The government has missed its June 30 target for finalising draft adviser disclosure regulations, taking the last leg of the Financial Services Legislation Amendment Act (FSLAA) implementation down to the wire.
Under its initial guidelines, the Ministry of Business, Innovation and Employment (MBIE) said the final draft disclosure regulations were expected to be ready for “consultation to take place in quarter 2, 2019”.
However, early in July an MBIE spokesperson said the “disclosure regulations are currently still being drafted and we hope to be able to consult on draft regulations in the coming weeks”.
The disclosure delay could put the June 2020 deadline for FSLAA blast-off in jeopardy, a financial services lawyer told Investment News.
Many advice businesses are waiting on the final disclosure regulations before deciding how they will operate in FSLAA, the lawyer said.
FSLAA passed into law this April with both the accompanying financial advice code of conduct and licensing processes subsequently signed off.
MBIE’s preferred disclosure option, tabled in Cabinet this February, lays out a flexible, stepped process for financial advice firms under FSLAA. The draft concept allows firms to publish general information on websites (or by request). After supplying initial ‘scope of advice’ disclosure to clients, advisers would need to follow up with more detailed information – including fees, commissions etc – as the process continues.
In its regulatory impact statement, MBIE says its preferred option would “provide less certainty to the industry” than the current regime disclosure settings.
“However, the additional compliance costs associated with this uncertainty are warranted, and our preferred option meets our other criteria,” MBIE says. “The regulations will be drafted to provide as much certainty to the industry as possible. Further, if the industry raises concerns after operating in the new regime, or if the [Financial Markets Authority] FMA becomes aware of particular trends, guidance may be issued to assist the industry in meeting the requirements.”
The transition would be relatively straightforward, and inexpensive, for authorised financial advisers (AFAs), MBIE says, but registered financial advisers (RFAs) and qualifying financial entities (QFEs) could incur substantial – mainly one-off – costs to be disclosure-compliant in an FSLAA world.
AFAs, RFAs and QFEs all face extinction under FSLAA to be replaced by labels in tune with the entity-centric nature of the new law, namely: financial advice providers (FAPs); financial advisers (FAs); and, nominated representatives (NORs)
MBIE says in the regulatory impact statement that potentially “some businesses will not be properly prepared for new disclosure requirements”.
“We are seeking to mitigate this risk by emphasising that industry should prepare early, and publicising as much information about likely disclosure requirements (including an exposure draft of regulations) as early as possible to give the industry sufficient time to prepare for the new regime,” MBIE says.
Commerce Minister Kris Faafoi said in June that FSLAA would “increase the standard of financial advice across the board”.
Faafoi said the new regime would go live in June 2020 with the exact date to be finalised via an Order in Council in the next few months.