Source: http://www.legislation.govt.nz/sop/government/2010/0113/latest/whole.html
Timestamp: 2018-10-19 04:27:27
Document Index: 504614668

Matched Legal Cases: ['art 3', 'art 4', 'art 3', 'art 3', 'art 3', 'art 3']

Supplementary Order Paper No 113 (released 18 March 2010) – New Zealand Legislation
To insert the following clauses after clause 5 (after line 6 on page 4):
5A Purpose of Act
(1) Section 3 is amended by inserting “the provisions governing financial advisers under” after “The purpose of” .
“(2) The purpose of the provisions governing brokers under this Act is to—
“(a) require disclosure by brokers, so ensuring that clients can make informed decisions about whether to use a broker to handle the clients' transactions; and
“(b) assist in the protection of money and property held by brokers on behalf of clients.
5B Overview of Act
To insert the following definitions after the definition of bonus bonds (after line 11 on page 4):
“broking service has the meaning set out in section 77B”.
To insert the following definitions after the definition of call building society share (after line 26 on page 4):
“client money means money received from, or on account of, a client in relation to acquiring, holding, or disposing of financial products
“client property means property received from, or on account of, a client in relation to acquiring, holding, or disposing of financial products”.
To insert the following definition after the definition of insurance product (after line 27 on page 4):
“investment management decision has the meaning set out in section 11A”.
To insert the following definition after the definition of nominated representative (after line 30 on page 4):
“(b) the creditor, in the case of a consumer credit contract (as defined in section 11 of the Credit Contracts and Consumer Finance Act 2003):
“(c) the insurer, in the case of an insurance product, including a term life insurance policy:
“(d) the person specified by regulations, in the case of any other financial product specified by the regulations”.
To insert “client, conduct obligation, disclosure obligation, entity,” after “category 2 product,” (line 8 on page 5).
To insert the following definitions after the definition of category 2 product (after line 33 on page 5):
“client—
“(a) means, in relation to a financial adviser service, the person for whom the financial adviser service is performed:
“(b) in relation to a broking service,—
“(i) means the person on whose behalf the financial product is acquired or disposed of or the client money or client property is held; but
“(ii) excludes the product provider
“(a) in relation to a financial adviser, the obligation described in section 32:
“(b) in relation to a broker, the obligation described in section 77J
“(a) in relation to a financial adviser, the obligation described in section 21:
“(b) in relation to a broker, the obligation described in section 77D
“entity includes a body corporate and an unincorporated body, but does not include an individual”.
To omit this subclause (lines 8 to 10 on page 6) and substitute the following subclause:
(3) Section 5 is amended by repealing the definitions of investment transaction and trust account.
To insert the following clauses after clause 7 (after line 13 on page 6):
7A What is financial adviser service
Section 10 is amended by repealing paragraph (b) and substituting the following paragraph:
“(b) makes an investment management decision; or
7B New section 11A inserted
“11A When person makes investment management decisions
“(1) A person (A) makes an investment management decision if A—
“(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 decisions.”
Clause 8: new subclauses (1AA) to (1AD)
To insert the following subclauses before subclause (1) (after line 15 on page 6):
(1AA) The heading to section 12 is amended by omitting “or transaction” and substituting “or decision”.
(1AB) Section 12(d), (e), (f), (g), (l), (m), (n), (o), and (u) are amended by omitting “making an investment transaction” in each place where it occurs and substituting in each case “making an investment management decision” .
(1AC) Section 12(d), (e), (f), and (g) are amended by omitting “or transaction” in each place where it occurs and substituting in each case “or decision” .
(1AD) Section 12 is amended by repealing paragraphs (i) and (j) and substituting the following paragraph:
“(i) any person making an investment management decision in the course of an appointment (of that person or that person's employer) by a product provider to undertake the investment management functions of the product provider in relation to the relevant financial product:”.
Clause 8: new subclause (1B)
To insert the following subclause after subclause (1) (after line 17 on page 6):
(1B) Section 12(n) is amended by omitting “or the transaction” and substituting “or the decision” .
Clause 8(3): new section 12(q)(ii)
To omit “investment transaction” (line 33 on page 6) and substitute “investment decision” .
New clauses 9A and 9B
To insert the following clauses after clause 9 (after line 31 on page 7):
9A Individual who is authorised financial adviser
Section 15 is amended by repealing paragraph (b) and substituting the following paragraph:
“(b) make an investment management decision in relation to a category 1 product; or
9B Individual who is registered
Section 16 is amended by repealing paragraph (b) and substituting the following paragraph:
“(b) make an investment management decision in relation to a category 2 product.”
Clause 10: new section 17
To omit “an investment transaction” (lines 5 and 6 on page 8) and substitute “an investment management decision” .
To insert the following clause after clause 10 (after line 25 on page 9):
10A Disclosure by authorised financial adviser
Section 23(2)(j) is repealed.
To omit this clause (lines 1 to 7 on page 10) and substitute the following clause:
12 Section 36 repealed
New clauses 12A and 12B
To insert the following clauses after clause 12 (after line 7 on page 10):
12A Authorised financial adviser must not recommend or receive money for acquisition of securities if offer for subscription illegal
12B Sections 39 to 44 repealed
To insert the following clause after clause 13 (after line 14 on page 10):
13A Commission must approve or decline application for authorisation
(1) Section 55(1)(b) is amended by omitting “transaction” and substituting “management decision on behalf of a client” .
“(3A) Those terms and conditions may relate to any provision of a broking service by the applicant, as well as to the financial adviser services.”
To insert the following clauses after clause 18 (after line 34 on page 11):
18A New Part 3A inserted
“(1) A broker is an individual or an entity who carries on a business of providing or offering to provide a broking service (whether or not the business is the provider's only business or the provider's principal business).
“(2) If a broking service is provided by an employee in the course of the business of his or her employer, the employer (and not the employee) is the broker.
“(1) A broking service is the receipt, holding, or payment of client money or client property by a person acting on behalf of a client.
“(2) The mere transmission of a non-negotiable instrument payable to another person is not a broking service.
“77C When transactions by certain persons are not providing broking service
“(a) a lawyer or incorporated law firm providing a broking service in the course of professional practice in providing legal services if the broking is a necessary incident of legal practice; or
“(b) a conveyancing practitioner providing a broking service in the course of professional practice in providing conveyancing services if the broking is a necessary incident of conveyancing practice; or
“(c) a chartered accountant providing a broking service in the course of professional practice as a chartered accountant if the broking is a necessary incident of professional accounting practice; or
“(d) a tax agent providing a broking service in the course of professional practice as a tax agent if the broking is a necessary incident of professional tax agency; or
“(e) a real estate agent providing a broking service in the course of the agent's occupation as a real estate agent if the broking is a necessary incident of working as a real estate agent; or
“(f) a designated settlement system under section 156N of the Reserve Bank of New Zealand Act 1989, and any operator of that system, receiving, holding, or paying client money or client property in accordance with the rules of the settlement system; or
“(g) a Crown organisation or an employee of a Crown organisation providing a broking service in the course of its functions; or
“(h) the Reserve Bank of New Zealand (the Reserve Bank), a member of the board of the Reserve Bank, or an employee of the Reserve Bank providing a broking service in the course of the functions of the Reserve Bank; or
“(i) an employee receiving, holding, or paying money or property of his or her employer in the course of his or her employment; or
“(j) an employer, or an employee of the employer, providing assistance to a person who is an employee of the employer with the implementation of a decision to acquire or dispose of a financial product made available through the person's workplace; or
“(k) a company or an employee of a company providing a broking service, in the course of the company's business, on behalf of no person other than a related company; or
“(l) any other person or class of persons specified in the regulations providing a broking service in circumstances specified in the regulations.
“Brokers' disclosure obligations
“77D What is disclosure obligation
A disclosure obligation under this Part is an obligation to make disclosure under or in accordance with sections 77E to 77I.
“77E Broker must make disclosure before receiving client money or client property from ultimate client
“(1) A broker must make disclosure to a client, in accordance with this Act and the regulations, before (or if not practicable before, as soon as practicable after) receiving client money or client property from the client.
“(2) Subsection (1) does not apply to a broker that receives the client money or client property from another broker.
“77F Disclosure by broker
“(1) A broker must disclose the information prescribed by regulations.
“(2) For the purposes of this section, regulations may prescribe disclosure in relation to any or all of the following matters:
“(a) in relation to the broker and, if the broker is an entity, each principal officer—
“(b) procedures for handling client money or client property:
“(c) fees:
“(d) indemnity insurance:
“(f) location of business premises:
“(g) telephone, email, and fax details.
“(3) Regulations may prescribe the form of disclosure.
“(1) Disclosure of the matters that must be disclosed under a disclosure obligation may be accompanied by the disclosure of additional information.
“77J What is conduct obligation
A conduct obligation under this Part is an obligation under sections 77K to 77S.
A broker must, when providing a broking service, exercise the care, diligence, and skill that a reasonable broker would exercise in the same circumstances, taking into account, but without limitation,—
“(a) the nature and requirements of the client; and
“(b) the nature of the services performed for the client.
“(2) A person who knowingly or recklessly contravenes subsection (1) commits an offence (see section 118).
“(2) A person who knowingly or recklessly contravenes subsection (1) commits an offence (see section 119).
“(2) A person who contravenes subsection (1) commits an offence (see section 120).
“(2) A person who contravenes subsection (1) commits an offence (see section 134A).
“(1) A broker who receives client money or client property, in his, her, or its capacity as a broker,—
“(2) A person who contravenes subsection (1) commits an offence (see section 134B).
“(3) This section does not apply to a broker within the meaning of the Insurance Intermediaries Act 1994 in relation to any money to which section 14 or 15 of that Act applies.
“(1) A broker who receives or holds client money and client property on trust for a client must account properly, or ensure that account is properly made, to the client for that client money or client property.
“(2) A person who contravenes subsection (1) commits an offence (see section 134C).
“(1) A broker who receives or holds client money on trust for a 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.
“(2) A broker who receives or holds client property on trust for a client must keep, or ensure that there are kept, records that—
“(4) A person who contravenes any of subsections (1) to (3) commits an offence (see section 134D).
“(5) This section does not apply to a broker within the meaning of the Insurance Intermediaries Act 1994 in relation to any money to which section 14 or 15 of that Act applies.
“(1) A person must not use or apply client money or client property received or held on trust for a client by a broker in any way except—
“(a) as expressly directed by the client; or
“(2) A person who contravenes subsection (1) commits an offence (see section 134E).
“(1) The client money or client property that is received or held by a broker on trust for a client—
“(2) Nothing in section 77S or this section takes away or affects any lawful lien or claim that a broker who holds client money has against the client money.
“Conduct by employees or agents of brokers
“77U Conduct by employees or agents of brokers
For the purposes of the disclosure obligations and conduct obligations under this Part,—
“(a) receipt, holding, or payment of client money or client property, and other conduct, by a person (A) is treated as being done by another person (B) if—
“(i) A is a director, employee, or agent of B and A is acting within the scope of A's actual or apparent authority; or
“(ii) A is acting at the direction or with the consent or agreement (whether express or implied) of a director, employee, or agent of B given within the scope of the actual or apparent authority of that director, employee, or agent:
“(b) if it is necessary to show the state of mind of B, it is sufficient to show that a director, employee, or agent of B (acting within the scope of the actual or apparent authority of that director, employee, or agent) had that state of mind.
“(2) The Commission may give the broker notice of his or her alleged breach and, if the Commission does give a notice of breach, the Commission must also give the broker a reasonable opportunity to respond.
“(5) A broker who fails to comply with a direction by the Commission commits an offence (see section 134F).
“(6) Nothing in this section precludes the Commission from exercising any of its other powers under this Act against a broker.
18B Part 4 heading amended
New clauses 24A to 24F
To insert the following clauses after clause 24 (after line 22 on page 13):
24A Heading above section 117 amended
The heading above section 117 is amended by omitting “financial advisers and QFEs” and substituting “financial advisers, QFEs, and brokers” .
24B Failure to make disclosure under or in accordance with disclosure obligation
24C Heading above section 118 amended
24D New sections 118 to 120 substituted
A person who contravenes section 77N commits an offence and is liable on summary conviction to a fine,—
24E Offence of recommending or receiving money in connection with offer of securities when subscription illegal
24F Sections 122 to 125 repealed
New clauses 26A and 26B
To insert the following clauses after clause 26 (after line 30 on page 13):
26A New heading and sections 134A to 134F inserted
“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
26B Right of appeal
Section 138(1)(a)(iv) is amended by omitting “or 73” and substituting “, 73, or 77V” .
To insert the following clause after clause 27 (after line 2 on page 14):
27A New section 148 substituted
Section 148 is repealed and the following section substituted:
“(1) Subject to subsection (2), the Commission may, in its discretion and on the terms and conditions (if any) that it thinks fit, by notice in the Gazette exempt—
“(a) any person or class of persons, any decision or class of decisions, or any class of financial advice (for example, financial advice given by telephone) from compliance with 1 or more of the disclosure obligations for financial advisers:
“(b) any person or class of persons or any transaction or class of transactions from compliance with 1 or more of the disclosure obligations or conduct obligations for brokers.
“(2) The Commission must be satisfied, before it grants an exemption, that the cost of compliance with the relevant obligation would—
“(a) be unreasonable; or
“(b) not be justified by the benefit of compliance.”
To omit this clause (lines 3 and 4 on page 14) and substitute:
28 General regulations
(1) Section 154(1)(a) is repealed and the following paragraph substituted:
“(a) specifying a person as a product provider in relation to a financial product other than a security, consumer credit contract (as defined in section 11 of the Credit Contracts and Consumer Finance Act 2003), or insurance product (see section 5):
(2) Section 154(1) is amended by inserting the following paragraphs after paragraph (i):
“(ia) for the purpose of determining when a person does not provide a broking service under section 77C, specifying a person or class of persons and the circumstances in which they do not perform a broking service:
“(ib) prescribing the information that must be disclosed by a broker and the form of disclosure (see section 77F), including when and in what circumstances disclosure may be made jointly (with other brokers or financial advisers, or by 1 person in different capacities) and the form of joint disclosure:
“(ic) prescribing the following matters in relation to Part 3A:
“(i) the duties of brokers in relation to their trust accounts (including who may be a related person or entity for the purposes of section 77P) and other provisions regulating 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, and payment of client money and client property, 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 property is held by brokers are informed of the client money and client property held and of the transactions made in connection with it:
(3) Section 154(4) is amended by inserting “or (1)(ia)” after “(1)(e)” .
New clauses 34A and 34B
To insert the following clauses after clause 34 (after line 24 on page 15):
“broking service has the meaning given by sections 77B and 77C of the Financial Advisers Act 2008
34B Meaning of financial service
Section 5 is amended by inserting the following paragraph after paragraph (a):
New clauses 38A and 38B
To insert the following clauses after clause 38 (after line 2 on page 17):
38A Duty to co-operate and communicate information in certain circumstances
“(d) if there is a series of material complaints about a particular broker or class of broker, communicate that fact to the Securities Commission.
38B Duty to co-operate and communicate information in certain circumstances
This Supplementary Order Paper amends the Financial Service Providers (Pre-Implementation Adjustments) Bill to change the provisions regulating broking services from those currently contained in the Financial Advisers Act 2008 (the FAA) so as to enable the FAA to be effectively implemented in relation to entities operating broking services.
Under these changes—
“investment transactions” are renamed “broking services” in the FAA and the scope of the services is clarified as being the receipt, holding, and payment of client money and client property by a person acting on behalf of a client (so including the handling of dividends by intermediaries):
any individual or entity can provide broking services. The Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP Act) will apply to require individuals or entities in the business of providing broking services to be registered unless exempted. Employees will not need to be separately registered as brokers themselves:
a new Part 3A is inserted in the FAA to contain the provisions regulating brokers. To the extent that financial advisers are also brokers, their broking services will be regulated under this Part. In addition however, the Commission is entitled to include terms and conditions relating to broking services in the authorisation of authorised financial advisers:
the disclosure and conduct obligations applied to brokers in new Part 3A are essentially the same as the obligations that applied previously to investment transactions carried out by financial advisers. However, these obligations are generally applied to the entity or employer that is the broker rather than to the individual employee. Moreover, broking will be regulated only when the broker is handling money or property on behalf of a client and none of the duties imposed are owed to product providers (as a result of excluding product providers from the definition of client):
the disclosure obligations applied to brokers are similar to those applying to financial advisers. However, this Part does not require disclosure by brokers to other brokers or to product providers:
the conduct obligations for brokers are the same (with some small adjustments) as the general conduct requirements (for example, to take due care) and the money-handling obligations that previously applied to authorised financial advisers carrying out investment transactions:
the Securities Commission continues to have the role of enforcing compliance with these obligations and has the power to direct brokers to comply with them. It also has a power of exemption from disclosure or conduct obligations in new Part 3A:
the previous offences that applied to authorised financial advisers carrying out investment transactions have been adjusted to apply to brokers that are entities as well as individuals:
changes are made to the FSP Act to require dispute resolution schemes to share information relating to disputes about brokers with the Securities Commission. This information sharing is intended to assist in monitoring the extent of problems with the handling of client money and client property by brokers.