Just four months past an indicative deadline and a matter of weeks before transitional licensing begins, the Ministry of Business, Innovation and Employment (MBIE) has handed down draft disclosure regulations under the Financial Services Legislation Amendment Act (FSLAA).
The draft regulations, which will apply to all those caught under the FSLAA regime, add flesh to the bare-bones disclosure proposals first posted in February this year.
In a presentation this March, Sharon Corbett, MBIE financial markets manager, said the FSLAA disclosure system would be a “really big shift from the current regime”.
“There’s going to be a whole lot more flexibility in terms of how you can give that information to your clients,” Corbett said. “It’s a move away from handing over that upfront piece of paper.”
Under the proposed regulations those giving retail financial advice in the FSLAA era would have to supply appropriate disclosure materials at four separate trigger points covering: standard upfront public information; specific disclosure once the “nature and scope” of advice is known; further details when financial advice is given; and, at the time a complaint is received.
“Rather than requiring full up-front disclosure, which we heard can be overwhelming for consumers, different information will be given as it becomes relevant to the client at certain points in the advice process,” MBIE said following the February release. “This will allow consumers to receive the information that they need, when they need it, and allow businesses to develop disclosures that fit within their existing processes.”
Aside from basic individual and entity information, advisers (and/or Financial Advice Providers – FAPs) will have to hand over information relating to scope of services, fees, conflicts of interest, legal duties among others.
For example, in a broad-ranging clause, advisers will have to provide clients (or prospective ones) a “description of any conflicts of interests and any commissions or other incentives received in relation to the advice, including the amount or value of these, and a brief explanation of how any conflicts will be managed”.
The draft regs also introduce the notion of ‘reliability history’, where advisers must disclose any past legal or professional indiscretions committed within the previous five years (or four years if it was a bankruptcy).
According to the proposals, FAPs will have to keep all disclosures for at least seven years while opening up the records “for inspection by the FMA at all reasonable times”.
All disclosure documents “must be worded and presented in a clear, concise, and effective manner”, MBIE says.
At first glance the draft regulations don’t appear to hold too many surprises but, given the proposals were due out for discussion by the end of June, MBIE has raised the prospect of wriggle-room around disclosure compliance.
“… the new financial advice regime will come into force in June 2020, and these Regulations are likely to be made in early-2020,” the latest exposure draft says. “We recognise that providers may need to make system changes in order to meet the new disclosure requirements. We would like feedback on whether transitional provisions are needed to ensure that the industry has sufficient time to meet the new disclosure requirements.”
Submissions on the draft disclosure regulations close on November 8. FSLAA transitional licensing opens on November 4.