In this sixth in our Series of Financial Law Insights working through the detail of the Financial Services Legislation Amendment Bill we discuss the impact of the proposed registration and licensing requirements for offshore advisers, including:
a recap of the current rules
the territorial scope of the new regime
allowing offshore services to be accessed from New Zealand
implications for offshore advisers.
In the Series so far:
The Financial Services Legislation Amendment Bill fundamentally changes the regulatory game for financial advice services by introducing licensing requirements. The new licensing regime is not unexpected, but the implications for those providing financial advice and discretionary investment management services to New Zealand clients from offshore are potentially significant.
How does it work now?
The current regime is relatively benign for offshore advisers dealing with New Zealand clients, at least as far as registration and licensing requirements are concerned.
Provided they are solely dealing with wholesale clients, and don’t have a place of business in New Zealand, offshore advisers can largely operate under the radar in providing financial adviser services into New Zealand. Custodial services are an exception, and we will discuss how the regulation of those services is changing in a future edition in this Series.
The biggest regulatory challenge for offshore advisers at present is making sure they don’t provide financial advice when verifying that the person they are talking to is in fact wholesale. Recommend a particular stock to a New Zealand retail client without being registered, and you are in breach.
Some respond by getting registered and joining a New Zealand dispute resolution scheme as a risk management strategy. Some just take the risk and don’t register – either consciously or out of ignorance, thinking their status in their own jurisdiction is somehow relevant. Regardless, at present it is relatively easy to take advantage of our light-touch regime and register, allowing offshore advisers to target retail clients with non-personalised services.
So what’s changing?
The territorial scope of the provisions directly relevant to providing financial advice and discretionary investment management services will remain the same – receipt of the service by a client in New Zealand remains the key trigger. If the client is retail then registration is required, with the reforms set to add provider licensing to that requirement.
However, the territorial scope of the registration requirement where a licence isn’t required is going to change. Under the reforms, the focus moves to providing services to people in New Zealand. The current focus on having a place of business in New Zealand will become a secondary consideration – if you provide services to New Zealand clients you can still escape registration if you don’t have a place of business in New Zealand and your New Zealand clients aren’t retail clients.
For those not required to be licensed, further relief is provided through the prospect of de minimis thresholds for business conducted in New Zealand being set. There is also express relief from needing to register merely because your financial advice is accessible from New Zealand – more is required to fall into New Zealand’s regulatory net.
These relief provisions may be of limited comfort for providers of robo-advice and other web-related financial advisory services. Expressing views on financial products on your website and having them available for New Zealanders to see is one thing. Going further and signing up New Zealand clients to robo-advice and other services is another, and may place you outside of the relief.
(For further discussion on registration requirements, see Article 4 in this Series).
What are the implications?
An offshore adviser with no place of business in New Zealand who only advises wholesale clients in New Zealand won’t be required to be registered, and there won’t be any voluntary option to do so. The current risk management technique of getting registered just in case you inadvertently advise retail clients will come with a catch – you will need to obtain a financial advice provider licence as well.
It’s hard to see offshore advisers – especially those with only incidental activity in New Zealand – seeking a financial advice provider licence, or being in a position to obtain one. That means that if the reforms go to plan, by May 2019 offshore advisers who deal with New Zealand clients will have to ensure their processes are watertight as far as limiting financial advice to wholesale clients is concerned. They will no longer be able to rely on the absence of a place of business in New Zealand as their primary rationale for not registering.
We like the better alignment of the territorial scope provisions for providing financial advice and discretionary investment management services, and getting registered as a financial service provider. It will be a much tighter regime for offshore providers to navigate, but a regime that offers greater coherency.
With the FMA already toughening up on its approach to misuse of the FSPR, the space for offshore providers fishing in New Zealand waters is becoming narrower, with more demanding barriers to entry to navigate. However, those waters are still receptive to offshore providers willing to follow the rules.
Start a conversation
If you would like a specific briefing on the Bill, what the proposed reforms may mean for your business, or would like advice on how the current regime applies to offshore advisers engaging with the New Zealand market, please contact Catriona Grover on +64 4 498 0816, David Ireland on +64 4 498 0840, Nick Summerfield on +64 9 915 3357, Karen Mace on +64 4 496 5941, or Tom McLaughlin on +64 4 498 0886, or email the team at firstname.lastname@example.org.