Financial advisers have just six weeks to organise for regime change or risk serious business disruption, according to compliance specialist, Steven Burgess.
Burgess, Compliance Refinery founder, said April 29 was looming as a “key date” for transitional licensing applications under the Financial Services Legislation Amendment Act (FSLAA).
“The Financial Markets Authority [FMA] has guaranteed to complete transitional licence applications within 60 days,” he said. “With the formal FSLAA start date on June 29, that means if advisers don’t get their applications in by April 29 they could miss out licensing.”
Importantly, Burgess said advisers or advisory businesses that fail to gain transitional financial advice provider (FAP) status would have to complete the yet-to-be-determined full licensing process.
“We don’t know how long the full licensing approval process will be,” he said. “But those advisers who fall into this gap after June 29 would face significant risks as they won’t be able to offer advice – and product providers won’t be able to pay unlicensed firms.”
While there was a growing sense of urgency among advisers as the FSLAA deadline approaches, Burgess said a surprisingly large proportion – perhaps up to 20 per cent – of the industry remained blasé about the regulatory revolution.
“Some advisers and dealer groups are still treating licensing in a casual manner,” he said.
Partly, advisers remain too relaxed because the FMA online transitional licensing tool is easy to navigate, Burgess said.
“But the hard part is actually making sure you have the business processes in place such as policies and assurance testing that the FMA demands,” he said.
Even advisers who plan to operate under a FAP as employees or the like, should be doing due diligence on prospective licensees, according to Burgess.
“Advisers should check that a FAP can deliver the services required under licensing like compliance and cyber-security. You have to understand what their project plan is,” he said. “For example, FAPs need to have a robust CRM system that has enough scale.”
Burgess said many advisers were also focused on earning the higher educational marks required under FSLAA rather than preparing their businesses for licensing.
“Right now it is more important to concentrate on either finding a FAP or creating one,” he said. “Current advisers have a two-year education exemption until June 2022. This will give them ample time to achieve competency requirements.”
The FSLAA laggards were more likely among mortgage advisers and other sectors not fully caught under the current tougher advice regulation. Burgess said most authorised financial advisers (AFAs) and life insurance advisers (with help from providers) would probably meet the transition deadline.
“But the switch to entity-based licensing still represents a big change for AFAs who must shift from a passive to a more active director role in their businesses,” he said.
The FMA has handed out more than 300 transitional FAP licenses with more in train. According to the Financial Services Providers Register (FSPR), over 1,500 advisory businesses are in play – up more than 100 since February. Over the same period, the number of financial advisers on the FSPR has declined slightly (down about 80) with AFA figures also dropping from almost 2,000 to 1,970 at the latest count.