if,— “(a) “(b) since the date of the disclosure, there has been a material change in any matter that must be disclosed; and a reasonable person in the position of the client would consider that the change would materially affect any of the following decisions by the client: “(i) to proceed with the broking service by the broker in question (B): to postpone or countermand the performance of a broking service by B.
25 30 “(ii) 64 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 17 “Brokers’ conduct obligations “77K What is conduct obligation and when does it apply “(1) A conduct obligation under this Part is an obligation under sections 77L to 77V.

“(2) The conduct obligations in sections 77L to 77P apply to all 5 broking services.
“(3) The conduct obligations in sections 77Q to 77V— “(a) apply only to broking services provided for a retail client; and “(b) do not apply to a broker within the meaning of the Insur- 10 ance Intermediaries Act 1994 in relation to any money to which section 14 or 15 of that Act applies.
“77L Broker must exercise care, diligence, and skill A broker must, when providing a broking service, exercise the care, diligence, and skill that a reasonable broker would 15 exercise in the same circumstances, taking into account, but without limitation,— “(a) “(b) the nature and requirements of the client; and the nature of the services provided for the client and the circumstances in which the services are provided.
20 “77M Broker must not engage in misleading or deceptive conduct “(1) A broker must not engage in conduct in relation to the pro- vision of a broking service that is misleading or deceptive or likely to mislead or deceive.

25 “(2) A person who knowingly or recklessly contravenes subsec- tion (1) commits an offence (see section 118).
“77N Advertisement of broking services must not be misleading, deceptive, or confusing “(1) A broker must not advertise a broking service in a way that is 30 misleading, deceptive, or confusing.

“(2) A person who knowingly or recklessly contravenes subsec- tion (1) commits an offence (see section 119).
65 Part 1 cl 17 Financial Service Providers (Pre-Implementation Adjustments) Bill “77O Restriction on use of term sharebroker “(1) In any advertising or promotional material, the term sharebro- ker must not be used in connection with a person unless the person, or the person’s employer, is a member of a registered exchange.

5 “(2) A person who knowingly or recklessly contravenes subsec- tion (1) commits an offence (see section 120).
“77P Broker must not receive client money if offer for subscription illegal “(1) A broker (A) must not receive client money or client property 10 from a person for the acquisition of securities if— “(a) when the securities were or are offered for subscription, the offer was or is illegal; and the illegality has not been remedied; and “(b) “(c) A knows or ought to know that, when the securities were 15 or are offered for subscription, the offer was or is illegal.
“(2) A person who contravenes subsection (1) commits an of- fence (see section 134A).
“Trust accounting obligations for services for retail clients 20 “77Q Broker must pay client money into separate trust account “(1) A broker who receives client money or client property, in his, her, or its capacity as a broker for a retail client,— “(a) must hold the client money or client property, or ensure the client money or client property is held, on trust for 25 the client; and “(b) must ensure that the client money is paid promptly into a bank in New Zealand (or into any other prescribed entity) to a trust account of the broker or of a related person or entity specified in the regulations.
“(2) A person who contravenes subsection (1) commits an of- 30 fence (see section 134B).

“77R Broker must account for client money and client property “(1) A broker who receives or holds client money and client prop- erty on trust for a retail client must account properly, or en- 35 66 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 17 sure that account is properly made, to the client for that client money or client property.
“(2) A person who contravenes subsection (1) commits an of- fence (see section 134C).

“77S Broker must keep records of client money and client 5 property “(1) A broker who receives or holds client money on trust for a re- tail client must keep, or ensure that there are kept, trust account records that disclose clearly the position of the client money in the trust accounts.
10 “(2) A broker who receives or holds client property on trust for a retail client must keep, or ensure that there are kept, records that— “(a) “(b) identify the client property; and show the date when the client property was received; 15 and if the client property has been disposed of, show where the client property was disposed of and to whom.
“(c) “(3) A broker must keep the records required by this section, or en- sure that they are kept, in a manner that enables those records 20 to be conveniently and properly audited or inspected.

“(4) A person who contravenes any of subsections (1) to (3) commits an offence (see section 134D).
“77T Restrictions on use of client money and client property “(1) A person must not use or apply client money or client property 25 received or held on trust for a retail client by a broker in any way except— “(a) as expressly directed by the client (either generally or specifically); or in accordance with section 77Q (which relates to pay- 30 ment of client money into a trust account).

“(2) A person who contravenes subsection (1) commits an of- “(b) fence (see section 134E).
67 Part 1 cl 17 Financial Service Providers (Pre-Implementation Adjustments) Bill “77U Protection of client money and client property held on trust “(1) The client money or client property that is received or held by a broker on trust for a retail client— “(a) “(b) is not available for the payment of the debts of any other 5 creditor of the broker; and is not liable to be attached or taken in execution under the order or process of any court at the instance of an- other creditor of the broker.
“(2) Nothing in section 77T or this section takes away or affects 10 any lawful lien or claim that a broker who holds client money has against the client money.

“Persons acting in course of business of employers or principals 15 “77V Who is responsible for broker obligations “(1) If a broking service is provided by a person (A) on behalf of the business of another person (B), B (and not A) is treated as the broker having the broker obligations under this Act.
If B has a broker obligation under subsection (1)— “(a) any act or omission by A is also treated as being done 20 by B; and if it is necessary to show the state of mind of B, it is sufficient to show that A had that state of mind.

“(b) “(2) “(3) Subsections (1) and (2) do not affect the liability of A or B under any other Act or rule of law for A’s actions.
25 “Commission’s direction in respect of breach of disclosure or conduct obligation “77W Commission may give broker direction in respect of breach of disclosure or conduct obligation “(1) This section applies if the Commission has reason to believe 30 that a broker is in breach of a disclosure or conduct obligation under this Part.
“(2) The Commission may give the broker notice of his, her, or its alleged breach and, if the Commission does give a notice of breach, the Commission must also give the broker a reasonable 35 opportunity to respond.

68 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 20 “(3) If the Commission concludes, after considering the broker’s response, that the broker is in breach, the Commission may give the broker a direction in writing.
“(4) The direction may— “(a) “(b) direct the broker to comply with the disclosure or con- 5 duct obligation: stipulate any steps that the broker must take in order to comply with the obligation: require the broker to report to the Commission within 28 days of the date of the direction stating how and 10 when the Commission’s direction will be implemented.

“(5) A broker who fails to comply with a direction by the Commis- “(c) sion commits an offence (see section 134F).
“(6) Nothing in this section precludes the Commission from exer- cising any of its other powers under this Act against a broker.” 15 18 19 Part 4 heading amended The heading to Part 4 is amended by inserting “and brokers” after “financial advisers”.
Content of code Section 86 is amended by adding the following subsection: 20 “(4) The code may limit or modify standards, or provide for separ- ate standards, for the duration of 1 or more periods of transi- tion.” 20 New section 94 substituted Section 94 is repealed and the following section substituted: 25 “94 Code comes into force by Gazette notice “(1) After the Minister has approved the draft code or after the 90-day deadline for approval specified in section 93 has ex- pired, the Commissioner must give notice in the Gazette of the date or dates on which the provisions of the code come 30 into force.
“(2) The notice may state different dates for different provisions, but no date may be before the 28th day after the date on which the notice is published in the Gazette.

69 Part 1 cl 21 Financial Service Providers (Pre-Implementation Adjustments) Bill “(3) Each provision in the code comes into force on the date stated in the notice that applies to the provision.
“(4) The code and the notice are each regulations for the purposes of the Regulations (Disallowance) Act 1989 and the Acts and Regulations Publication Act 1989.” 5 21 New section 98 substituted Section 98 is repealed and the following section substituted: “98 Reference of complaint to disciplinary committee When the Commission has, under section 97, investigated a complaint about an authorised financial adviser, it must refer 10 the complaint to the disciplinary committee if, in the Commis- sion’s opinion, the conduct complained of amounts to a breach of the code.” 22 (1) (2) 23 (1) (2) Offence of performing financial adviser service without being registered Section 114(2)(b) is amended by omitting “agent” and substi- tuting “nominated representative”.
Section 114(2) is amended by repealing paragraph (c) and sub- stituting the following paragraph: “(c) the financial advisers service is performed by an indi- 20 vidual who is a registered financial adviser.” 15 Offence of performing financial adviser service without being authorised Section 115(2) is amended by omitting “agent” and substitut- ing “nominated representative”.
Section 115 is amended by repealing subsection (3) and sub- stituting the following subsection: 25 “(3) A person has a defence to a charge under subsection (1) if the person proves on a balance of probabilities that the financial adviser service to which the charge relates was performed by 30 an individual who is an authorised financial adviser.” New section 116 substituted Section 116 is repealed and the following section substituted: 24 70 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 22 “116 Offences in relation to employer or principal failing to maintain registration “(1) A person who contravenes section 18(1)(a) or (2)(a) com- mits an offence and is liable on summary conviction to a fine not exceeding $10,000.
5 “(2) A person who contravenes section 18(1)(b) or (2)(b) com- mits an offence and is liable on summary conviction to a fine not exceeding $5,000.” 22 New heading and sections 114 to 116 substituted Sections 114 to 116 and the heading before section 114 are 10 repealed and the following heading and sections substituted: 15 20 “Offences: restrictions on providing services and holding out “114 Offence of providing financial adviser service without being permitted to do so “(b) “(1) A person who provides a financial adviser service when not permitted to do so under section 18 commits an offence and is liable on summary conviction,— “(a) in the case of an individual, to a fine not exceeding $10,000: in the case of an entity, to a fine not exceeding $50,000.
“(2) A person who provides a financial adviser service when not permitted to do so under section 19 or 20 commits an offence and is liable on summary conviction,— “(a) in the case of an individual, to a fine not exceeding 25 $5,000: in the case of an entity, to a fine not exceeding $10,000.
“(3) A person (A) has a defence to a charge under subsection (1) or (2) if A proves on the balance of probabilities that A did not know, and ought not reasonably to have known, that A did 30 not come within the requirements of the relevant section.
“(b) “115 Offence of holding out as authorised financial adviser, financial planner, or QFE A person who knowingly or recklessly contravenes section 20A, 20B, or 20C commits an offence and is liable on sum- 35 mary conviction,— 71 Part 1 cl 23 Financial Service Providers (Pre-Implementation Adjustments) Bill “(a) “(b) in the case of an individual, to a fine not exceeding $10,000: in the case of an entity, to a fine not exceeding $50,000.
“116 Offence of continuing to provide if employer or principal not permitted to provide A person who contravenes section 20E commits an offence and is liable on summary conviction to a fine not exceeding $5,000.” 5 23 24 Disclosure offences: financial advisers, QFEs, and brokers 10 Failure to make disclosure under or in accordance with disclosure obligation Section 117(b) is amended by omitting “a QFE” and substitut- ing “an entity”.
Heading above section 118 amended The heading above section 118 is amended by adding “and brokers”.
15 24D New sections 118 to 120 substituted Sections 118, 119, and 120 are repealed and the following sec- tions substituted: 20 “118 Offence of misleading or deceptive conduct by financial adviser or broker A person who knowingly or recklessly contravenes sec- tion 34(1) or section 77M commits an offence and is liable on summary conviction to a fine,— “(a) “(b) in the case of an individual, not exceeding $100,000: in the case of an entity, not exceeding $300,000.
25 “119 Offence of misleading, deceptive, or confusing advertisement by financial adviser or broker A person who knowingly or recklessly contravenes sec- 30 tion 35(1) or section 77N commits an offence and is liable on summary conviction to a fine,— “(a) in the case of an individual, not exceeding $100,000: 72 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 25 “(b) in the case of an entity, not exceeding $300,000.
“120 Offence of contravening restrictions on use of term sharebroker A person who knowingly or recklessly contravenes section 77O commits an offence and is liable on summary conviction 5 to a fine,— “(a) “(b) in the case of an individual, not exceeding $10,000: in the case of an entity, not exceeding $50,000.” 24E Offence of recommending or receiving money in connection with offer of securities when subscription illegal The heading to section 121 is amended by omitting “or receiv- ing money in connection with”.
24F Sections 122 to 125 repealed Sections 122 to 125 are repealed.

10 15 25 25 Offence of misleading or deceptive conduct in relation to financial adviser service by employee or agent The heading to section 130 is amended by omitting “agent” and substituting “nominated representative”.
New heading and sections 129 to 134 substituted The heading above section 129 and sections 129 to 134 are repealed and the following heading and sections substituted: 20 “Offences: QFEs and QFE groups only “129 Offence of failing to comply with terms and conditions of “(1) “(2) QFE status If a QFE contravenes section 46(1), each of the following persons commits an offence and is liable on summary convic- tion to a fine not exceeding $25,000: “(a) “(b) If a partner entity of a QFE contravenes section 46(1), every partner entity of the QFE commits an offence and is liable on summary conviction to a fine not exceeding $25,000.
the QFE: every partner entity of the QFE.
25 30 73 Part 1 cl 25 Financial Service Providers (Pre-Implementation Adjustments) Bill “(1) “130 Offence of misleading or deceptive conduct in relation to financial adviser service by employee, agent, or nominated representative If a QFE knowingly or recklessly contravenes section 47(1), each of the following persons commits an offence and is liable 5 on summary conviction to a fine not exceeding $300,000: “(a) “(b) If an associated entity of a QFE knowingly or recklessly contravenes section 47(1), each of the following persons 10 commits an offence and is liable on summary conviction to a fine not exceeding $300,000: “(a) “(b) “(c) the associated entity of the QFE: the QFE: every partner entity of the QFE.


“(2) 15 “131 Offence of misleading, etc, advertisement of financial “(1) “(2) the QFE: every partner entity of the QFE.
adviser service by employee, agent, or nominated representative If a QFE knowingly or recklessly contravenes section 48(1), each of the following persons commits an offence and is liable 20 on summary conviction to a fine not exceeding $300,000: “(a) “(b) If an associated entity of a QFE knowingly or recklessly contravenes section 48(1), each of the following persons 25 commits an offence and is liable on summary conviction to a fine not exceeding $300,000: “(a) “(b) “(c) the associated entity of the QFE: the QFE: every partner entity of the QFE.
30 “132 Offence of failing to comply with Commission’s direction If a QFE fails to comply with a direction of the Commission given under section 75F(3), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $25,000: “(a) “(b) the QFE: every partner entity of the QFE.
35 74 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 26A “133 Offence of failing to comply with obligations in relation to authorised financial advisers If a QFE or a partner entity contravenes section 76(1)(e), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $50,000: “(a) “(b) the QFE: every partner entity of the QFE.
5 “134 Offence of failing to provide annual report If a QFE contravenes section 77(1), each of the following persons commits an offence and is liable on summary convic- 10 tion to a fine not exceeding $25,000: “(a) “(b) the QFE: every partner entity of the QFE.” 26 Offence of misleading, etc, advertisement of financial adviser service by employee or agent The heading to section 131 is amended by omitting “agent” and substituting “nominated representative”.
15 26A New heading and sections 134A to 134F inserted The following heading and sections are inserted after sec- tion 134: 20 “Offences: broking services only “134A Offence of receiving client money if offer for subscription illegal A person who contravenes section 77P commits an offence and is liable on summary conviction to a fine,— “(a) “(b) in the case of an individual, not exceeding $100,000: in the case of an entity, not exceeding $300,000.
25 “134B Offence of contravening requirement to pay client money into separate trust account A person who contravenes section 77Q commits an offence 30 and is liable on summary conviction to a fine,— “(a) “(b) in the case of an individual, not exceeding $5,000: in the case of an entity, not exceeding $25,000.
75 Part 1 cl 27 Financial Service Providers (Pre-Implementation Adjustments) Bill “134C Offence of failing to account for client money and client property A person who contravenes section 77R commits an offence and is liable on summary conviction to a fine,— “(a) “(b) in the case of an individual, not exceeding $5,000: in the case of an entity, not exceeding $25,000.
5 “134D Offence in relation to records of client money and client property A person who contravenes any of section 77S(1) to (3) commits an offence and is liable on summary conviction to a 10 fine,— “(a) “(b) in the case of an individual, not exceeding $5,000: in the case of an entity, not exceeding $25,000.
“134E Offence of breaching restrictions on use of client money and client property A person who contravenes section 77T commits an offence and is liable on summary conviction to a fine,— “(a) “(b) in the case of an individual, not exceeding $5,000: in the case of an entity, not exceeding $25,000.
15 “134F Offence of failing to comply with Commission’s direction 20 A person who fails to comply with a direction of the Com- mission given under section 77W commits an offence and is liable on summary conviction to a fine,— “(a) “(b) in the case of an individual, not exceeding $5,000: in the case of an entity, not exceeding $25,000.” 25 27 (1) New heading inserted The following heading is inserted above section 135: “Miscellaneous offences”.

(2) The heading above section 136 is repealed.
27A New headings and sections 137A to 137Q inserted 30 The following headings and sections are inserted after section 137: 76 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 27A “Subpart 4—Injunctions, banning orders, and other remedies “Injunctions “137A Injunctions against contraventions “(1) The High Court may, on application by the Commission, grant 5 an injunction restraining a person from engaging in conduct that constitutes or would constitute a contravention of a pro- vision of this Act if— “(a) the Court is satisfied that the person has engaged in con- duct of that kind; or it appears to the Court that, if an injunction is not granted, it is likely that the person will engage in con- duct of that kind.
“(b) 10 “(2) In subsection (1), contravention includes aiding, abetting, counselling, or procuring the contravention.

15 “(3) The Court may grant an interim injunction restraining a person from engaging in conduct of a particular kind if in its opinion it is desirable to do so.

“(4) Subsections (1)(a) and (3) apply whether or not it appears to the Court that the person intends to engage again, or to con- 20 tinue to engage, in conduct of that kind.
“(5) Subsections (1)(b) and (3) apply whether or not the person has previously engaged in conduct of that kind or there is an imminent danger of substantial damage to any other person if that person engages in conduct of that kind.

In this section, engaging in conduct means doing or refusing to do an act, and includes— “(a) “(b) making it known that an act will or will not be done.
“Compare: 1988 No 234 ss 2, 42K, 42L omitting to do an act; or “(6) “137B Undertaking as to damages not required by Commission If the Commission applies to the High Court for the grant of an “(1) interim injunction under section 137A, the Court must not, as a condition of granting an interim injunction, require the Commission to give an undertaking as to damages.
“(2) However, in determining the Commission’s application for the grant of an interim injunction, the Court must not take into ac- 77 25 30 35 Part 1 cl 27A Financial Service Providers (Pre-Implementation Adjustments) Bill count that the Commission is not required to give an undertak- ing as to damages.
“Compare: 1988 No 234 ss 42M “137C When Court may make banning order The High Court may, on application by the Commission, make 5 an order (a banning order) against a person if the Court is satisfied that— “(a) the person has been convicted of an offence against any of the following sections: “(i) section 118 (misleading or deceptive conduct 10 by financial adviser or broker): “(ii) section 119 (misleading, deceptive, or confus- ing advertisement by financial adviser or broker): “(iii) section 134A (receiving client money if offer for subscription illegal); or 15 the person has been convicted of an offence against any of sections 58, 59, and 59A of the Securities Act 1978 or a pecuniary penalty order has been made against the person under that Act; or the person has been convicted of a crime involving dis- 20 honesty as defined in section 2(1) of the Crimes Act 1961; or the person has persistently contravened this Act or the Securities Act 1978; or the person has been prohibited in an overseas jurisdic- 25 tion from carrying on activities that the Court is satisfied are substantially similar to any of the activities referred to in section 137D.
“(b) “(c) “(d) “(e) “Compare: 1988 No 234 s 43K “137D Terms of banning orders 30 A banning order may prohibit or restrict the person against whom it is made from doing all or any of the following things, without the leave of the High Court, for a period stated in the order of 10 years or less: “(a) “(b) being a director or promoter of, or in any way, whether directly or indirectly, being concerned or taking part in providing financial adviser services or broking services: 35 78 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 27A the management of, any incorporated or unincorporated body that provides financial adviser services or broking services (other than an overseas company, or an incorp- orated or unincorporated body, that does not carry on business in New Zealand): contributing, as employee or agent, to the provision of financial adviser services or broking services.
5 “(c) “Compare: 1988 No 234 s 43L “137E Offence of contravening banning order A person who acts in contravention of a banning order com- 10 mits an offence and is liable on conviction on indictment,— “(a) in the case of an individual, to imprisonment for a term not exceeding 3 years or to a fine not exceeding $100,000, or to both: in the case of a body corporate, to a fine not exceeding 15 $300,000.
“(b) “Compare: 1988 No 234 ss 43E(2), 43M “Orders to preserve assets to satisfy claims “137F When High Court may prohibit payment or transfer of money, securities, or other property “(1) This section applies if— “(a) “(b) an investigation is being carried out under the Securities Act 1978 in relation to an act or omission by a person, being an act or omission that constitutes or may consti- tute a contravention of this Act; or a prosecution has begun against a person for a contra- vention of this Act.
20 25 “(2) The High Court may, on application by the Commission or by an aggrieved person, make 1 or more of the orders listed in section 137G if the court considers it necessary or desirable 30 to do so for the purpose of protecting the interests of an ag- grieved person.
In this section and section 137G,— “aggrieved person means any person to whom a relevant per- son is liable “(3) 35 79 Part 1 cl 27A Financial Service Providers (Pre-Implementation Adjustments) Bill “liable means liable, or may be or become liable, to pay money (whether in respect of a debt, by way of damages or compensa- tion, or otherwise) or to account for securities or other property “relevant person means a person referred to in subsection (1).
“Compare: 1988 No 234 s 43P 5 “137G What orders may be made “(1) The orders that may be made under section 137F are— an order prohibiting the relevant person from transfer- ring, charging, or otherwise dealing with money, secur- 10 ities, or other property held or controlled by the relevant person: an order prohibiting a person who is indebted to the rele- vant person or to an associated person of the relevant person from making a payment in total or partial dis- 15 charge of the debt to, or to another person at the direc- tion or request of, the person to whom the debt is owed: an order prohibiting a person holding money, securities, or other property, on behalf of the relevant person, or on behalf of an associated person of the relevant person, 20 from paying all or any of the money, or transferring, or otherwise parting with possession of, the securities or other property, to, or to another person at the direction or request of, the person on whose behalf the money, securities, or other property, is or are held: an order prohibiting the taking or sending out of New Zealand by a person of money of the relevant person or of an associated person of the relevant person: an order prohibiting the taking, sending, or transfer by a person of securities or other property of the relevant 30 person, or of an associated person of the relevant per- son, from a place in New Zealand to a place outside New Zealand (including the transfer of securities from a register in New Zealand to a register outside New Zealand): an
 order requiring the relevant person, or any person holding money, securities, or other property on behalf of the relevant person or an associated person of the 35 25 “(a) “(b) “(c) “(d) “(e) “(f) 80 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 27A “(g) relevant person, to pay or transfer money, securities, or other property to a specified person to be held on trust pending determination of the investigation or prosecu- tion: an order appointing,— “(i) 5 if the relevant person is
 a natural person, a re- ceiver or trustee, having any powers that the court orders, of the property or of part of the property of that person; or if the relevant person is a body corporate, a 10 receiver or receiver and manager, having any powers that the court orders, of the property or of part of the property of that person: “(ii) “(h) “(i) if the relevant person is a natural person, an order re- quiring that person to deliver up to the court his or her 15 passport and any other documents that the court thinks fit: if the relevant person is a natural person, an order pro- hibiting that person from leaving New Zealand, without the consent of the court.
20 “(2) A reference in subsection (1)(e) or (g) to property of a person includes a reference to property that the person holds otherwise than as sole beneficial owner, for example,— “(a) as trustee for, as nominee for, or otherwise on behalf of or on account of, another person; or in a fiduciary capacity.

“(b) “(3) An order may be expressed to operate for a specified period or until the order is discharged by a further order under this section.
“Compare: 1988 No 234 s 43Q 25 30 “137H Interim orders “(1) If an application is made to the High Court for an order under section 137F, the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that 35 is expressed to have effect pending the determination of the application.
81 Part 1 cl 27A Financial Service Providers (Pre-Implementation Adjustments) Bill “(2) The Court must not require the applicant or any other person, as a condition of granting an interim order under this section, to give an undertaking as to damages.

In determining an application for the grant of an interim order, the Court must not take into account that the applicant is not 5 required to give an undertaking as to damages.
“Compare: 1988 No 234 s 43R “(3) “137I Relationship with other law “(1) Nothing in sections 137G to 137H affects the powers that the Court has apart from those sections.

10 “(2) This section has effect subject to the Insolvency Act 2006.
“Compare: 1988 No 234 s 43S “137J Offence of breaching orders A person commits an offence who contravenes an order by the Court under section 137G or 137H that is applicable to the 15 person and is liable on conviction on indictment,— “(a) in the case of an individual, to imprisonment for a term not exceeding 3 years or to a fine not exceeding $100,000, or to both: in the case of a body corporate, to a fine not exceeding 20 $300,000.
“Compare: 1988 no 234 s 43T “(b) “Pecuniary and compensatory orders for contravening wholesale certification requirement 25 “137JA Pecuniary order for contravening wholesale certification requirement “(1) The High Court may, on application by the Commission, order a person to pay a pecuniary penalty to the Crown if the Court is satisfied that the person has, without reasonable excuse, 30 contravened a wholesale certification requirement under sec- tion 5E.
“(2) The amount of the pecuniary penalty must not, in respect of each act or omission, exceed $100,000 in the case of an indi- vidual or $300,000 in the case of an entity.
35 82 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 27A “(3) In setting the amount of the pecuniary penalty, the Court must take into account all of the following matters: “(a) “(b) the nature and extent of the contravention: the nature and extent of any loss or damage suffered by a person as a result of the contravention, including the 5 effect on a person of the loss of an opportunity to make a complaint to an approved dispute resolution scheme: the circumstances in which the contravention took place (including whether the contravention was intentional, inadvertent, or caused by negligence): “(c) 10 “(d) whether the person has previously been found by the court in proceedings under this Act to have engaged in similar conduct.
“(4) A financial adviser or broker may not be liable to more than 1 pecuniary penalty in respect of the same conduct.

15 “(5) Proceedings under this section may be commenced at any time within 3 years after the contravention occurred.
“137JB Compensation for contravention of wholesale “(1) certification requirement If the Court orders a person to pay a pecuniary penalty under 20 section 137JA in respect of the contravention of a wholesale certification requirement, the Court may, in addition, order a person to pay compensation to any person who has suffered, or is likely to suffer, loss or damage as a result of the contra- vention (the aggrieved person).
25 “(2) An application for orders under this section may be made by the Commission or any aggrieved person.

“(3) The application must be made within 1 year of the date of the pecuniary penalty order.

“(4) The Court may make an order under this section whether or 30 “(5) not any aggrieved person is a party to the proceedings.

In proceedings under this section, the Court may make such orders as it thinks fit.
83 Part 1 cl 27A Financial Service Providers (Pre-Implementation Adjustments) Bill “Temporary banning orders against financial adviser and broker “137K When Commission may make temporary banning orders for financial adviser services or broking services The Commission may make an order (a temporary banning 5 order) against a person in accordance with sections 137L to 137P if the Commission is satisfied that— “(a) the person has persistently contravened this Act or the Securities Act 1978; or the person has been prohibited in an overseas jurisdic- 10 tion from carrying on activities that the Commission is satisfied are substantially similar to any of the activities referred to in section 137L.
“(b) “Compare: 1988 No 234 s 42D “137L Terms of temporary banning order 15 providing financial adviser services or broking services: 20 A temporary banning order may prohibit or restrict a person from doing all or any of the following things, without the leave of the Commission, for a period stated in the order of 14 days or less: “(a) “(b) being a director or promoter of, or in any way, whether directly or indirectly, being concerned or taking part in the management of, any incorporated or unincorporated body that provides financial adviser services or broking services (other than an overseas company, or an incorp- 25 orated or unincorporated body, that does not carry on business in New Zealand): contributing, as employee or agent, to the provision of financial adviser services or broking services.
“(c) “Compare: 1988 No 234 s 42E “Process for Commission’s orders “137M Commission must follow steps before making orders “(1) Unless section 137N applies, the Commission may make a temporary banning order only if it first takes the following steps: 30 35 84 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 27A “(a) gives the person to whom the order is directed written notice of— “(i) “(ii) “(iii) the reasons for the proposed order; and the nature of the alleged contravention; and the proposed terms of the order; and 5 “(b) gives that notice at least 24 hours before the Commis- “(c) sion makes the order; and gives the person an opportunity to make written submis- sions within that notice period; and “(d) has regard to any written submissions made to it within 10 that notice period and (if applicable) written or oral sub- missions made at a meeting of the Commission.
“(2) However, the Commission may shorten these steps in accord- ance with section 137N in the circumstances specified in that section.
“Compare: 1988 No 234 s 42F “137N Commission may shorten steps for specified orders “(1) If the Commission thinks it necessary or desirable in the pub- lic interest for a temporary banning order to be made more urgently than section 137M permits, it— “(a) may give less than 24 hours’ notice before it makes the order, and the notice may be oral, not written; and “(b) may give persons an opportunity to make only oral sub- missions, not written, to a member, officer, or employee of the Commission (as the Commission determines).
“(2) However, the Commission must include in the notice under section 137M the reasons for acting urgently and must other- wise comply with the steps set out in that section.
“Compare: 1988 No 234 s 42G “137O Commission must give notice after making orders “(1) If the Commission makes a temporary banning order, the Com- mission— “(a) must, as soon as is reasonably practicable, give written notice to the person to whom the order is directed of— “(i) “(ii) the terms of the order; and the reasons for the order; and 15 20 25 30 35 85 Part 1 cl 27A Financial Service Providers (Pre-Implementation Adjustments) Bill “(iii) may also give notice to any other person of those matters.
“(2) The Commission must also, as soon as practicable after mak- ing the temporary banning order, give notice on an Internet site maintained by or on behalf of the Commission (and may 5 give public notice by any other means also) of the name of the person against whom the order is made and the period or dates for which the ban applies.
“Compare: 1988 No 234 s 42H “137P General provisions on temporary banning orders “(1) The Commission may make a temporary banning order on the 10 terms and conditions that the Commission thinks fit.

“(2) The Commission may vary a temporary banning order in the same way as it makes such an order under sections 137M to 137O.

“(3) The Commission may revoke a temporary banning order or suspend it on the terms and conditions it thinks fit.
“(4) A temporary banning order is subject to appeal only in accord- ance with section 69P of the Securities Act 1978.

“Compare: 1988 No 234 s 42I 15 20 “137Q Offence of failing to comply with Commission’s orders “(1) A person who contravenes a temporary banning order commits an offence and is liable on summary conviction to a fine not exceeding $30,000.
“(2) No person may be convicted of an offence against subsection 25 (1) if— “(a) “(b) “(c) the person proves that the contravention occurred with- out the person’s knowledge or without the person’s knowledge of the order; or the contravention was in respect of matters that, in the 30 court’s opinion, were immaterial; or the court thinks that the contravention, in the circum- stances of the case, ought reasonably to be excused.
“Compare: 1988 No 234 s 42J” 86 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 27BA 27B Right of appeal Section 138(1)(a)(iv) is amended by omitting “section 61 or 73” and substituting “section 49, 61, 73, or 77W”.
27BA New heading and sections 147A to 147E inserted The following heading and sections are inserted after section 5 147: “Standard conditions for incorporation in authorisation and grants “147A Approval of standard conditions for incorporation in authorisations and grants of QFE status “(1) The Commission may, by notice in the Gazette,— “(a) “(b) approve standard conditions for incorporation in author- isations of financial advisers under section 55: approve standard conditions for incorporation in grants of QFE status under section 67.
10 15 “(2) The notice may state a date in relation to any specified standard condition on which the standard condition is incorporated into the authorisations of financial advisers or into the grants of QFE status.
“(3) However, if a standard condition proposed to be approved does 20 not relate to a reporting or accounting requirement, a date may be stated under subsection (2) in relation to that standard condition only if that standard condition— “(a) will, in the opinion of the Commission, have little or no effect on authorised financial advisers or, as the case 25 requires, on QFEs, or will be solely beneficial; or is made in response to an emergency; or is necessary to comply with statutory or international obligations; or is necessary to avoid an unfair commercial advantage 30 being taken; or is necessary to avoid the defeat of the purpose of the Act.
“(b) “(c) “(d) “(e) “(4) The notice in the Gazette need not set out the standard condi- tions, but those conditions must be— “(a) published on an Internet site maintained by or on behalf of the Commission; and 35 87 Part 1 cl 27BA Financial Service Providers (Pre-Implementation Adjustments) Bill “(b) made available in printed form for purchase on request by members of the public.
“147B Requirement to consult on proposal to incorporate material by reference “(1) Before the Commission approves standard conditions under 5 section 147A, the Commission must— “(a) make copies of the proposed standard conditions avail- able for inspection during working hours for a reason- able period, free of charge; and state where copies of the proposed standard conditions 10 are available for purchase; and “(b) “(c) make copies of the proposed standard conditions avail- able on an Internet site maintained by or on behalf of the Commission; and “(d) give notice in the Gazette stating— 15 “(i) “(ii) how the proposed standard conditions can be in- spected, purchased, or accessed on the Internet site address; and specifying a period within which any person may make a written submission to the Commission on 20 the proposed standard conditions and, if applic- able, on the date on which the standard condition is to be incorporated.
“(2) If the Commission proposes that any standard condition should be incorporated on a specified date, the notice given 25 under subsection (1)(d) must also state why the Commission considers that the standard condition should apply to current authorisations of financial advisers or to current grants of QFE status ahead of the renewal of those authorisations or grants.

“(3) The Commission must consider any submissions received 30 within the period specified under subsection (1)(d)(ii).
“147C Variation or revocation of standard conditions “(1) The Commission may approve variations or revocations of any standard conditions under section 147A in the same way as standard conditions are approved under that section.

35 88 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 27C “(2) Sections 147A and 147B apply to any proposed approval of variation or revocation of standard conditions, with any neces- sary modifications.
“147D When standard conditions come into force The approval of standard conditions, or of variation or revoca- 5 tion of standard conditions, comes into force on the 28th day after the date on which the approval is notified in the Gazette.
“147E Incorporation of changed standard conditions into existing authorisations or grants A standard condition, or a variation or revocation of a standard 10 condition, that has come into force is incorporated into the au- thorisation of an authorised financial adviser or into the grant of QFE status of a QFE— “(a) if the notice approving the condition, variation, or revo- cation states a date under section 147A(2), on that 15 date; and in any other case, when, and to the extent that, the condi- tion is incorporated on the renewal of the authorisation or grant under section 58 or 75C.” “(b) 27C New sections 148 to 148B substituted 20 Section 148 is repealed and the following sections substituted: “148 Commission may grant exemptions “(1) The Commission may, in its discretion and on any terms and conditions as it thinks fit, exempt any person or class of per- sons, service or class of service, or any transaction or class of 25 transactions from— “(a) compliance with any obligation under this Act, the regu- lations, or the code: the obligation to register under the FSP Act by virtue of providing financial adviser services or broking services.
30 “(b) “(2) The Commission must be satisfied, before it grants an exemp- tion (except as provided in subsection (3)), that— “(a) the cost of compliance with the relevant obligation— “(i) would be unreasonable; or “(ii) would not be justified by the benefit of compli- 35 ance; or 89 Part 1 cl 27C Financial Service Providers (Pre-Implementation Adjustments) Bill “(b) the relevant person, service, or transaction is subject to the regulations of an overseas jurisdiction and the Commission is satisfied that, in the circumstances, the protection of the New Zealand public is unlikely to be prejudiced.
“(3) If a proposed exemption would exempt a person applying to be an authorised financial adviser from obligations imposed by the code in respect of competence, the Commission must be satisfied that the exemption would not undermine consumer protection and that— “(a) the applicant has qualifications that are comparable to standards required by the code; or the cost of compliance with the obligation would be— “(i) “(ii) not justified by the benefit of compliance.
unreasonable; or “(b) 5 10 15 “148A Commission may vary or revoke exemption “(1) The Commission may vary the exemption in the same way as it may grant the exemption under section 148.

“(2) The Commission may revoke the exemption.


“148B Status of exemptions, variations, or revocations “(1) An exemption under section 148, or a variation or revocation of an exemption under section 148A, is a regulation for the purposes of the Regulations Disallowance Act 1989, but is not a regulation for the purposes of the Acts and Regulations Publication Act 1989 unless it is a class exemption.
20 25 “(2) An exemption that is not a class exemption must, as soon as practicable after being granted, be— “(a) published on an Internet site maintained by or on behalf of the Commission; and “(b) notified in the Gazette; and “(c) made available in printed form for purchase on request 30 by members of the public.
In this section and in section 149, class exemption means an exemption that— “(a) “(b) is not an exemption from the code; and applies to a class of persons or transactions; but 35 “(3) 90 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 27E “(c) does not include an exemption granted in relation to a particular person, service, or transaction.” 27CA Commission must notify reasons for exemption (1) The heading to section 149 is amended by adding “other than class exemption”.
Section 149 is amended by repealing subsection (1) and sub- stituting the following subsection: (2) 5 “(1) When the Commission grants an exemption other than a class exemption, the Commission must notify the reasons for grant- ing the exemption (including why the exemption is appropri- 10 ate) in the Gazette.” 27D Section 150 repealed Section 150 is consequentially repealed.
27E New section 153 substituted Section 153 is repealed and the following section substituted: 15 “153 Levy “(1) The Governor-General may, by Order in Council made on the recommendation of the Commission, make regulations requir- ing authorised financial advisers and QFEs to pay a levy to the Commission.
“(2) The purpose of the levy is to meet, in whole or in part, the costs of the Commission, the Commissioner, the code committee, and the disciplinary committee in performing their functions and duties under this Act (and the costs of collecting the levy).
“(3) Regulations under this section may— “(a) “(b) “(c) “(d) specify an amount payable as the levy or a method of calculating or ascertaining the levy (which may be based on the estimated costs): include or provide for including in the levy any shortfall in recovering the actual costs: refund or provide for refunds of any over-recovery of those actual costs: specify the financial year or part financial year to which the levy applies, and apply the levy to that financial year 20 25 30 91 Part 1 cl 28 Financial Service Providers (Pre-Implementation Adjustments) Bill “(f) “(e) or part financial year and each subsequent financial year until the levy is revoked or repealed: for the first financial year to which the levy applies, include in the levy costs from 1 January 2009: require payment of a levy for a financial year or part 5 financial year irrespective of the fact that the regulations may be made after that financial year has commenced: “(g) provide for the collection and payment of the levy, in- cluding the time by which the levy must be paid: exempt a person or class of persons from liability to pay 10 the levy, in whole or in part: provide for a waiver or refund of the levy, in whole or in part, for a person or class of persons: provide for interest to be paid if a person fails to pay the levy by the due date: “(h) “(i) “(j) 15 “(k) provide for the cancellation of authorisation of an au- thorised financial adviser who fails to pay the levy by the due date: provide for the cancellation of QFE status of a QFE who fails to pay the levy by the due date.
“(l) “(4) Regulations under this section may make different provision for authorised financial advisers and QFEs and for different classes of authorised financial adviser and QFE.

“(5) The levy is recoverable as a debt due to the Commission.” 28 28 General regulations Section 154(1)(a) is repealed.
New section 154 substituted Section 154 is repealed and the following section substituted: 20 25 “154 General regulations “(1) The Governor-General may, by Order in Council made on the 30 recommendation of the Minister in accordance with subsec- tions (3) and (4), make regulations— “(a) exempting any person, service, document, or product or class of persons, services, documents, or products from all or any of the provisions of this Act or the regulations, 35 and prescribing the terms and conditions (if any) of the exemption: 92 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 28 “(b) “(c) “(d) “(e) “(f) specifying the person that is the product provider in re- lation to a financial product other than a security, con- sumer credit contract, or contract of insurance: specifying a product as a category 1 product: specifying a product as a category 2 product: providing for disclosure by financial advisers under sections 22 to 24 and for QFEs under section 25: prescribing the form of disclosure that (in addition to the matters set out in subsection (2)) may include a maximum length of a form and that some or all of the 10 information that must be disclosed must be included in 1 disclosure statement: 5 “(g) providing for disclosure by brokers under section 77F and 77G: “(i) “(h) prescribing when, and subject to what terms and con- 15 ditions, disclosure may be made in a joint disclosure document (whether by financial advisers or by brokers jointly, or by 1 or more persons in different
 capacities) and the form of a joint disclosure document: prescribing the following matters in relation to Part 3A: 20 the duties of brokers in relation to their trust ac- “(i) counts (including who may be a related person or entity for the purposes of section 77Q and what entities are prescribed for the purposes of the trust account), and other provisions regulat- 25 ing their establishment and use: “(ii) provisions regulating the keeping, inspection, and audit of trust account records or other records in
 connection with the receipt, holding, payment, and transfer of client money and client property, 30 and prescribing the duties in relation to those records: “(iii) any other requirements necessary or desirable to ensure that trust accounts are duly kept and that persons on whose behalf client money and client 35 property are held by brokers are informed of the client money and client property held and of the transactions made in connection with it: prescribing the form of an application for authorisation: “(j) 93 Part 1 cl 28B Financial Service Providers (Pre-Implementation Adjustments) Bill “(k) prescribing the form of an application for the grant of “(l) QFE status: prescribing information that must be contained in a QFE’s annual report: “(m) prescribing the procedure of the code committee: “(n) prescribing the procedure of the disciplinary commit- 5 tee: “(o) providing for any other matters contemplated by this Act, necessary for its administration, or necessary for giving it full effect.
10 “(2) In subsection (1), prescribing the form includes specifying additional content, means of communication, or any other re- quirement of form without necessarily specifying the use of a particular form.

“(3) Regulations for the purposes of subsection (1) may make 15 different provision for different classes of financial adviser or broker, financial adviser service or broking service, and client, and for different circumstances in which a financial adviser service or broking service is provided.
“(4) The Minister must consult with the Commission before mak- 20 ing a recommendation under subsection (1).
“(b) “(5) The Minister must not recommend the making of regulations under subsection (1)(a) unless the Minister is satisfied that— the exemption is consistent with the purposes of the Act; “(a) and the costs of compliance with the provision or provisions to which the exemption relates would be unreasonable or not justified by the benefit of compliance; and the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave 30 rise to the exemption.” “(c) 25 28B Section 159 repealed Section 159 is consequentially repealed.
29 New sections 168 and 169 added The following sections are section is added: 35 94 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 1 cl 30 “168 Grant of authorisations in transitional period without “(1) prior inquiry into convictions In this section, transitional period means the period that com- mences on the commencement of section 55 and ends on the commencement of section 14.
In the transitional period, the Commission may authorise a person under section 55 even though it has not yet undertaken or completed its inquiries in relation to section 54(b).

“(3) An authorisation granted in reliance on subsection (2) is sub- “(2) 5 “(4) ject to the condition that it ceases to have effect if, before 10 the expiry of the transitional period, the Commission notifies the applicant for authorisation that he or she is, given section 54(b), ineligible to be authorised.
If, at any time after the expiry of the transitional period, the Commission is satisfied that an authorised financial adviser is, 15 given section 54(b), ineligible to be authorised, but that the adviser has been granted authorisation in reliance on subsec- tion (2), section 59(1)(a) applies to that adviser as if he or she had ceased to be eligible for authorisation.
“169 Applications for QFE status made in transitional period “(1) In this section, transitional period means the period that com- mences on the commencement of section 65 and ends on the commencement of section 14.

“(2) Section 65(2) does not apply to an application for QFE status that is made in the transitional period.
20 25 “(3) A QFE that attains its QFE status in the transitional period must provide the Commission with a list of the names of the individuals who, as at the day on which the transitional period ends, are the QFE’s nominated representatives.” 30 Enactments amended consequential on principal Act The enactments specified in the Schedule are amended in the manner indicated in that schedule.
30 95 Part 2 cl 31 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 Amendments to Financial Service Providers (Registration and Dispute Resolution) Act 2008 31 32 33 Commencement of provisions of principal Act To avoid doubt, a provision of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 that is amended or enacted by any of sections 36 to 38 sections 35B to 38A comes into force in accordance with section 2(1) of that Act (as substituted by section 33A of this Act).
5 10 Principal Act amended This Part amends the Financial Service Providers (Registra- tion and Dispute Resolution) Act 2008.

Purpose The purpose of this Part is to prepare for the effective and effi- 15 cient implementation of the principal Act by making a number of necessary and desirable amendments to that Act.
33A Commencement Section 2 is amended by repealing subsection (1) and substi- tuting the following subsection: 20 “(1) Part 2 and section 48 come into force on a date to be appointed by the Governor-General by Order in Council; and 1 or more orders may be made that do either or both of the following: “(a) bring different provisions into force on different dates: “(b) bring provisions into force on different dates in respect 25 of different types of financial service or financial service provider.” 33B Overview Section 3 is amended by repealing subsection (2) and substi- tuting the following subsection: In order to be registered, financial service providers are gen- erally required to be members of a dispute resolution scheme if they provide financial services to retail clients.” 30 “(2) 96 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 34B Interpretation 34 (1AA) The definitions of insurance business and licensed service (1) (2) in section 4 are repealed.
The definition of person in section 4 is amended by omitting “an unincorporated body, and a superannuation scheme as de- 5 fined in section 2A of the Superannuation Schemes Act 1989” and substituting “and an unincorporated body”.
Section 4 is amended by inserting the following definitions in their appropriate alphabetical order: “broker has the meaning given by section 77A of the Finan- 10 cial Advisers Act 2008 “broking service has the meaning given by sections 77B and 77C of the Financial Advisers Act 2008 “contract of insurance— “(a) includes a contract of life insurance (including endow- 15 ment and annuity contracts) and reinsurance; but “(b) does not include a class of contract declared not to be a contract of insurance by regulations “insurer means a person by whom or on whose behalf the risk or part of the risk to which any contract of insurance relates is 20 accepted “licensed means licensed, registered, authorised, or otherwise approved by a licensing authority “licensed service means a financial service in respect of which a licensing enactment requires a person to be licensed, regis- 25 tered (other than under this Act), authorised, or otherwise ap- proved by a licensing authority (or to be exempt from that re- quirement) to— “(a) “(b) hold out that the person provides the service “licensing enactment means an enactment Schedule 2 “retail client has the meaning set out in section 49 “wholesale client has the meaning set out in section 49”.
provide the service; or identified in 30 34B Meaning of financial service (1) Section 5 is amended by inserting the following paragraph after paragraph (a): 35 97 Part 2 cl 35 Financial Service Providers (Pre-Implementation Adjustments) Bill (2) (3) 35 (1) “(ab) a broking service:”.
Section 5 is amended by repealing paragraph (i) and substitut- ing the following paragraph: “(i) participating in an offer of securities to the public as an issuer or a promoter or acting, in respect of those secur- 5 ities, in a capacity as a trustee, unit trustee, superannu- ation trustee, statutory supervisor, or manager (within the meaning of those terms in section 2(1) of the Secur- ities Act 1978):”.
Section 5 is amended by repealing paragraph (m) and substi- 10 tuting the following paragraph: “(m) acting as an insurer:”.
“(o) Application of Act Section 7(2) is amended by adding the following paragraphs: “(n) a nominated representative (within the meaning of the 15 Financial Advisers Act 2008) while acting in that cap- acity in accordance with that Act: an employer while providing financial services to en- able employees of the employer to obtain rights or bene- fits under a registered superannuation scheme (as de- 20 fined in section 2(1) of the Superannuation Schemes Act 1989) or a KiwiSaver scheme (as defined in section 4(1) of the KiwiSaver Act 2006), being a scheme in which that employer and other employers participate for the benefit of their employees.” 25 (2) Section 7 is amended by repealing subsection (3) and substi- tuting the following subsection: “(3) This Act does not apply to any financial services that are pro- vided, in the course of a company’s business, by the company or an employee of the company to no persons other than re- 30 lated companies.” 35 New section 7 substituted Section 7 is repealed and the following section substituted: Application of Act “7 “(1) This Act applies to persons who are in the business of provid- 35 ing a financial service.
98 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 35 “(2) None of the following persons are in the business of providing a financial service for the purposes of this Act to the extent this subsection applies to them: “(a) a lawyer, incorporated law firm, conveyancing practi- tioner, chartered accountant, tax agent, or real estate 5 agent providing a service in the ordinary course of busi- ness of the relevant kind: a government department listed in Schedule 1 of the State Sector Act 1988: the Reserve Bank of New Zealand (and any sub- 10 sidiaries): the statutory entities listed in Schedule 1 of the Crown Entities Act 2004: a person engaged in terminating the business of a finan- cial service provider after that provider has been dereg- 15 istered: a non-profit organisation in respect of free financial ser- vices: an affiliated entity: an executor, administrator, or trustee in respect of ser- 20 vices provided in the administration of an estate or a trustee in respect of services provided to beneficiaries of a family trust: a nominated representative (within the meaning of the Financial Advisers Act 2008) while acting in that cap- 25 acity: an employer while providing services to enable employ- ees of the employer to obtain rights or benefits under a registered superannuation scheme (as defined in sec- tion 2(1) of the Superannuation Schemes Act 1989) or 30 a KiwiSaver scheme (as defined in section 4(1) of the KiwiSaver Act 2006), being a scheme in which that em- ployer participates for the benefit of its employees: any other person exempted under any other enactment in respect of a class of financial services.
35 “(b) “(c) “(d) “(e) “(f) “(g) “(h) “(i) “(j) “(k) “(3) If subsection (2) applies to a person (A), it applies equally to any controlling owner, director, employee, agent, or other person while acting in the course of, and for the purposes of, A’s business to the same extent as it would apply to A.
99 Part 2 cl 35A Financial Service Providers (Pre-Implementation Adjustments) Bill “(4) However, subsections (2) and (3) do not apply if, and to the extent that, any other enactment requires a person referred to in those subsections to be registered under this Act.” 35A New section 8A inserted The following section is inserted after section 8: 5 “8A Territorial scope This Act applies to a person who— “(a) is ordinarily resident in New Zealand (within the mean- ing of section 4 of the Crimes Act 1961) or is incorpor- ated or carrying on business in New Zealand, regardless 10 of where the financial service is provided; or is, or is required to be, a licensed provider under a li- censing enactment.” “(b) 35B No being in business of providing financial service unless registered Section 11(1) is amended by inserting “for that service” after “registered”.
15 35C No holding out that in business of providing financial service unless registered Section 12 is amended by repealing subsection (1) and substi- 20 tuting the following subsection: “(1) A person to whom this Act applies must not— “(a) hold out that the person is registered under this Act un- less that person is registered under this Part; or “(b) hold out that the person is registered in respect of a 25 particular service or entitled, qualified, able, or willing to be in the business of providing a financial service unless that person is registered for that service under this Part.” 35D Qualifications for registration as financial service provider 30 Section 13 is amended by repealing paragraph (c) and substi- tuting the following paragraph: “(c) the Registrar is satisfied that— 100 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 36B “(i) “(ii) the person is in, or intends to be in, the business of providing a financial service; and if that service involves a licensed service, the per- son is, or will be (on and from commencing to be in that business), a licensed provider or exempt 5 under the licensing enactment from the require- ment to be licensed.” 36 Disqualified person Section 14(1) is amended by adding “; or” and also by adding the following paragraph: “(c) a person who does not intend to offer financial services to persons in New Zealand.” 10 36 (1) Application to be registered as financial service provider Section 15(1)(a) is amended by inserting the following sub- paragraph after subparagraph (ii): 15 “(iia) the class or classes of financial service to which the application relates:”.
(2) Section 15(2) is amended by omitting “required to become a licensed provider”.

36A Registration of financial service provider Section 16(1)(a) is amended by inserting the following sub- paragraph after subparagraph (ii): “(iia) the class or classes of financial service for which the provider is registered:”.
36B New section 16A inserted The following section is inserted after section 16: “16A Registration of unincorporated body as financial service provider 20 25 “(1) This section applies if the members of an unincorporated body (including the partners in a partnership, members of a joint 30 venture, or trustees of a trust) are jointly in the business of providing a financial service.
If this section applies,— “(2) 101 Part 2 cl 36C Financial Service Providers (Pre-Implementation Adjustments) Bill “(a) the members of the unincorporated body are not indi- vidually to be treated as being in the business of pro- viding the relevant financial service; and “(b) only the unincorporated body (and not the individual “(c) “(d) members) needs to be registered as a financial service 5 provider for the relevant service; and the unincorporated body must be the applicant for regis- tration and is the financial service provider for the rele- vant service under this Act; and the members of the unincorporated body are jointly and 10 severally liable for the obligations of being a financial service provider for the relevant service under this Act.” 36C New section 16B inserted The following section is inserted after the heading above sec- tion 17: 15 “16B Amendment to registration “(1) An application to amend the class or classes of financial ser- vice for which a financial service provider is registered must be made to the Registrar and must— “(a) state whether the application relates to a licensed ser- 20 vice, and if so, which particular licensed service; and “(c) “(b) be in the form (if any) required by the Registrar and be accompanied by the prescribed fee (if any); and confirm that the person is not disqualified under section 14; and contain, or be accompanied by, any prescribed informa- tion or documents.
“(d) 25 If the Registrar accepts that an applicant is qualified to be registered as a financial service provider for that class of fi- nancial services, the Registrar must amend the register accord- 30 ingly.
If the Registrar does not accept that an applicant is qualified to be registered as a financial service provider for that class of financial service, the Registrar must notify the applicant and any relevant licensing authority of the Registrar’s decision.” 35 “(2) “(3) 102 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 36G 36D Duty to notify changes relating to financial service provider Section 17(1) is amended by repealing paragraphs (a) and (b) and substituting the following paragraphs: “(a) a financial service provider, if— “(i) 5 the provider knows that the provider is no longer qualified for registration in accordance with sec- tion 13; or the provider is in the business of providing a dif- ferent class of financial service than the class for 10 which it is registered; or “(ii) “(iii) the provider knows that any details on the register are no longer correct: “(b) the licensing authority, if the licensing authority knows that a financial service provider has ceased to be li- 15 censed:”.
36E Deregistration of financial service provider (1) Section 18(1) is amended by repealing paragraph (b) and sub- stituting the following paragraph: “(b) is not (within 3 months after registration) in the business 20 of providing a financial service or (at any time) is no longer in the business of providing a financial service; or”.
(2) Section 18(1) is amended by adding “; or” and also by adding the following paragraph: “(e) has failed to pay the levy under section 78A by the due date.” 36F Reregistration of financial service provider Section 22(1) is amended by adding “; or” and also by adding the following paragraph: “(c) on the grounds set out in section 18(1)(e) if the Regis- trar is satisfied that the levy has been paid.” 25 30 36G Purpose of register Section 26(a)(ii) is amended by inserting the following sub- subparagraph after subsubparagraph (B): 35 103 Part 2 cl 36H Financial Service Providers (Pre-Implementation Adjustments) Bill “(BA) the class or classes of financial service for which a financial service provider is registered; and”.
36H Contents of register Section 27 is amended by inserting the following paragraph 5 after paragraph (b): “(ba) the class or classes of financial service for which the registered financial service provider is registered:”.

37 (1) (2) Registrar must amend register in certain circumstances Section 29(c) is amended by inserting “, or ceased to be,” after 10 “has become”.
Section 29 is amended by repealing paragraphs (d) and (e) and substituting the following paragraphs: “(d) the Registrar is satisfied at any time that an amendment is needed to update any of the details on the register or 15 to correct a mistake or omission; or regulations made under this Act require the Registrar to do so in circumstances specified by the regulations.” “(e) 37A Registrar’s inspection powers Section 37(9)(a) is amended by inserting “or a particular fi- 20 nancial service” after “financial service”.
37B Regulations under Part 1 and this Part (1) Section 44(1) is amended by inserting “on the recommenda- tion of the Minister” after “Order in Council”.
Section 44(1) is amended by inserting the following para- 25 graphs after paragraph (a): “(ab) exempting any service or person or class of service or persons from the application of this Act, and prescribing the terms and conditions (if any) of the exemption: “(ac) prescribing how the financial services referred to in sec- 30 tion 5 must be divided into the classes of financial ser- vice for which a person may be registered:”.
Section 44 is amended by inserting the following subsection after subsection (1): (2) (3) 104 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 38A “(1A) The Minister must, in relation to a recommendation under subsection (1)(b),— “(a) before making a recommendation, have regard to New Zealand’s obligations under the FATF Recommenda- tions; and “(b) not make the recommendation unless the Minister is sat- isfied that the costs of compliance with this Act would be unreasonable or not justified by the benefit of com- pliance.” 5 38 New section 46 substituted Section 46 is repealed and the following section substituted: 10 “46 Territorial scope “(1) This Act applies to each of the following: “(a) “(b) a person who provides a financial service in New Zealand: a person who is a licensed provider, whether the person is in New Zealand or outside New Zealand: a person who is required, by the Financial Advisers Act 2008, to be registered or licensed, whether the person is in New Zealand or outside New Zealand.
“(2) For the purposes of subsection (1), no account is to be taken “(c) of the place where the person— “(a) “(b) “(c) resides; or is incorporated; or carries on business.” 38 Section 46 repealed Section 46 is repealed.

38A Financial service provider must be member of dispute 15 20 25 (1) resolution scheme Section 48(1) is amended by omitting “the public” and substi- 30 tuting “a retail client”.
Section 48 is amended by adding the following subsection: (2) “(3) However, this obligation does not apply— “(a) to a financial service provider if— 105 Part 2 cl 38B Financial Service Providers (Pre-Implementation Adjustments) Bill “(i) it is in the business of providing financial services only because it is an issuer or promoter partici- pating in 1 or more offers of securities to the pub- lic; and “(b) “(ii) doing so is not its only or principal business; or to a financial service provider if it is exempted from the obligation under any other Act or by regulations made under section 79.” 5 38B New sections 49 to 49E substituted Section 49 is repealed and the following sections are substi- 10 tuted: “49 Who are retail clients “(1) A retail client is any person who receives a financial service who is not a wholesale client.
“(2) The following persons who receive a financial service are 15 wholesale clients in respect of that financial service: “(a) a person who is in the business of providing any fi- nancial service and receives the financial service in the course of that business: a person whose principal business is the investment of 20 money or who, in the course of and for the purposes of the person’s business, habitually invests money: an entity to which at least 1 of the following applied at the end of each of the last 2 completed accounting periods: “(i) at the balance date, the net assets of the entity exceeded $1 million: the turnover of the entity for the accounting period exceeded $1 million: “(ii) 25 a related body corporate (within the meaning of section 30 5B(2) of the Securities Markets Act 1988) of an entity to which paragraph (c) applies: a local authority, a Crown entity, a State enterprise, the Reserve Bank of New Zealand, and the National Provi- dent Fund (or a company appointed under clause 3(1)(b) 35 of Schedule 4 of the National Provident Fund Restruc- turing Act 1990): “(b) “(c) “(d) “(e) 106 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 38B “(3) “(4) “(f) a person who falls within 1 or more of the categories listed in section 3(2), 5(2CB), or 5(2CBA) of the Secur- ities Act 1978 if the service relates to securities that may be offered to that person, or that have been subscribed for by that person, in a private offer of securities: an eligible investor under section 49A.
“(g) If subsection (1) applies to a person (A), it applies equally to any director, employee, agent, or other person acting in the course of, and for the purposes of, A’s business to the same extent as it would apply to A.
In this section,— “entity— “(a) includes a body corporate and an unincorporated body (including partners in a partnership, members of a joint venture, or the trustees of a trust) and the sole trustee of 15 a trust acting in his, her, or its capacity as trustee of that trust; but 5 10 “(b) does not include an individual “private offer of securities means an offer of securities that— “(a) does not constitute an offer of securities to the public 20 under section 3 of the Securities Act 1978; or is exempt from Part 2 (other than sections 38B and 58) of that Act under section 5(2CB) or 5(2CBA) of that Act.” “(b) “49A Who is eligible investor “(1) A client is an eligible investor if— 25 “(a) “(b) “(c) the client certifies in writing that the client understands that, as a consequence of certifying himself, herself, or itself to be an eligible investor, the financial service provider may not be a member of an approved dispute 30 resolution scheme; and the client states the reasons for this certification; and a financial service provider signs a written acceptance of the certification in accordance with section 49B.
“(2) A certification may be specific to a particular service or class 35 of services or may be general (but is not effective in relation to 107 Part 2 cl 38B Financial Service Providers (Pre-Implementation Adjustments) Bill services provided before all the requirements of subsection (1)(a) to (b) are met).
“49B Acceptance of certification “(1) A financial service provider must not accept a certification un- less he, she, or it, having considered the client’s reasons for the 5 certification,— “(a) is satisfied that the client has been sufficiently advised of the consequences of the certification; and “(b) has no reason to believe that the certification is incor- “(c) rect; and is satisfied that nothing indicates, or would indicate to a reasonable person, that further information or investi- gation is required as to the client’s reasons for the cer- tification.
10 “(2) The person who accepts the certification of a client may be the 15 person providing the financial services to the client (but does not need to be).

“(3) A financial service provider who accepts a certification with- out having complied with subsection (1) contravenes a wholesale certification requirement.

20 “(4) Contravention of this section may give rise to a pecuniary penalty order or compensatory order (see sections 79A and 79B).
“49C How to opt out of being wholesale client “(1) A person may opt out of being a wholesale client, in relation 25 to a financial service provider, by giving the financial service provider a signed notification to that effect.

“(2) A notification may be specific to a particular service, or class of services, or may be general for all services provided by the financial service provider to whom it is given.

30 “(3) A person may vary or revoke a notification in the same way as the notification may be given.
“(4) A notification (or variation or revocation of a notification) under this section is effective only in relation to services pro- vided after it is given.

35 108 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 38C “49D Members of dispute resolution scheme must comply with rules and binding resolutions “(1) A member of an approved dispute resolution scheme or the reserve scheme must comply with the rules of the scheme.
“(2) On the application of the person responsible for the scheme or 5 a complainant, a District Court may make an order requiring a member of the scheme to do either or both of the following: “(a) “(b) comply with the rules of the scheme: comply with a resolution of a complaint that constitutes a binding resolution under those rules (a binding settle- 10 ment).
If a District Court is satisfied that the terms of a binding settle- ment of a complaint are manifestly unreasonable, the court’s order under subsection (2) may modify the terms of the bind- ing settlement.

If an order requiring a member to comply with a binding settle- ment includes a requirement that the member pay an amount of money to a person, that order (or part of the order) may be enforced as if it were a judgment by a District Court for the payment of a sum of money.
15 20 “(3) “(4) “49E Offence to fail to comply with District Court order “(1) A member of an approved dispute resolution scheme or the reserve scheme who, knowing that the member is subject to an order made under section 49A, fails to comply with the order, or fails to comply with the order within the time or in the 25 manner required by the order, commits an offence and is liable on summary conviction to a fine not exceeding $200,000.
“(2) Nothing in this section applies to an order or part of an order of a District Court referred to in section 49A(4).” 38C Rules about approved dispute resolution scheme 30 Section 63 is amended by repealing paragraph (g) and substi- tuting the following paragraph: “(g) that the scheme has jurisdiction in respect of a breach of contract, statutory obligation, or industry code, or any other matter provided for in the rules:”.
35 109 Part 2 cl 38D Financial Service Providers (Pre-Implementation Adjustments) Bill 38D Duty to co-operate and communicate information in certain circumstances Section 67 is amended by adding the following paragraph: “(d) if there is a series of material complaints about a par- ticular broker or class of broker, communicate that fact 5 to the Securities Commission.” 38E Appointment of reserve scheme Section 72(1) is amended by adding “; and” and also by adding the following paragraph: “(c) prescribe rules about the funding of the reserve scheme 10 (see section 72A).” 38F New section 72A inserted The following section is inserted after section 72: “72A Reserve scheme: rules about fees and charges “(1) Rules made under section 72(1)(c) may— 15 “(a) “(d) “(b) “(c) provide for an applicant for membership, or for renewal of membership, to pay a fee in respect of the application: require members to pay a membership fee: if a complaint is made about a member, require the member to pay a charge in respect of the complaint in 20 circumstances provided in the rules: exempt a person or class of persons from liability to pay a fee or charge in whole or in part: provide for the refund or waiver of a fee or charge, in whole or in part, for a person or class of persons: provide for the termination of the membership of a member who fails to pay a fee or charge within the period provided in the rules.
“(2) The charge under subsection (1)(c) may be— “(e) “(f) 25 “(a) “(b) “(c) a fixed amount; or an amount calculated by reference to the costs of inves- tigating and determining the complaint; or a combination of the amounts referred to in para- graphs (a) and (b).
30 “(3) Rules for the purposes of this section may make different pro- 35 vision for different classes of financial service provider.” 110 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 38I 38G Duty to co-operate and communicate information in certain circumstances Section 76 is amended by adding the following paragraph: “(d) if there is a series of material complaints about a par- ticular broker or class of broker, communicate that fact 5 to the Securities Commission.” 38H Section 77 and the heading above section 77 repealed Section 77 and the heading above section 77 are repealed.
38I New heading and new section 78A inserted The following heading and section are inserted after section 10 78: “Levy “78A Levy “(1) The Governor-General may, by Order in Council made on the recommendation of the Minister, make regulations requiring 15 registered financial service providers (or a prescribed class of financial service providers) to pay a levy to the Minister.
“(2) The purpose of the levy is to meet, in whole or in part, the costs of— “(a) “(b) the Ministry’s functions under this Part (including the 20 costs of collecting the levy); and the reserve scheme (to the extent that these are not met by fees and charges imposed in rules made under sec- tion 72(1)(c)).
“(3) Regulations under this section may— 25 “(a) “(b) “(c) “(d) specify an amount payable as the levy or a method of calculating or ascertaining the levy (which may be based on the estimated costs): include or provide for including in the levy any shortfall in recovering the actual costs: refund or provide for refunds of any over-recovery of those actual costs: specify the financial year or part financial year to which the levy applies, and apply the levy to that financial year and each subsequent financial year until the levy 35 is revoked or repealed: 30 111 Part 2 cl 38J Financial Service Providers (Pre-Implementation Adjustments) Bill “(f) “(e) for the first financial year to which the levy applies, include in the levy costs from 1 January 2009: require payment of a levy for a financial year or part financial year irrespective of the fact that the regulations may be made after that financial year has commenced: “(g) provide for the collection and payment of the levy, in- cluding the time by which the levy must be paid: exempt a person or class of persons from liability to pay the levy, in whole or in part: provide for a waiver or refund of the levy, in whole or 10 in part, for a person or class of persons: provide for interest to be paid if a person fails to pay the levy by the due date.
“(h) “(j) “(i) 5 “(4) Regulations under this section may make different provision for different classes of registered financial service providers 15 including, without limitation, for— “(a) members of the reserve scheme: “(b) members of approved dispute resolution schemes: “(c) those who provide different types of financial service.

“(5) The levy is recoverable as a debt due to the Crown.
“(6) Before making a recommendation under subsection (1), the Minister must consult with persons or representatives of per- sons that the Minister considers are likely to be substantially affected by the proposed regulations.

20 “(7) A failure to comply with subsection (6) does not affect the 25 validity of the regulations.” 38J Regulations under this Part (1) Section 79(1) is amended by inserting “made on the recom- mendation of the Minister” after “by Order in Council”.
Section 79(1) is amended by repealing paragraph (a) and sub- 30 stituting the following paragraph: “(a) exempting any person or class of persons from the obli- gation to be a member of either an approved dispute resolution scheme or the reserve scheme, and prescrib- ing the terms and conditions (if any) of the exemption:”.
35 Section 79 is amended by inserting the following subsection after subsection (1): (2) (3) 112 Financial Service Providers (Pre-Implementation Adjustments) Bill Part 2 cl 38K “(1A) The Minister must not recommend the making of regulations under subsection (1)(a), unless the Minister is satisfied that— “(a) the exemption is consistent with the purposes of this Act; and the costs of compliance with the obligation would be unreasonable or not justified by the benefits of compli- ance.” “(b) 5 38K New sections 79A and 79B and heading inserted The following sections and heading are inserted after section 10 79: “Pecuniary and compensatory orders for contravening wholesale certification requirement “79A Pecuniary order for contravening wholesale certification 15 requirement “(1) The High Court may, on application by the Commission, order a person to pay a pecuniary penalty to the Crown if the Court is satisfied that the person has, without reasonable excuse, contravened a wholesale certification requirement under sec- 20 tion 49B.
“(3) “(2) The amount of the pecuniary penalty must not, in respect of each act or omission, exceed $100,000 in the case of an indi- vidual or $300,000 in the case of an entity.
In setting the amount of the pecuniary penalty, the Court must 25 take into account all of the following matters: “(a) “(b) the nature and extent of the contravention: the nature and extent of any loss or damage suffered by a person as a result of the contravention, including the effect on a person of the loss of the opportunity to make 30 a complaint to an approved dispute resolution scheme or the reserve scheme: the circumstances in which the contravention took place (including whether the contravention was intentional, inadvertent, or caused by negligence): “(c) 35 113 Part 2 cl 39 Financial Service Providers (Pre-Implementation Adjustments) Bill “(d) whether the person has previously been found by the court in proceedings under this Act to have engaged in similar conduct.
“(4) A financial service adviser may not be liable to more than 1 pecuniary penalty in respect of the same conduct.

5 “(5) Proceedings under this section may be commenced at any time within 3 years after the contravention occurred.
“79B Compensation for contravention of wholesale certification “(1) requirement If the Court orders a person to pay a pecuniary penalty under 10 section 79A in respect of the contravention of a wholesale certification requirement, the Court may, in addition, order a person to pay compensation to any person who has suffered, or is likely to suffer, loss or damage as a result of the contra- vention (the aggrieved person).
15 “(2) An application for orders under this section may be made by the Commission or any aggrieved person.

“(3) The application must be made within 1 year of the date of the pecuniary penalty order.

“(4) The Court may make an order under this section whether or 20 not any aggrieved person is a party to the proceedings.
In proceedings under this section, the Court may make such orders as it thinks fit.” Schedule 2 amended Schedule 2 is amended by omitting the items relating to the 25 Superannuation Schemes Act 1989 and the KiwiSaver Act 2006.

“(5) 39 114 Financial Service Providers (Pre-Implementation Adjustments) Bill Schedule Enactments consequentially amended s 30 Securities Act 1978 (1978 No 103) Schedule 1: Advisers Act 2008”.
insert in its appropriate alphabetical order “Financial Securities Markets Act 1988 (1988 No 234) Section 17: repeal.

Summary Proceedings Act 1957 (1957 No 87) Part 2 of Schedule 1: insert in its appropriate alphabetical order: Financial Advisers Act 2008 137E Contravening banning order 137J Breaching orders Takeovers Act 1993 (1993 No 107) Section 44D: repeal.

Takeovers Code Approval Order 2000 (SR 2000/210) Rule 65 of the Schedule: revoke.
5 10 Legislative history 8 December 2009 16 February 2010 Introduction (Bill 109–1) First reading and referral to Commerce Committee 12 Published under the authority of the House of Representatives—2010 Wellington, New Zealand: 115