FSLAA (formally FSLAB)

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THE FINANCIAL SERVICES LEGISLATION AMENDMENT ACT

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Updated 9 April 2019
The Financial Services Legislation Amendment Act (FSLAA, formally FSLAB) passed its third reading in Parliament on 4 April 2019 and gained Royal Assent on 8 April 2019. FSLAA will bring the regulation of financial advice into the Financial Markets Conduct Act 2013 (FMC Act).
 

Jump to sections
 
Regulated financial advice | Licensed financial advice providers
Duties of financial advisersLiability for financial advice
Registration and disputes resolutionClient money or property services 
 

Regulated financial advice 
The definition of “financial advice product” expands the definition of “financial product” from the definition in the FMC Act to include a DIMS facility, a contract of insurance, a consumer credit contract, or any other product prescribed by the regulations. Importantly, it also includes “a renewal or variation of the terms or conditions of an existing financial advice product”. (The category 1 and category 2 financial product distinction will not exist.) 

At its core, the definition of “financial advice” changes little from the definition in the Financial Advisers Act 2008: when a person “makes a recommendation or gives an opinion about acquiring or disposing of (or not acquiring or disposing of) a financial advice product”. 
However, the definition has been extended to include: 
  • recommending or giving an opinion about switching funds within a managed investment scheme; 
  • designing a personalised investment plan in certain circumstances and; 
  • providing financial planning of a kind prescribed by the regulations (there are no regulations yet).
Activities that are excluded are similar to those in the Financial Advisers Act 2008: 
  • providing factual information, or certain specified documents; 
  • carrying out client instructions (execution only); 
  • making a recommendation or giving an opinion about a kind of financial advice product in general; 
  • recommending that a person obtain financial advice; 
  • passing on financial advice given by another person; 
  • other activities prescribed in regulations (which allows MBIE to add activities later without going through the full legislative process). 
Sales of financial advice products without financial advice are not covered by the regime. 
 
“Regulated financial advice” is financial advice that is given in the ordinary course of business, and not excluded. Exclusions from regulated financial advice include advice given: 
  • in the ordinary course of certain occupations, such as conveyancing practitioners, journalists, lawyers, lecturers, qualified statutory accountants, real estate agents, registered legal executives, registered valuers, tax agents, and teachers; 
  • incidental to providing credit under a credit contract, or for the purpose of complying with lender responsibilities; 
  • by Crown-related entities, trustee corporations, or non-financial not-for-profit organisations in the ordinary course of business; 
  • by an employer to an employee in relation to financial advice products made available through the workplace; and
  • A few other circumstances specified in FSLAA.
     


Licensed financial advice providers
In the regime, anyone who gives regulated financial advice to retail clients must be engaged by a financial advice provider who is licensed by the Financial Markets Authority:
  • A financial adviser, a person who is independently qualified to give financial advice and is registered on the Financial Services Provider Register (FSPR); 
  • A nominated representative, a person who gives financial advice as restricted by the systems and processes of the financial advice provider; 
  • An interposed person, an entity that engages financial advisers or nominated representatives, and provides regulated financial advice on behalf of a licensed financial advice provider; 
  • A financial advice provider may also give regulated financial advice on its own account (e.g., robo-advice).
A financial adviser may be engaged by more than one licensed financial advice provider (unless there are contrary conditions in the financial advice provider’s licence); a nominated representative may be engaged to provide regulated financial advice through one financial advice provider licence only. 

The licensing requirements do not apply to the provision of financial advice to wholesale clients. Note that “retail clients” does not mean consumers only – it includes most individuals and entities with assets or turnover under $5 million. For details, see FSLAA Schedule 2, clauses 3-4. 
 
 
Duties of financial advisers
FSLAA imposes duties on persons who give regulated financial advice. Some apply to retail clients only, and others apply to both retail and wholesale clients. 

Duties that apply to retail clients only are: 
  • Take reasonable steps to ensure that clients understand the nature and scope of advice, including any limitations on the nature and scope of the advice; 
  • Comply with the Code of Conduct; and 
  • Meet competence, knowledge and skill standards. 
Duties that apply to both retail and wholesale clients are: 
  • Prioritise the client’s interests, if there is a conflict of interests; 
  • Comply with disclosure requirements defined in regulations, and ensure the disclosure is not false, misleading or incomplete; 
  • Exercise the care, diligence and skill that a prudent financial adviser would exercise in the circumstances; 
  • Not recommend a financial product that contravenes the FMC Act or regulations. 
Financial advice providers, and interposed persons, must take all reasonable steps to ensure that any person they engage to give regulated financial advice complies with these duties. 

Financial advice providers who engage nominated representatives are under additional duties.  They must have processes and controls that enable them to: 
  • Limit the nature and scope of the advice given by the nominated representatives;
  • Regulate the advice and the circumstances in which it is given;
  • Ensure that the advice given is commensurate with the nominated representative’s competence, knowledge and skill.
Financial advice providers and interposed persons must ensure that nominated representatives comply with these process and controls, and monitor the nominated representatives, and the advice they give, to ensure that the processes and controls are effective and are complied with.  

Neither the financial advice provider, nor any interposed person, may make or offer payments or other incentives that encourage nominated representatives to engage in conduct that contravenes their duties.      
 


Liability for financial advice
If a person who gives regulated financial advice contravenes a duty in FSLAA: 
  • A financial advice provider and its authorised bodies may be civilly liable, and the FMA may take the entity to court. As a licensee, it may also be subject to FMA action around enforcement of licences.
  • A financial adviser may be subject to action by the Financial Advice Disciplinary Committee (FADC) (including a fine of up to $10,000). The financial adviser may also be suspended from the FSPR, deregistered or have conditions placed on their ability to give regulated financial advice. 
  • An interposed person may be civilly liable, and the FMA may take the interposed person to court. If the interposed person is a licensee, it may also be subject to FMA action around enforcement of licences. 
  • A nominated representative cannot be civilly liable, or subject to any legislative disciplinary action, for any breach of duty.  However, disciplinary action may be taken by the financial advice provider under the nominated representative’s contract.
There are also other actions that may be taken under the FMC Act for more serious contraventions. 
 


Registration and disputes resolution
Both financial advice providers and financial advisers will be required to be registered on the FSPR. The FMA may also require interposed persons to register on the FSPR as a licence condition (Note that a sole trader who applies for a licence is a financial advice provider, and not a financial adviser.).
 
Financial advice providers will be required to be members of dispute resolution schemes. Professional indemnity insurance may also be held at the financial advice provider level.
 


Client money or property services
FSLAA regulates client money or property services (formerly “broking services”), including:
  • Obligations for handling client money and client property;
  • Conduct obligations;
  • Disclosure obligations for services for retail clients.
     


Next steps
FSLAB became the Financial Services Legislation Amendment Act (FSLAA) on 8th April 2019 as it gained Royal Assent and became law. Read more - Financial Services Legislation Amendment Bill. Read about minor changes to the Bill in the Supplementary Order Paper
FSLAA
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CODE OF CONDUCT
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DISCLOSURE
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LICENSING
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FEES & LEVIES
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