As the new financial advice regime is implemented, anyone giving regulated financial advice to retail clients will have to be engaged by a licensed financial advice provider. Licensing will occur in two phases:
- A transitional licence; and
- A full licence.
The Financial Markets Authority (FMA) released transitional licence requirements on 25 July 2019. We await full licensing requirements.
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Financial advice providers must apply for and receive a transitional licence by 29 June 2020.
All transitional licences become effective on the same day on 29 June 2020. On that day, the old regime ends, and the new regime begins. From that day, anyone not engaged by a licensed financial advice provider may not give regulated financial advice to retail clients.
The process involves fit and proper tests of the applicant’s directors and senior managers. There are also some questions about the business. The process is entirely online, and:
> you will need a RealMe login;
> if the licence will be for an entity, the entity will need its own FSP number;
> you will need to know how your business will be structured for licensing;
> for the entity to be licensed, you will need to select “Licensed Provider – transitional licence” or “Authorised Body – transitional licence” on the FSPR.
> after registering or making changes on the FSPR, you must wait at least overnight before you can apply for your transitional licence.
Questions the FMA will ask in the online application include:
> Will you engage authorised bodies?
> What services and products will you provide regulated financial advice to retail clients on?
> How many financial advisers and nominated representatives will give regulated advice under your licence?
> Will your business provide financial advice to retail clients directly?
> Will you provide regulated financial advice to another business’s retail clients on their behalf?
> Will another business (or its staff) with a financial advice provider licence provide regulated financial advice to retail clients on your behalf?
> Do you, or the directors or senior managers of your entity, have any criminal convictions, or have they had any regulatory action against them?
Entities with a transitional licence must meet all the requirements of the new regime, except the education requirements in the Code of Conduct. There is a competence safe harbour during the full licensing period.
During the transition period, if an entity extends the range of financial advice products on which it provides financial advice beyond what its advisers can give advice on under the existing regime, it must apply to the FMA to modify the conditions of its transitional licence.
Financial advice providers must apply for a full licence during a two-year period between 29 June 2020 and 29 June 2022.
The FMA has the power to require entities to apply for a full licence at particular times during that period.
There are nine existing licence types issued under the Financial Markets Conduct Act 2013. These license types require applicants to meet minimum requirements in five areas:
- Fit and proper (see transitional licensing, above);
- Operational infrastructure;
- Financial resources; and
Licences are usually issued with standard conditions, and may also have specific conditions.
The process to apply for a licence is expected to be online, and licensing fees suggest that the FMA should spend few hours evaluating most applications. They will spend more time on complex applications.