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FINANCIAL ADVICE REFORMS INSIGHTS SERIES 13 – EXCLUSIONS FROM THE NEW REGIME
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The Financial Services Legislation Amendment Bill contains a raft of exclusions, that put certain activities outside the scope of what gets regulated as ‘financial advice’.

Although most of the exclusions proposed follow a similar pattern to the exemptions from the current regime, there are a number of wording changes to consider, and a new exclusion in play.

In brief:

In this thirteenth in our Series of Financial Law Insights working through the detail of the Financial Services Legislation Amendment Bill we discuss the express statutory exclusions from the new regime, including:

  • exclusions carried across from the existing exemptions in the Financial Advisers Act
  • new exclusions, including the new exclusion for advice given for the purpose of complying with lender responsibilities
  • subtle and not-so-subtle differences in the wording used for the exclusions. 

In the series so far:

1 – confirmation of the proposed reforms
2 – key concepts
3 – the FAP conundrum
4 – key changes to the FSP Act
5 – transitioning to the new regime
6 – offshore advisers
7 – the Code of Conduct and Code Working Group
8 – the new regime for custodial services
9 – the new statutory conduct obligations
10 - the scope of the new regime
11 - corporate advice
12 - wholesale clients

In full: 

In the tenth in our Series of Financial Law Insights discussing selected topics under the Bill, we looked at the scope of the new regime – what’s ‘in’. Now it’s time to look at what’s ‘out’ – what would constitute financial advice as set out in the body of the Bill, but falls outside due to an express statutory exclusion.  

What has remained the same – the main talking points

The exclusions move into a new Schedule 5 of the Financial Markets Conduct Act 2013. The majority have been carried directly across from the Financial Advisers Act 2008 (‘FAA’), with minimal change.

For example, the exclusions for advice given by lawyers, conveyancing professionals, registered legal executives, tax agents, real estate agents, accountants, teachers, lecturers, journalists, and valuers all remain, so long as the advice is given in the ordinary course of carrying on that occupation.

Of interest to some will be the fact that incorporated law firms appear to get a wider exclusion, where any advice given in the ordinary course of such a firm’s business is excluded. We think the difference is more than just splitting hairs. Curious.

The incidental service exclusion remains, although a subtle amendment has been made to the wording. In the FAA, the exclusion read ‘the service is provided only as an incidental part of another business that is not otherwise a financial advice service or does not have, as its principal activity, the provision of another financial service’. Under the Bill, the incidental service exclusion has been amended to advice ‘given only as an ancillary part of a business the principal activity of which is not the provision of a financial service’. The differences in wording are not intended to have any practical implications, and MBIE has signalled that the new provision is seen to be a replication of the existing exclusion. However, the FAA expressly distinguishes ‘ancillary’ and ‘incidental’ – they aren’t synonymous.

One minor change is the shift from referring to these as ‘exemptions’ under the current FAA to ‘exclusions’ from regulated financial advice under the Bill. Although this doesn’t have any practical implications for the financial advice regime, the new terminology better reflects the purpose of the new provisions.

Exclusions from the definition of financial advice

The list of activities excluded from the definition of financial advice in the Bill is essentially the same as the current list in section 10(3) of the FAA. However, there have been a number of minor amendments, which we have already covered in the tenth edition of this Series.

What we didn’t mention in that previous edition is that the current exemption for those ‘transmitting’ advice of another person has also been amended for clarity. This has been amended to refer to those that are ‘passing on’ advice given by someone else. MBIE has stated that the purpose of this amendment was to clarify that advisers and representatives are still giving advice, even though the provider is essentially responsible for the advice. This change does seem to split hairs. A carve out from the exclusion also remains if the person holds out that the financial advice is the person’s own advice.

Further exclusions

The Bill contains a number of exclusions for activities which, although they constitute financial advice as defined under the Bill, are expressly excluded from being regulated financial advice. This includes (at a high level) a replication of the existing exemptions for crown-related entities, trustee corporations, advice given free of charge by not-for-profit organisations, employer advice on workplace financial products, and advice given to product providers.

The major amendment is the new exclusion for advice given for the purpose of complying with lender responsibilities. This new exclusion will bring relief to lenders, who had expressed concern that they may be subject to the financial adviser regime because their interactions with customers during execution-only transactions could be seen to include financial advice.

The new exclusion applies when advice is given by a lender to a borrower, in relation to a consumer credit contract or insurance contract, and is given for the purpose of complying with the lender’s responsibilities under section 9C(3)(a) to (e) of the Credit Contracts and Consumer Finance Act 2003. In addition, the lender must take reasonable steps to ensure that the borrower understands that the advice is not regulated financial advice, and the implications of that for the borrower. We like this one in principle, although it seems a little cumbersome in practice.

Conclusion

For the most part, the majority of the exemptions that existed under the FAA have been carried across to the Bill, with a number of minor amendments made for clarity. Lenders are the biggest winners, with a new exclusion for advice given in relation to a consumer credit contract or relevant insurance contract for the purpose of complying with lender responsibilities. It remains to be seen what, if any, further exclusions will be provided for in the regulations, and what changes will be made as the Bill works its way through select committee.  

Start a conversation

If you would like a specific briefing on this or any other aspect of the Bill or what the proposed reforms may mean for your business, or would like advice on what you can do now to plan for the new regime please contact Catriona Grover on +64 4 498 0816, David Ireland on +64 4 498 0840, Nick Summerfield on +64 9 915 3357, or Tom McLaughlin  on +64 4 498 0886, or email the team at financialmarkets@kensingtonswan.com.

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