Guy Nathan: Financial Service Providers (Pre-Implementation Adjustments) Bill — Second Reading 
Guy Nathan: Financial Service Providers (Pre-Implementation Adjustments) Bill — Second Reading 
[Volume:664;Page:11941] 
Hon NATHAN GUY (Minister of Internal Affairs)  
on behalf of the Minister of Commerce 
: 
 I move  
That the Financial Service Providers (Pre-Implementation Adjustments) Bill be now read a second time 
. I would like to begin by thanking the members of the Commerce Committee for their thorough examination of this bill including their extensive consultation with stakeholders. I am confident that the proposed amendments to the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act will go a long way towards simplifying compliance for business particularly in the lower-risk areas while providing high levels of protection for retail consumers and indeed investors. That is vital if we wish to give effect to the Government’s goal of increasing the level of confidence in New Zealand’s financial markets. 
The bill contains many technical amendments to the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act that will provide greater clarity for both investors and the industry as a whole. The bill narrows the scope of the Financial Advisers Act to apply it only to persons who provide financial adviser services in their ordinary course of business and to persons who provide advice in the course of providing another financial service. It excludes financial advice that is provided incidentally to the provision of other services. This focuses the regime on those persons who are generally understood to be financial advisers. Furthermore the scope of the definition of “financial advice” has been clarified. Therefore advice on the procedure for requiring and disposing of financial products will not be caught by the provisions of this legislation. Similarly broad statements about classes of products such as: “KiwiSaver is a good product.” will be outside the regime. 
Another key clarification has been made to the definition of “financial planning services” which are now termed “investment planning services.” The amendment proposed to this definition by the Commerce Committee clarifies that this term is focused on investment planning. It also clarifies that advisers who work only with category 2 products such as mortgage or insurance products or advisers who work for a qualifying financial entity and sell that entity’s products can deliver a professional level of service and comply with the regime without needing to be authorised. However such advisers will still be able to voluntarily become authorised financial advisers. 
Both the Financial Advisers Act and the Financial Service Providers (Registration and Dispute Resolution) Act have also been made more flexible by adding a number of regulation-making powers. The Securities Commission can now provide limited exemptions from the obligations of financial advisers. However the Minister of Commerce does not expect the commission to consider exemptions for every individual adviser who does not consider himself or herself to be the true target of the regime. He expects the commission to focus on exemptions for classes of persons for whom the cost of compliance with certain obligations would be unreasonable or unjustified. These new flexibility mechanisms are important to ensure that the regime can adapt with the market and imposes obligations that are proportionate to the risk created by different services. 
Another group of amendments relate to the regime’s application to wholesale services where customers either have the necessary sophistication in financial matters or have sufficient bargaining power to look after their own interests. The challenge is to ensure a balance between minimising the unnecessary regulation of those who deal with wholesale customers and preventing mum and dad investors from falling into the wholesale category by accident or through manipulation by unscrupulous advisers. The bill’s proposal to combine a number of wholesale client categories with a self-certification opt-out provision with appropriate protections against misuse delivers what the Minister believes is the required balance. Financial advisers who deal exclusively with wholesale customers will now be exempt from the obligations to be individually authorised to make disclosure to belong to an approved dispute resolution scheme and to adhere to the code of professional conduct for authorised financial advisers. However the obligation to act with due care skill and diligence will apply to all financial advisers. 
A number of other amendments are designed to reduce compliance costs for business including clarifying that entities can provide any financial adviser service to their clients through their employees provided that those employees are appropriately regulated; allowing entities to provide generic advice that is not tailored to a specific person’s needs; and enabling businesses that operate as groups of companies to make use of the qualifying financial entity—the QFE—model efficiently. These changes to simplify compliance for wholesale products are intended to allow entities to operate more effectively clearly focusing the regime on the personalised services provided to retail clients. 
Correspondingly the role of the Securities Commission is now focused on supervising the people who provide the service. In order to ensure that the Securities Commission has the tools it needs to perform its supervisory functions with regard to personalised retail services the bill also includes a number of new powers. For example the Financial Advisers Act can be enforced against persons who committed offences while authorised but who cancelled their authorisation before enforcement action could be taken. The commission can also impose temporary banning orders on people who act inappropriately and it can apply to the courts for those bans to be extended for up to 10 years. The commission also has a reserve power to declare that a product of any qualifying financial entity must be sold only through individually authorised financial advisers. This will not require the commission to vet every product that a qualifying financial entity sells but rather it will allow the commission to step in under exceptional circumstances. This is an appropriate approach as entities will need to demonstrate their capacity to comply with the regime before being granted qualifying financial entity status. The Minister considers that this provides certainty to qualifying financial entities as to their ongoing obligations while at the same time enabling the commission to act when required. 
The extended supervisory and enforcement powers of the commission will help to ensure that the regime is complied with effectively to enhance overall investor confidence. The Minister knows that the industry shares this goal with him and once this bill is passed he expects businesses to engage constructively with the commission in order to help to achieve their mutual objectives. I commend this bill to the House.