Multi-adviser businesses will outweigh sole-practitioners by about two-to-one once the full regulatory regime comes into play next year based on early financial advice provider (FAP) data.
According to figures included in new Financial Markets Authority (FMA) consultation documents, the regulator counted 750 full Class 2 FAP licences either approved or in-train as at October 1 compared to 364 for the solo Class 1 version.
Class 2 FAPs can operate with any number of financial advisers or ‘authorised bodies’ under the licence while Class 1 businesses are restricted to one-person only (with a temporary exemption to appoint locums for short-term purposes).
The FMA consultation documents, which lay out plans for Class 1 and 2 FAP annual regulatory returns, report total licensee (including applications) numbers of 1,168 on October 1, implying 54 organisations will be licensed under Class 3 conditions when the full regime starts next March. As at August 1, some 37 Class 3 licences had been approved with 17 underway, according to an earlier FMA regulatory return consultation document.
Businesses with Class 3 credentials can be responsible for any quantity of financial advisers, authorised bodies or ‘nominated representatives’ – a group that likely includes banks, insurers and other large financial institutions. Nominated representatives face less onerous direct regulatory scrutiny than advisers including exemption from listing on the Financial Services Providers Register (FSPR).
Under the regulatory return proposals, which are virtually identical for all licence classes, all FAPs will have to file annual information with the FMA detailing the business “size and nature, compliance performance and potential risks”.
All FAPs will be required to lodge an inaugural regulatory return by September 30, 2024, covering the 12-month period to June 30 of the same year.
“Frameworks and methodologies are subordinate legislation that detail any applicable technical requirements. We are not legally required to introduce either,” the consultation says. “Our view at this time is that they are not necessary given the particular type of information we need from this group of market service licensees. We may decide to introduce a framework and/or methodology related to regulatory returns for FAPs at a later stage, which must be consulted on before being issued.”
Earlier in October, FMA regulation and operations director, John Botica, said the current approved or lodged full FAP licences represented about two-thirds of the 1,750 firms operating under the transitional rules.
Botica said a further 20 per cent – or about 350 firms (likely all Class 1 or 2) – had registered on the FSPR as intending to apply for a full FAP licence.
Previously, the FMA had signaled a September 30 cut-off for FAP licences to ensure approval before the March 17 regime start date next year.
“We know there will be some applications right up to the wire, which we have actively warned against,” he said. “Advice providers yet to submit their applications are encouraged to do so as soon as possible to avoid the risk of not having a licence to operate by the March 2023 deadline.”
Submissions for the Class 1 and 2 regulatory return consultations are due by November 18 while the deadline for similar Class 3 feedback is set for October 28.