Financial Service Providers (Pre-Implementation Adjustments) Bill

  • enacted

Financial Service Providers (Pre-Implementation Adjustments) Bill

Government Bill

109—2

As reported from the Commerce Committee

Commentary

Recommendation

The Commerce Committee has examined the Financial Service Providers (Pre-Implementation Adjustments) Bill and recommends that it be passed with the amendments shown.

Introduction

This bill seeks to amend the Financial Advisers Act 2008 (FAA) and the Financial Service Providers Act 2008 (FSPA). The intent is to ensure that these Acts provide for responsible regulation of the financial services sector and robust consumer protection, in order to restore confidence and trust in the financial services sector. The financial services sector plays an important role for businesses to raise capital. This legislation is about protecting unsophisticated investors. A significant amount of funds was lost in about 30 finance company collapses in the past four years. Many of those who lost money as a result of the failures were “mum and dad” investors who did not appreciate the risks they were taking and would have benefited from knowledgeable, robust financial advice.

The recommended amendments set out below would strengthen the provisions of both Acts to ensure they serve their purposes.

We have focused on protecting retail consumers and on enhancing confidence and encouraging participation in capital markets. We received a significant number of very high quality submissions and we took the unusual step of authorising ongoing discussions between our advisers, Parliamentary Counsel, and stakeholders; and a process which included leave of the House to release the departmental report to submitters. We have made significant changes to the bill as a result.

While views differed as to the potential effect of the legislation we have sought to give more certainty to the sector. We have remained mindful of the harm the legislation is intended to address and the need for the regulatory response to be proportionate to the risk.

Supplementary Order Paper

The Minister of Commerce released Supplementary Order Paper 113 to the bill and referred it to the committee, which we considered alongside the main bill. SOP 113 proposes a number of additional amendments to regulate broking services under the FAA:

  • •requiring all brokers to register under the FSPA 2008

  • •imposing statutory money-handling and disclosure obligations on brokers

  • •excluding activities that do not pose a risk to clients’ funds or property from the scope of the bill

  • •charging the Securities Commission with enforcing these obligations

  • •allowing dispute resolution schemes and the Securities Commission to share information about brokers.

We heard submissions on SOP 113 in conjunction with the bill, and we have incorporated the SOP’s amendments into the bill.

Scope of the regime

Financial adviser services

We recommend amending clause 7 so that in new section 9 the FAA only applies if a financial adviser service is provided in the ordinary course of business, or in the course of business of any registered financial service provider. This distinction is important so that the legislation does not apply to situations in which a consumer would not expect to be receiving professional financial advice.

Financial advice

We recommend amending clause 7 so that the word “guidance” is removed from the FAA definition of financial advice. Submitters were concerned that the existing definition was too broad and did not distinguish between information and advice. We believe the removal of the word “guidance” would clarify this matter.

We have sought to specifically clarify that a number of other forms of discussion and activity would not constitute “advice” for the purposes of the FAA. These activities serve a useful purpose in the marketplace but do not, in and of themselves, pose a significant risk to consumers and investors, and so should not be subject to regulation.

Internal advice

We recommend adding a requirement that only financial advice which has been provided to a client be caught by the regime. This is to ensure that advice within an organisation, for example between a qualifying financial entity (QFE) and its nominated representatives as a part of the QFE’s business, would not be subject to regulation under the FAA.

Incidental advice

We recommend that any financial advice which is provided incidentally to another non-financial service be exempt from the Act. A large number of the submissions we received were from individuals or organisations concerned that incidental advice they provide as part of their core, non-financial service business would require them to be authorised as financial advisers. A person offering financial advice when they were already a financial service provider would still be caught, even when the advice is incidental. We believe this new approach would be preferable to specifying types of businesses or organisations to be exempted, for example, rental car companies routinely discussing car insurance with prospective clients or retail assistants discussing hire purchase arrangements.

Product classifications

We recommend that in clause 6(2) a number of simple products be reclassified as category 2, including shares in co-operative companies and call credit union shares.

We recommend narrowing the capture of advice in respect of an estate or interest in land. This should ensure that advice on property investment schemes was still regulated, while avoiding capturing the wide range of people involved in giving advice on land for other purposes. They include people such as engineers and architects, when making assessments of the value of a building, and mortgage brokers, when giving advice in respect of a mortgage (which should be treated as advice on credit rather than investment).

Financial planning services

We recommend amending clause 7 to make it clear that a financial planning service is not provided if the adviser does not address the investment planning needs of a client. This is intended to ensure that only financial advisers offering investment planning services are caught.

We chose to focus on the investment nature of the service and on whether the service is held out as an investment planning service, rather than the product recommendations arrived at. Submitters suggested restricting the provision to services that would lead to advice in respect of two or more products and/or involved advice on category 1 products. But a comprehensive planning service could result in a recommendation to purchase or dispose of only one product, or to only purchase or dispose of category 2 products, depending on the situation and the needs of the client. The holding-out provisions are designed to prevent people from describing themselves as financial or investment planners if they are not authorised to do so.

Exemption-making powers

We recommend amending clause 27C which inserts section 148 extending the exemption-making powers of the Securities Commission in the FAA to allow it to exempt any person, class of persons, or activity from complying with any section of the Act. We also recommend amending the Act’s regulation-making powers to allow regulations exempting any person from the Act’s scope or from any obligations under the Act.

We also recommend similar changes to the regulation-making powers of the FSPA to allow the expansion of the list of services exempt from the Act’s provisions.

Specific exemptions

There are a number of specific occupations exempted from the Act. However, the exemption would only apply when they are providing advice in the ordinary course of their business. Although they are probably already excluded from the regime through the new “incidental” provision, we have chosen to specifically exclude not-for-profit organisations providing financial adviser services. We do not consider such services to be an intended target of the regime. We are also of the view that such services are provided by various kinds of not-for-profit organisations, so an exemption by category is preferable to exemptions for specific organisations.

The changes we have made make it clear that the activities currently undertaken by Citizens Advice Bureaux are not caught by the Act.

We recommend extending the exemption for certain documents to cover all documents required under other enactments, whether required directly or as a condition of carrying out a certain activity. This includes documents provided to subscribers of securities as part of offers that are outside of the scope of the Securities Act, and trust deeds in respect of debt securities. Specific documents can be named as exempt through regulations, in order to future-proof the regime and avoid unnecessary compliance costs.

Territorial scope

We recommend that the bill be amended to make it clear that the FAA applies to all finance advice received in New Zealand, including advisory services provided from overseas. We also recommend that New Zealand-based advisers providing a service to overseas customers be bound by sections 33 and 34 of the Act, which require an adviser to exercise due care and skill and impose a duty not to mislead.

We recommend that the FSPA apply to all people providing financial services based in New Zealand, regardless of where the client is located. It should also apply to any person providing a licensed service under the FSPA, to allow for slightly different territorial scopes under these separate licensing regimes.

Advice to wholesale clients

We recommend that advisers working with sophisticated clients be exempt from many of the bill’s provisions. Wholesale clients are highly financially literate and we do not believe they are the sector of the market this legislation aims to protect. Advice given to wholesale investors would still be subject to statutory conduct obligations, such as an obligation to act with due care, skill, and diligence and a requirement not to engage in misleading or deceptive behaviour.

We recommend that wholesale investors be defined as follows in new clause 6A:

  • •people who receive financial advice in the course of their business and whose business is defined as a financial service provider or financial adviser

  • •a person whose principal business is the investment of money or who habitually invests money in the course of and for the purposes of their business

  • •medium and large entities who can prove that during the last two accounting periods they have gross assets of $1 million or an annual turnover of at least $1 million

  • •local authorities, State enterprises, and Crown entities, and specified statutory financial institutions

  • •“eligible clients,” which might be either entities or individuals, who have certified in writing that they have sufficient knowledge, skills, or experience in financial matters to assess the value and risks of financial products and the merits of the service and that they are aware of the protections being lost through certification. To be eligible, this certification must be accepted by an authorised financial advisor or QFE who is permitted to accept the certification because they are subject to authorisation requirements. Other advisers could also accept a client’s self-certification, but this would be subject to additional enforcement provisions to prevent unscrupulous persons who were not authorised financial advisers or QFEs from attempting to persuade clients to self-certify inappropriately.

Persons receiving advice in relation to what is generally understood to be a private offer of securities should be treated as wholesale clients, whether or not they fit into the above categories. This would ensure that the FAA fitted appropriately with the Securities Act 1978.

There was significant debate about how a wholesale investor should be defined. As a number of submitters pointed out, having a large amount of money does not necessarily mean a person has an advanced understanding of financial markets. We believe these definitions would redress the balance between providing protection to retail customers and avoiding stifling the sophisticated end of the market.

We consider that there is merit in keeping all types of financial adviser within the regime. This would be consistent with international practice. However, we recommend that financial advisers who provide services only to wholesale clients should

  • not need to be individually authorised

  • be able to register at the entity level if they choose

  • not be subject to the code of conduct

  • not be required to belong to a dispute resolution scheme

  • not be required to make disclosure.

Overseas-based wholesale advisers would not be required to register under the FSPA. Although we do not consider this a particularly onerous obligation, we are acutely aware that any such regulatory imposition could reduce wholesale advisers’ access to overseas-based advice. Such advice can be given on an informal or one-off basis, relative to which the process of registration would be unduly burdensome.

Advice from entities

Class advice

We recommend amending clause 7, which inserts section 19, amending the FAA to ensure that entities issuing class advice are not breaking the law. This type of advice includes generic product brochures and online planning services. These publications and internet tools are prepared for a wide “class” of people, as distinct from advice specifically tailored to an individual’s needs and situation. Entities would still be obliged to act with due care and skill and not act in a misleading or deceptive manner. We also recommend amending clause 12 to provide an option of imposing additional obligations through regulations on persons providing class advice. This would create the flexibility to set additional controls in the future should they be needed.

Personalised services from entities

We recommend amending clause 14 to make it clear in the FAA that entities are permitted to provide financial adviser services, provided (in the case of personalised services for retail clients) they are provided through an appropriate individual financial adviser.

Qualifying financial entities

We recommend amending the bill to allow a group of entities to operate under the umbrella of a single QFE, so that employees of group members could provide advice under that umbrella without each entity requiring QFE status. This responds to submitters’ concern that it is common for companies to operate in a group structure, which the QFE model in the FAA does not accommodate. We also recommend that the FAA requires, when entities enter into a group QFE arrangement, that the group state which entities are responsible for the group’s compliance. These “lead partner entities” would be made jointly and severally liable for compliance with FAA obligations, so that the Securities Commission could use its powers effectively against a group when a breach occurred.

To provide additional flexibility, two QFE groups would be able to share some entities, provided control could be demonstrated effectively by both. Where this option was used, the “partner entities” of both groups would be jointly and severally responsible for the shared entities and advisers, which should facilitate enforcement.

Nominated representatives

In order to accommodate the group QFE model, we recommend that clause 7 be amended to allow an employee or nominated representative of a QFE to provide advice on a product issued or promoted by another entity within the same QFE group.

Many of the submissions heard by the committee requested clarification as to whether a nominated representative could be a nominated representative of more than one QFE. We do not believe this should be permitted, except when the two QFEs are related companies, as anything wider would create significant risks and confusion around where responsibility for the representative’s advice would lie.

Consumer protection benchmark

We further recommend amending clause 14, which introduces new section 66, to make it clear that the code should be the benchmark for consumer protection outcomes with regards to financial advisers providing personalised services on category 1 products to retail clients. Notwithstanding this standard, we recognise that QFEs are required to have robust internal procedures that are tailored to the scope of their products. We recommend that the assessment of QFEs’ capacity to ensure adequate consumer protection outcomes take account of this fact.

Securities Commission powers

We recommend that new clause 27A be inserted to strengthen the Security Commission’s power to monitor and enforce the FAA:

  • •the power to place a temporary ban on any person from offering advice and related services if they have persistently breached the FAA or Securities Act or have been subject to a similar ban overseas

  • •the ability to take enforcement action against individuals and QFEs who breached their obligations, even if they have subsequently cancelled their authorisation, registration, or QFE status

  • •the ability to publicise any action taken against advisers or QFEs

  • •wider powers to apply to the High Court to make orders to restrain a person from breaching the FAA or to make orders to third parties to prevent losses following a breach of the code, FAA, or other relevant law by a financial adviser or broker (for example, an order for a bank to freeze the account of a broker who has been funding business expenses with clients’ funds)

  • •powers to apply to the High Court to ban from providing services regulated under the FAA a person who has committed certain relevant offences in New Zealand or overseas

  • •more flexibility regarding the ability to review an authorised financial adviser’s or QFE’s periods of renewal and terms and conditions of registration and authorisation when the authorised financial adviser or QFE makes a material change to its business (for example, an insurance business starting to issue securities) or when the commission learns of a market practice that will have a material impact on achieving the purposes of the FAA

  • •discretion for the commission to re-authorise an individual or entity that has breached the code of conduct, for example when a breach has been the result of a technicality

  • •measures to speed up the criminal record checks for authorised financial adviser applications

  • •powers to limit an authorised financial adviser’s scope of practice so that advisers who chose not to provide certain services and not to meet any superfluous code requirements could have their authorisation correspondingly limited.

Disclosure

Added flexibility and clarity

We recommend that the regulation-making power be expanded to increase the flexibility of the disclosure regulations. In particular, regulations should be able to set out situations in which disclosure obligations would not apply, and to apply different disclosure obligations to different classes of authorised financial adviser. This would allow the regulations to make disclosure more user-friendly. For example, regulations could provide for

  • no obligation to make disclosure after giving advice on a category 2 product over the phone if it does not result in a sale

  • authorised financial advisers stepping temporarily into the role of a QFE adviser to make only QFE disclosure.

Category 2 disclosure

We also recommend amending clause 11 by inserting new section 23 so that regulation-making powers are inserted into the Act. This would allow regulations to require the compulsory disclosure of commissions, fees and other personal gain obtained by an adviser by selling category 2 products.

Transitional amendments

We recommend amending the commencement provisions of the FSPA to allow the Act to be phased in by Order in Council.

We also recommend amending the FAA so that financial advisers working for prospective QFEs do not have to register until the Act comes into force.

Many submitters raised concern about the lack of transitional arrangements for the implementation of the new regime; we believe these changes we propose would help ensure a smooth transition.

Appendix

Committee process

The Financial Service Providers (Pre-Implementation Adjustments) Bill was referred to the committee on 16 February 2010. The closing date for submissions was 15 April 2010. We received and considered 93 submissions from interested groups and individuals. We heard 42 submissions.

We received advice from the Ministry of Economic Development. We also sought additional comments from submitters on the amendments on Supplementary Order Paper 113 and in the departmental report.

Committee membership

Hon Lianne Dalziel (Chairperson)

John Boscawen

Charles Chauvel

David Clendon

Clare Curran

Te Ururoa Flavell

Melissa Lee

Peseta Sam Lotu-Iiga

Katrina Shanks

Jonathan Young

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Hon Simon Power

Financial Service Providers (Pre-Implementation Adjustments) Bill

Government Bill

109—2

Contents

1 Title

2 Commencement

Part 1
Amendments to Financial Advisers Act 2008

3 Commencement of provisions of principal Act

4 Principal Act amended

5 Purpose

5A Purpose of Act

5B Overview of Act

6 Interpretation

6A New sections 5A to 5H inserted

5A Who are clients

5B Who are retail clients

5C Who are wholesale clients

5D Who is eligible investor

5E Acceptance of certification

5F How to opt out of being wholesale client

5G Meaning of acting “on behalf of B's business” and “acting through A”

5H Territorial scope

7 Types of financial adviser

8 When advice or transaction by certain persons is not performing financial adviser service

9 Meaning of financial advice clarified

10 New heading and sections 17 to 19 substituted

17 Individual who is QFE employee or nominated representative

Provisions relating to employers or principals of financial advisers

18 Employers or principals of financial advisers must be registered

19 Certain employees and nominated representatives exempted from joining approved dispute resolution scheme

7 New section 7 and subparts 1 and 1A of Part 2 substituted

7 Outline

Subpart 1—Key definitions for financial adviser services

What are financial adviser services

8 Who is financial adviser

9 What is financial adviser service

10 When person gives financial advice

11 When person provides investment planning service

12 When person provides discretionary investment management service

13 Exemption for incidental service

14 Other exemptions

When financial adviser service is personalised service or class service

15 When financial adviser service is personalised service or class service

Subpart  1A—Restrictions on providing financial adviser services

16 Types of financial adviser

Restrictions on providing financial adviser services

17 Who may provide financial adviser service

18 Who is permitted to provide personalised service to retail clients

19 Who is permitted to provide class service to retail clients

20 Who may provide financial adviser service to wholesale clients

Restrictions on holding out

20A Who may hold themselves out as authorised financial adviser

20B Who may hold themselves out as financial planner or investment planner

20C Who may hold themselves out as QFE or having QFE status

Persons acting in course of business of employers and principals

20D Who must be member of dispute resolution scheme

20E Obligation to cease providing if employer or principal not permitted to provide

20F Who is responsible for financial adviser obligations

11 Disclosure by qualifying financial entity

11 New heading and sections 21 to 25 substituted

Disclosure obligations for personalised services for retail clients

21 What is disclosure obligation and when does it apply

22 Financial adviser must make disclosure before providing personalised service to retail client

23 What financial adviser must disclose

24 Disclosure statement

25 Disclosure by QFE

11A New sections 32 and 33 substituted

32 What is conduct obligation and when does it apply

33 Financial adviser must exercise care, diligence, and skill

11B Financial adviser must not engage in misleading or deceptive conduct

12 Restriction on use of term sharebroker

12 New section 36 substituted

36 Regulations may impose specific conduct obligations for class retail services

12A Authorised financial adviser must not recommend or receive money for acquisition of securities if offer for subscription illegal

12B Sections 39 to 44 repealed

12C New section 45A inserted

45A Authorised financial adviser must report breach of Act to Commission

13 QFE must not engage in misleading or deceptive conduct in relation to financial adviser service by employee or agent

13 New heading and sections 46 to 48 substituted

Conduct obligations related to QFEs

46 QFE must comply with terms and conditions of grant of QFE status

47 QFE or member of QFE group must not engage in misleading or deceptive conduct in relation to financial adviser service by employee, agent, or nominated representative

48 Advertisement by QFE or member of QFE group in relation to financial adviser service must not be misleading, deceptive, or confusing

13A Eligibility to be authorised

13B New sections 55 and 55A substituted

55 Commission must approve or decline application for authorisation

55A Variation of terms and conditions and period of authorisation

13C Renewal of authorisation

13D New section 59A inserted

59A Commission's power to ban financial adviser who is registered but not authorised

13E Reasonable opportunity to be heard

14 Application for QFE status

15 New section 68A inserted

68A Nominated representatives of QFEs

14 New sections 63 to 77 substituted

63 What is qualifying financial entity (QFE)

64 Who may apply for QFE status

65 Application for QFE status

66 Eligibility for QFE status

67 Commission must approve or decline application for QFE status

68 Determination of application

69 Name of QFE group

70 Commission must notify Registrar of grant of QFE status

71 Addition of associated entities

72 Termination of status of associated entity

73 Certification of QFE group

74 Nominated representatives of QFEs or partner entities

75 Variation of terms and conditions and period of grant of QFE status

75A Termination of QFE status

75B Commission may designate certain QFE products as beyond scope of QFE advisers

75C Renewal of QFE status

Commission's powers in relation to default by QFE or by members of QFE group

75D Commission’s powers in relation to QFE default

75E Reasonable opportunity to be heard

75F Commission may give QFE direction

75G Other provisions concerning Commission's powers in relation to QFE default

QFE’s obligations

76 Ongoing obligations of QFEs and of partner entities

77 QFE must provide annual report to Commission

16 New section 75 substituted

75 Exemption from liability for employee or nominated representative of QFE

17 QFE's ongoing compliance obligations

18 QFE must provide annual report to Commission

17 New Part 3A inserted

Part 3A
Brokers' disclosure and conduct obligations

Who is broker and what is broking service

77A Who is broker

77B What is broking service

77C Exemption for incidental service

77D Other exemptions

Disclosure obligations for services for retail clients

77E What is disclosure obligation and when does it apply

77F Broker must make disclosure before receiving client money or client property from retail client

77G What broker must disclose and form of disclosure

77H Disclosure must not be misleading, deceptive, or confusing

77I Disclosure of additional information

77J No compliance with disclosure obligation if disclosure out of date

Brokers' conduct obligations

77K What is conduct obligation and when does it apply

77L Broker must exercise care, diligence, and skill

77M Broker must not engage in misleading or deceptive conduct

77N Advertisement of broking services must not be misleading, deceptive, or confusing

77O Restriction on use of term sharebroker

77P Broker must not receive client money if offer for subscription illegal

Trust accounting obligations for services for retail clients

77Q Broker must pay client money into separate trust account

77R Broker must account for client money and client property

77S Broker must keep records of client money and client property

77T Restrictions on use of client money and client property

77U Protection of client money and client property held on trust

Persons acting in course of business of employers or principals

77V Who is responsible for broker obligations

Commission's direction in respect of breach of disclosure or conduct obligation

77W Commission may give broker direction in respect of breach of disclosure or conduct obligation

18 Part 4 heading amended

19 Content of code

20 New section 94 substituted

94 Code comes into force by Gazette notice

21 New section 98 substituted

98 Reference of complaint to disciplinary committee

22 Offence of performing financial adviser service without being registered

23 Offence of performing financial adviser service without being authorised

24 New section 116 substituted

116 Offences in relation to employer or principal failing to maintain registration

22 New heading and sections 114 to 116 substituted

Offences: restrictions on providing services and holding out

114 Offence of providing financial adviser service without being permitted to do so

115 Offence of holding out as authorised financial adviser, financial planner, or QFE

116 Offence of continuing to provide if employer or principal not permitted to provide

Disclosure offences: financial advisers, QFEs, and brokers

23 Failure to make disclosure under or in accordance with disclosure obligation

24 Heading above section 118 amended

24D New sections 118 to 120 substituted

118 Offence of misleading or deceptive conduct by financial adviser or broker

119 Offence of misleading, deceptive, or confusing advertisement by financial adviser or broker

120 Offence of contravening restrictions on use of term sharebroker

24E Offence of recommending or receiving money in connection with offer of securities when subscription illegal

24F Sections 122 to 125 repealed

25 Offence of misleading or deceptive conduct in relation to financial adviser service by employee or agent

25 New heading and sections 129 to 134 substituted

Offences: QFEs and QFE groups only

129 Offence of failing to comply with terms and conditions of QFE status

130 Offence of misleading or deceptive conduct in relation to financial adviser service by employee, agent, or nominated representative

131 Offence of misleading, etc, advertisement of financial adviser service by employee, agent, or nominated representative

132 Offence of failing to comply with Commission’s direction

133 Offence of failing to comply with obligations in relation to authorised financial advisers

134 Offence of failing to provide annual report

26 Offence of misleading, etc, advertisement of financial adviser service by employee or agent

26A New heading and sections 134A to 134F inserted

Offences: broking services only

134A Offence of receiving client money if offer for subscription illegal

134B Offence of contravening requirement to pay client money into separate trust account

134C Offence of failing to account for client money and client property

134D Offence in relation to records of client money and client property

134E Offence of breaching restrictions on use of client money and client property

134F Offence of failing to comply with Commission’s direction

27 New heading inserted

27A New headings and sections 137A to 137Q inserted

Subpart 4—Injunctions, banning orders, and other remedies

Injunctions

137A Injunctions against contraventions

137B Undertaking as to damages not required by Commission

137C When Court may make banning order

137D Terms of banning orders

137E Offence of contravening banning order

Orders to preserve assets to satisfy claims

137F When High Court may prohibit payment or transfer of money, securities, or other property

137G What orders may be made

137H Interim orders

137I Relationship with other law

137J Offence of breaching orders

Pecuniary and compensatory orders for contravening wholesale certification requirement

137JA Pecuniary order for contravening wholesale certification requirement

137JB Compensation for contravention of wholesale certification requirement

Temporary banning orders against financial adviser and broker

137K When Commission may make temporary banning orders for financial adviser services or broking services

137L Terms of temporary banning order

Process for Commission's orders

137M Commission must follow steps before making orders

137N Commission may shorten steps for specified orders

137O Commission must give notice after making orders

137P General provisions on temporary banning orders

137Q Offence of failing to comply with Commission's orders

27B Right of appeal

27BA New heading and sections 147A to 147E inserted

Standard conditions for incorporation in authorisation and grants

147A Approval of standard conditions for incorporation in authorisations and grants of QFE status

147B Requirement to consult on proposal to incorporate material by reference

147C Variation or revocation of standard conditions

147D When standard conditions come into force

147E Incorporation of changed standard conditions into existing authorisations or grants

27C New sections 148 to 148B substituted

148 Commission may grant exemptions

148A Commission may vary or revoke exemption

148B Status of exemptions, variations, or revocations

27CA Commission must notify reasons for exemption

27D Section 150 repealed

27E New section 153 substituted

153 Levy

28 General regulations

28 New section 154 substituted

154 General regulations

28B Section 159 repealed

29 New section 168 added

168 Grant of authorisations in transitional period without prior inquiry into convictions

169 Applications for QFE status made in transitional period

30 Enactments amended consequential on principal Act

Part 2
Amendments to Financial Service Providers (Registration and Dispute Resolution) Act 2008

31 Commencement of provisions of principal Act

32 Principal Act amended

33 Purpose

33A Commencement

33B Overview

34 Interpretation

34B Meaning of financial service

35 Application of Act

35 New section 7 substituted

7 Application of Act

35A New section 8A inserted

8A Territorial scope

35B No being in business of providing financial service unless registered

35C No holding out that in business of providing financial service unless registered

35D Qualifications for registration as financial service provider

36 Disqualified person

36 Application to be registered as financial service provider

36A Registration of financial service provider

36B New section 16A inserted

16A Registration of unincorporated body as financial service provider

36C New section 16B inserted

16B Amendment to registration

36D Duty to notify changes relating to financial service provider

36E Deregistration of financial service provider

36F Reregistration of financial service provider

36G Purpose of register

36H Contents of register

37 Registrar must amend register in certain circumstances

37A Registrar's inspection powers

37B Regulations under Part 1 and this Part

38 New section 46 substituted

46 Territorial scope

38 Section 46 repealed

38A Financial service provider must be member of dispute resolution scheme

38B New sections 49 to 49E substituted

49 Who are retail clients

49A Who is eligible investor

49B Acceptance of certification

49C How to opt out of being wholesale client

49D Members of dispute resolution scheme must comply with rules and binding resolutions

49E Offence to fail to comply with District Court order

38C Rules about approved dispute resolution scheme

38D Duty to co-operate and communicate information in certain circumstances

38E Appointment of reserve scheme

38F New section 72A inserted

72A Reserve scheme: rules about fees and charges

38G Duty to co-operate and communicate information in certain circumstances

38H Section 77 and the heading above section 77 repealed

38I New heading and new section 78A inserted

Levy

78A Levy

38J Regulations under this Part

38K New sections 79A and 79B and heading inserted

Pecuniary and compensatory orders for contravening wholesale certification requirement

79A Pecuniary order for contravening wholesale certification requirement

79B Compensation for contravention of wholesale certification requirement

39 Schedule 2 amended

Schedule 
Enactments consequentially amended

The Parliament of New Zealand enacts as follows:

1 Title

  • This Act is the Financial Service Providers (Pre-Implementation Adjustments) Act 2009.

2 Commencement

  • (1) Section 30 and the Schedule come into force on the commencement of section 164(4) of the Financial Advisers Act 2008.

    (2) The rest of this Act comes into force on the day after the date on which it receives the Royal assent.

Part 1
Amendments to Financial Advisers Act 2008

3 Commencement of provisions of principal Act

  • To avoid doubt, a provision of the Financial Advisers Act 2008 that is amended or enacted by this Part comes into force in accordance with section 2 of that Act.

4 Principal Act amended

  • This Part amends the Financial Advisers Act 2008.

5 Purpose

  • The purpose of this Part is to prepare for the effective and efficient implementation of the principal Act by making a number of necessary and desirable amendments to that Act.

5A Purpose of Act

  • (1) Section 3 is amended by—

    • (a) omitting “financial advice” and substituting “financial adviser and broking services”:

    • (b) omitting “, by—”and substituting “and brokers”:

    • (c) revoking paragraphs (a) to (c).

    (2) Section 3 is amended by adding the following subsection as subsection (2):

    • “(2) To this end, the Act—

      • “(a) requires financial advisers and brokers to take an appropriate degree of care in providing services to investors and consumers and prohibits certain conduct by financial advisers and brokers; and

      • “(b) in addition—

        • “(i) requires disclosure by financial advisers and brokers to retail clients, so ensuring that clients can make informed decisions about whether to use the financial adviser or broker and, in the case of an adviser, whether to follow a financial adviser's advice; and

        • “(ii) imposes competency requirements on financial advisers dealing directly with retail clients, so ensuring that there are available to retail clients financial advisers who have the experience, expertise, and integrity to match effectively a person to a financial product that best meets that person's need and risk profile; and

        • “(iii) ensures that financial advisers are held accountable for the services that they give to retail clients and that there are incentives for financial advisers to manage conflicts of interest appropriately.”

5B Overview of Act

  • (1) Section 4 is amended by omitting “5 Parts” and inserting “6 Parts”.

    (2) Section 4 is amended by inserting the following paragraph after paragraph (c):

    • “(ca) Part 3A (Brokers' disclosure and conduct obligations):”.

6 Interpretation

  • (1) Section 5 is amended by inserting the following definitions in their appropriate alphabetical order:

    “acting through has the meaning set out in section 5G(2)

    “approved rating agency means a rating agency nominated or approved under the Reserve Bank of New Zealand Act 1989 or section 17 of the Insurance Companies (Ratings and Inspections) Act 1994

    “associated entity, in relation to a QFE, means an entity that, under an approval given under section 67(4) or 71, is an associated entity of that QFE

    “bonus bonds means a unit in an approved unit trust within the meaning of section 2 of the Finance Act (No 2) 1990

    “broker has the meaning set out in section 77A

    “broking service has the meaning set out in section 77B

    “building society has the same meaning as in section 2(1) of the Building Societies Act 1965

    “call building society share or call credit union share means a share issued by a building society or credit union under which—

    • “(a) the shareholder, in the case of a building society, or member, in the case of a credit union, has a right to demand repayment of the value of the share in full at any time; and

    • “(b) the building society or credit union has an obligation to repay the value of the share in full not later than 1 working day after the demand is made; and

    • “(c) the rate of dividend or interest payable or any other benefit provided does not alter as a result of the demand being made; and

    • “(d) no fee or other amount is payable as a result of the principal sum not having been held by the issuer for a particular period of time

    “class of financial products means a group of financial products with similar characteristics

    “class service has the meaning set out in section 15(3)

    “client money means money received from, or on account of, a client in relation to acquiring, holding, or disposing of a financial product

    “client property means property received from, or on account of, a client in relation to acquiring, holding, or disposing of a financial product

    “controlling owner has the meaning set out in section 4 of the FSP Act

    “conveyancing practitioner has the same meaning as in section 6 of the Lawyers and Conveyancers Act 2006

    “credit union has the meaning set out in section 2(1) of the Friendly Societies and Credit Unions Act 1982

    “discretionary investment management service has the meaning set out in section 12

    “exempt provider means—

    • “(a) a financial adviser who is not resident, incorporated, or carrying on business in New Zealand and does not provide financial adviser services to any retail clients in New Zealand; and

    • “(b) an entity that is, under the FSP Act, an affiliated entity; and

    • “(c) any person who is exempted under this Act from the requirement to register under the FSP Act by virtue of providing financial adviser services

    “financial service means a financial service as defined in section 5 of the FSP Act (but excluding financial services provided by a person within section 7(2)(a) to (j) of that Act)

    “insurance product does not include a life insurance policy

    “investment-linked contract of insurance has the meaning set out in the regulations

    “investment planning service has the meaning set out in section 11

    “local authority has the same meaning as in section 5(1) of the Local Government Act 2002

    “member of a QFE group means a partner entity or an associated entity

    “nominated representative means an individual who has been nominated by a QFE or by a partner entity of a QFE group, in accordance with section 68A 75, to perform financial adviser services in respect of the QFE and whose nomination has not been terminated under that section

    “non-profit organisation means any organisation, whether incorporated or not, that is carried on other than for the purposes of profit or gain to an owner, member, or shareholder

    “on behalf of the business of another person or on behalf of another person's business has the meaning set out in section 5G(1)

    “partner entity, in relation to a QFE, means an entity that is part of the QFE

    “personalised service has the meaning set out in section 15

    “product provider means—

    • “(a) the issuer, in the case of a security:

    • “(b) the creditor, in the case of a consumer credit contract (as defined in the Credit Contracts and Consumer Finance Act 2003):

    • “(c) the insurer, in the case of a contract of insurance (other than an investment-linked contract of insurance):

    • “(d) the person specified by regulations, in the case of any other financial product specified by the regulations

    “promoter has the same meaning as in section 2(1) of the Securities Act 1978

    “QFE adviser means an individual who is not an authorised financial adviser and who is—

    • “(a) an employee of a QFE or any member of a QFE group; or

    • “(b) a nominated representative of a QFE or a partner entity

    “QFE group means a group of entities that consists of—

    • “(a) the partner entities that are part of a QFE and the associated entities of that QFE, if any; or

    • “(b) in the case of a QFE that does not come within paragraph (a), that QFE and its associated entities

    “registered legal executive means a person who is a member of the New Zealand Institute of Legal Executives Incorporation and holds a current annual registration certificate issued by that body

    “relevant service has the meaning set out in section 14(3)

    “related body corporate has the meaning set out in section 5B(2) of the Securities Markets Act 1988

    “retail client has the meaning set out in section 5B

    “standard conditions means standard terms and conditions for the time being approved by the Commission under section 147A or 147C and in force under section 147D

    “statutory officer means a person—

    • “(a) holding or performing the duties of an office established by an enactment; or

    • “(b) performing duties expressly conferred on that person by virtue of his or her office by an enactment; or

    • “(c) holding office as the chief executive of a Crown organisation

    “term life insurance policy means a policy—

    • “(a) under which an amount (other than an amount not exceeding the sum of the premiums paid to the insurer) is payable only if during the term of the policy the life insured dies or becomes ill or disabled; and

    • “(b) that is for a specified term that is less than the life expectancy of the life insured (measured in accordance with generally accepted actuarial practice) at the time the policy is issued

    “trustee corporation means the Public Trust, the Maori Trustee, or any corporation authorised by an Act to administer the estates of deceased persons and other trust estates (and any wholly owned subsidiary of that corporation that is guaranteed by the corporation)

    “wholesale client has the meaning set out in section 5C”.

    (2) Section 5 is amended by repealing the definitions of approved dispute resolution scheme, call debt security, category 1 product, category 2 product, client, conduct obligation, disclosure obligation, entity, and life insurance policy qualifying financial entity, and security and inserting the following definitions in their appropriate alphabetical order:

    “approved dispute resolution scheme has the same meaning as in section 4 of the FSP Act, but also includes the reserve scheme within the meaning of section 71 of the FSP Act

    “call debt security means a debt security under which—

    • “(a) the security holder has a right to demand repayment of the principal sum in full at any time; and

    • “(b) the issuer has an obligation to repay the principal sum in full not later than 1 working day after the demand is made; and

    • “(c) the rate of interest payable or any other benefit provided does not alter as a result of the demand being made; and

    • “(d) no fee or other amount is payable as a result of the principal sum not having been held by the issuer for a particular period of time

    “category 1 product means any of the following products (other than a product that is a category 2 product):

    • “(a) a security; or

    • “(b) a land investment product (as defined in the regulations); or

    • “(c) a futures contract; or

    • “(d) an investment-linked contract of insurance; or

    • “(e) any other product specified by the regulations; or

    • “(f) a renewal or variation of the terms or conditions of an existing category 1 product

    “category 2 product means any of the following products:

    • “(a) a bank term deposit; or

    • “(b) any bonus bonds; or

    • “(c) any call building society shares; or

    • “(ca) a call credit union share; or

    • “(d) a call debt security; or

    • “(da) a share in a co-operative company (as defined in section 2(1) of the Co-operative Companies Act 1996); or

    • “(db) a unit in a cash or term portfolio investment entity (as defined in the regulations); or

    • “(e) a consumer credit contract (as defined in section 11 of within the meaning of the Credit Contracts and Consumer Finance Act 2003); or

    • “(f) an insurance product, including a term life insurance policy; or

    • “(f) a contract of insurance (other than an investment-linked contract of insurance); or

    • “(g) a life insurance policy (within the meaning of section 2(1) of the Securities Act 1978) issued before 1 January 2009; or

    • “(h) any other product specified by the regulations; or

    • “(i) a renewal or variation of the terms or conditions of any existing category 2 product

    “client has the meaning set out in section 5A

    “conduct obligation means,—

    • “(a) in relation to a financial adviser, an obligation described in section 32:

    • “(b) in relation to a broker, an obligation described in section 77K

    “disclosure obligation means,—

    • “(a) in relation to a financial adviser, an obligation described in section 21:

    • “(b) in relation to a broker, an obligation described in section 77E

    “entity—

    • “(a) includes a body corporate and an unincorporated body (including partners in a partnership, members of a joint venture, or the trustees of a trust) and the sole trustee of a trust acting in his, her, or its capacity as trustee of that trust; but

    • “(b) does not include an individual

    “life insurance policy—

    • “(a) means a policy other than a term life insurance policy that—

      • “(i) is a policy of life or endowment insurance; or

      • “(ii) secures an annuity; and

    • “(b) includes—

      • “(i) a policy of insurance other than a term life insurance policy that is declared by regulations made under the Securities Act 1978 to be a life insurance policy for the purposes of that Act; and

      • “(ii) a renewal or variation of the terms or conditions of any policy described in paragraph (a) or subparagraph (i)

    “QFE or qualifying financial entity means an entity described in section 63(1)(a) or a number of partner entities described in section 63(1)(b)

    “security—

    • “(a) means—

      • “(i) any interest in, or right to participate in, any capital, assets, earnings, royalties, or other property of any person:

      • “(ii) any interest in, or right to be paid, money that is, or is to be, deposited with, lent to, or otherwise owing by any person (whether or not the interest or right is secured by a charge over any property); but

    • “(b) does not include—

      • “(i) a security exempted from Part 2 of the Securities Act 1978 under any of paragraphs (b) to (h) of section 5(1) of that Act; or

      • “(ii) an investment-linked contract of insurance; or

      • “(iii) a life insurance policy (within the meaning of section 2(1) of the Securities Act 1978) issued before 1 January 2009”.

    (3) Paragraph (b) of the definition of trust account in section 5 is amended by inserting “, nominated representative,” after “employee”.

    (3) Section 5 is amended by repealing the definitions of financial planning service, investment transaction, life insurance policy, related company, and trust account.

6A New sections 5A to 5H inserted

  • The following sections and headings are inserted after section 5:

    “5A Who are clients

    • “(1) For the purposes of this Act, a client—

      • “(a) means a person who receives a service (whether on payment of a charge or not); and

      • “(b) in relation to a broking service, means the person on whose behalf the financial product is acquired or disposed of or the client money or client property is held (but excludes the product provider); but

      • “(c) does not include a person who receives any service from another person if the service is both provided and received in the course of, and for the purposes of,—

        • “(i) the same business; or

        • “(ii) the businesses of related bodies corporate (within the meaning of section 5B(2) of the Securities Markets Act 1988); or

        • “(iii) the businesses of members of a QFE group.

        Example

        If a company employee (A) gives financial advice to the board of directors on investments to be made by the company, the directors are not clients of A. However, if A, in the course of business, gives that same financial advice to another employee (B) in relation to B's own investments, B would be a client of A for the purposes of this Act.

      “(2) Subsection (1) applies whether the person providing or receiving the service is the person carrying on the business, a controlling owner, a director, an agent, or any other person.

    “5B Who are retail clients

    • A retail client is a client of a financial adviser or broker who is not a wholesale client.

    “5C Who are wholesale clients

    • “(1) The following clients of a financial adviser or broker are wholesale clients in respect of a financial adviser service or a broking service (unless the person has opted out from being a wholesale client under section 5F):

      • “(a) any other financial adviser or broker who receives the service in the course of business as a financial adviser or broker:

      • “(b) a person who is in the business of providing any other financial service and receives the financial adviser service or broking service in the course of that business:

      • “(c) a person whose principal business is the investment of money or who, in the course of and for the purposes of the person's business, habitually invests money:

      • “(d) an entity to which at least 1 of the following applied at the end of each of the last 2 completed accounting periods:

        • “(i) at the balance date, the net assets of the entity exceeded $1 million:

        • “(ii) the turnover of the entity for the accounting period exceeded $1 million:

      • “(e) a related body corporate of an entity to which paragraph (d) applies:

      • “(f) a local authority, a Crown entity, a State enterprise, the Reserve Bank of New Zealand, and the National Provident Fund (or a company appointed under clause 3(1)(b) of Schedule 4 of the National Provident Fund Restructuring Act 1990):

      • “(g) a person who falls within 1 or more of the categories listed in section 3(2), 5(2CB), or 5(2CBA) of the Securities Act 1978 if the service relates to securities that may be offered to that person, or that have been subscribed for by that person, in a private offer of securities:

      • “(h) an eligible investor under section 5D.

      “(2) If subsection (1) applies to a person (A), it applies equally to any controlling owner, director, employee, agent, or other person acting in the course of, and for the purposes of, A's business to the same extent as it would apply to A.

      “(3) In this section, a private offer of securities means an offer of securities that—

      • “(a) does not constitute an offer of securities to the public under section 3 of the Securities Act 1978; or

      • “(b) is exempt from Part 2 (other than sections 38B and 58) of that Act under section 5(2CB) or 5(2CBA) of that Act.

    “5D Who is eligible investor

    • “(1) A client is an eligible investor if—

      • “(a) the client certifies in writing that—

        • “(i) the client has sufficient knowledge, skills, or experience in financial matters to assess the value and risks of financial products and the merits of the service or services to be provided; and

        • “(ii) the client understands the consequences of certifying himself, herself, or itself to be an eligible investor (including that the competency standards and requirements of the code will not be applicable (if relevant) and that the financial adviser or broker may not be a member of an approved dispute resolution scheme); and

      • “(b) the client states the reasons for this certification; and

      • “(c) an authorised financial adviser, QFE, or other type of financial adviser or broker signs a written acceptance of the certification in accordance with section 5E.

      “(2) A certification may be specific to a particular service or class of services or may be general (but is not effective in relation to services provided before all the requirements of subsection (1)(a) to (b) are met).

      “(3) A certification relating only to a discretionary investment management service or a broking service (or both) does not need to certify as to the matters referred to in subsection (1)(a)(i).

    “5E Acceptance of certification

    • “(1) An authorised financial adviser, QFE, or other type of financial adviser or broker must not accept a certification unless he, she, or it, having considered the client's reasons for the certification,—

      • “(a) is satisfied that the client has been sufficiently advised of the consequences of the certification; and

      • “(b) has no reason to believe that the certification is incorrect; and

      • “(c) is satisfied that nothing indicates, or would indicate to a reasonable person, that further information or investigation is required as to the client's reasons for the certification.

      “(2) The person who accepts the certification of a client may be the financial adviser or broker for the client (but does not need to be).

      “(3) A financial adviser (other than an authorised financial adviser or QFE) or broker who accepts a certification without having complied with subsection (1) contravenes a wholesale certification requirement.

      “(4) Contravention of this section may give rise to a pecuniary penalty order or compensatory order (see sections 137JA and 137JB).

    “5F How to opt out of being wholesale client

    • “(1) A person may opt out of being a wholesale client, in relation to a financial adviser or broker, by giving the financial adviser or broker a signed notification to that effect.

      “(2) A notification may be specific to a particular service, or class of services, or may be general for all services provided by the financial adviser or broker to whom it is given.

      “(3) A person may vary or revoke a notification in the same way as the notification may be given.

      “(4) A notification (or variation or revocation of a notification) under this section is effective only in relation to services provided after it is given.

    “5G Meaning of acting ‘on behalf of B's business’ and ‘acting through A’

    • “(1) In this Act, a person (A) provides services acting on behalf of the business of another person (B) or on behalf of B's business if—

      • “(a) A is a director, an employee, or an agent (including a nominated representative or a contractor) of B and is acting within the scope of his or her actual or apparent authority; or

      • “(b) A is acting at the direction or with the consent or agreement (whether express or implied) of—

        • “(i) B; or

        • “(ii) a director, an employee, or an agent (including a nominated representative or a contractor) of B and the direction, consent, or agreement given is within the scope of the actual or apparent authority of the director, employee, or agent.

      “(2) If A is providing services on behalf of B's business, then B is acting through A to provide those services.

    “5H Territorial scope

    • “(1) This Act applies to a financial adviser service or broking service received by a client in New Zealand, regardless of where the person providing the service is resident, is incorporated, or carries on business.

      “(2) Sections 33, 34, 49, and 118 also extend to any financial adviser service or broking service received by a client outside New Zealand if it is provided by a person who is ordinarily resident in New Zealand (within the meaning of section 4 of the Crimes Act 1961) or incorporated or carrying on business in New Zealand.”

7 Types of financial adviser

  • Section 9(c) is amended by omitting “agent” and substituting “nominated representative”.

8 When advice or transaction by certain persons is not performing financial adviser service

  • (1) Section 12(l) is amended by inserting “or an employee of a Crown organisation” after “a Crown organisation”.

    (2) Section 12 is amended by repealing paragraph (p) and substituting the following paragraph:

    • “(p) an employer, or an employee of the employer, providing assistance to a person who is an employee of the employer with the implementation of a decision to acquire or dispose of a financial product made available through the person's workplace unless the assistance includes or is accompanied by a recommendation or opinion as to the suitability of the financial product; or”.

    (3) Section 12 is amended by repealing paragraph (q) and substituting the following paragraph:

    • “(q) a company or an employee of a company—

      • “(i) giving advice, in the course of the company's business, to no person other than a related company; or

      • “(ii) making an investment transaction, in the course of the company's business, on behalf of no person other than a related company; or”.

    (4) Section 12(r) is amended by inserting “or an employee of the offeror or target company” after “the offeror or target company”.

    (5) Section 12 is amended by inserting the following paragraph after paragraph (t):

    • “(ta) a rating agency, or an employee of a rating agency, giving advice as part of, or in connection with, a rating that the agency is to complete or has completed, but only if the agency is approved under section 157J of the Reserve Bank of New Zealand Act 1989 or under section 17 of the Insurance Companies (Ratings and Inspections) Act 1994; or”.

9 Meaning of financial advice clarified

  • (1) Section 13(1) is amended by inserting the following paragraphs after paragraph (c):

    • “(ca) a statement or report made to, or for the purposes of, a general meeting of the members of an issuer, or a report of the proceedings of such a meeting; or

    • “(cb) a statement or report relating to the affairs of an issuer made to any registered exchange for the purposes of compliance with the listing requirements relating to that registered exchange, by or on behalf of that issuer, or any report of such a statement or report; or”.

    (2) Section 13(1) is amended by inserting the following paragraph after paragraph (e):

    • “(ea) any of the following documents relating to a company:

      • “(i) the company's annual report:

      • “(ii) the company's records required to be kept under section 215 of the Companies Act 1993:

      • “(iii) a notice of a meeting of the shareholders of the company; or”.

10 New heading and sections 17 to 19 substituted

  • Sections 17 to 19 and the heading above section 18 are repealed and the following sections and heading substituted:

    “17 Individual who is QFE employee or nominated representative

    • An individual (whether registered or not) who is an employee or a nominated representative of a QFE may, in the course of the QFE’s business, give financial advice or make an investment transaction in relation to—

      • “(a) a category 2 product; or

      • “(b) a category 1 product of which the QFE is the issuer or promoter.

    “Provisions relating to employers or principals of financial advisers

    “18 Employers or principals of financial advisers must be registered

    • “(1) If a person employs an employee or engages an agent (other than as a nominated representative) to perform 1 or more financial adviser services in the course of the person's business,—

      • “(a) the person must maintain registration throughout the time that the employee is so employed or the agent is so engaged; and

      • “(b) the employee or the agent must not perform a financial adviser service in the course of the person's business if the employee or the agent knows or ought to know that the person is not currently registered.

      “(2) If an entity with QFE status nominates a nominated representative,—

      • “(a) the entity must maintain its QFE status and its registration throughout the time that the nominated representative is nominated; and

      • “(b) the nominated representative must not perform a financial adviser service in the course of the entity's business if the nominated representative knows or ought to know that the entity no longer has QFE status or is no longer registered.

      “(3) This section does not apply to financial adviser services performed by an employee or agent (other than as a nominated representative) in the course of the employer's or principal's business for—

      • “(a) the employer and, if the employer is a company, any related company of the employer; or

      • “(b) the principal and, if the principal is a company, any related company of the principal.

      “(4) A person who contravenes this section commits an offence (see section 116).

    “19 Certain employees and nominated representatives exempted from joining approved dispute resolution scheme

    • “(1) A financial adviser who is an employee or a nominated representative is not required to be a member of an approved dispute resolution scheme for the purposes of registration under the FSP Act if—

      • “(a) the employer of the financial adviser, or the QFE that nominated the financial adviser as nominated representative, is a member of an approved dispute resolution scheme; and

      • “(b) the financial services that the financial adviser performs are performed—

        • “(i) in the financial adviser's capacity as an employee of that employer or as a nominated representative of that QFE; and

        • “(ii) in the course of the business of that employer or, as the case requires, of that QFE.

      “(2) This section overrides the FSP Act.”

7 New section 7 and subparts 1 and 1A of Part 2 substituted

  • Section 7 and subpart 1 of Part 2 are repealed and the following section and subparts substituted:

    “7 Outline

    • “(1) This Part is divided into 3 subparts.

      “(2) Subpart 1 defines what a financial adviser service is and what financial advice is, and other key related definitions.

      “(3) Subpart 1A sets out the restrictions on providing financial adviser services and the restrictions on persons holding themselves out as certain kinds of advisers.

      “(4) Subpart 2 describes the disclosure and conduct obligations of a financial adviser under this Act and when they apply.

    “Subpart 1—Key definitions for financial adviser services

    “What are financial adviser services

    “8 Who is financial adviser

    • “(1) A financial adviser is a person who provides a financial adviser service.

      “(2) See section 16 for the types of financial advisers and sections 20D to 20F in the case of a person who provides a financial adviser service on behalf of another person's business.

    “9 What is financial adviser service

    • “(1) A person (A) provides a financial adviser service if, in the ordinary course of business, A provides any of the services listed in subsection (3) to a client.

      “(2) A person (A) also provides a financial adviser service if, in the course of business of a financial service provider registered under the FSP Act, A provides any of the services in subsection (3) to a client.

      “(3) The services are—

      • “(a) giving financial advice (see section 10):

      • “(b) providing an investment planning service (see section 11):

      • “(c) providing a discretionary investment management service (see section 12).

      “(4) A person does not provide a financial adviser service for the purposes of this Act if exempted under section 13 or 14.

    “10 When person gives financial advice

    • “(1) A person (A) gives financial advice if A makes a recommendation or gives an opinion in relation to acquiring or disposing of (including refraining from acquiring or disposing of) a financial product.

      “(2) Whether or not advice is financial advice for the purposes of this Act is not affected by how the advice is given or communicated.

      “(3) However, a person does not give financial advice for the purposes of this Act merely by—

      • “(a) providing information (for example, the cost or terms and conditions of a financial product); or

      • “(b) making a recommendation or giving an opinion relating to a class of financial products; or

      • “(c) making a recommendation or giving an opinion about the procedure for acquiring or disposing of a financial product; or

      • “(d) transmitting the financial advice of another person (unless A gives A's own financial advice in doing so or holds out the transmitted financial advice as A's own financial advice); or

      • “(e) recommending that a person consult a financial adviser.

    “11 When person provides investment planning service

    • A person (A) provides an investment planning service if A designs, or offers to design, a plan for an individual that—

      • “(a) is based on, or purports to be based on, an analysis of the individual's current and future overall financial situation (including his or her investment needs) and identification of the individual's investment goals; and

      • “(b) includes 1 or more recommendations or opinions on how to realise those goals (or 1 or more of them).

    “12 When person provides discretionary investment management service

    • “(1) A person (A) provides a discretionary investment management service if A—

      • “(a) decides which financial products to acquire or dispose of on behalf of a client (B); and

      • “(b) in doing so is acting under an authority granted to A (or A's employer or principal) to manage some or all of B's holdings of financial products.

      “(2) In determining whether A has that authority, it does not matter if B has the right to be consulted on, or to countermand, A's decisions.

    “13 Exemption for incidental service

    • “(1) A service is not a financial adviser service for the purposes of this Act if the service is provided only as an incidental part of another business that is not otherwise a financial service.

      “(2) In this section, a service is incidental to another business if it is carried on to facilitate the carrying out of another business, or is ancillary to another business.

      Example

      A sales assistant in a retail outlet giving advice to a consumer purchasing goods on a hire purchase contract.

      “(3) Regulations may declare a class of service provided in the course of a class of business to be incidental, or that a class of business is not a financial service, for the purposes of subsection (1)(a).

    “14 Other exemptions

    • “(1) None of the following is a financial adviser service for the purposes of this Act:

      • “Other occupations

      • “(a) a teacher, lecturer, journalist, or State services employee giving financial advice in the course of that occupation:

      • “(b) a Minister of the Crown giving financial advice in the course of his or her duties as a Minister of the Crown:

      • “(c) a member of Parliament giving financial advice in the course of his or her duties as a member of Parliament:

      • “(d) a lawyer, incorporated law firm, conveyancing practitioner, chartered accountant, tax agent, real estate agent, registered legal executive, registered valuer, or any other exempted class of service provider (as specified in the regulations) providing a relevant service in the ordinary course of business of that kind:

      • “Crown-related organisations and other statutory officers and organisations

      • “(e) a statutory officer, Crown organisation (other than Public Trust), or the Reserve Bank of New Zealand—

        • “(i) discharging any duties or exercising any powers of the statutory officer, Crown organisation, or the Reserve Bank of New Zealand under any enactment; or

        • “(ii) doing anything that is incidental to the discharge of the functions of the statutory officer, Crown organisation, or the Reserve Bank of New Zealand under any enactment:

      • “Non-profit organisations, workplace financial products, and trustee corporations

      • “(f) a non-profit organisation providing a relevant service if the relevant service is provided, without charge, in the course of the organisation's activities:

      • “(g) an employer providing a relevant service to an employee in connection with a financial product made available through the employee's workplace:

      • “(h) a trustee corporation providing a relevant service in the ordinary course of providing—

        • “(i) legal or financial services relating to the preparation or drafting of a will; and

        • “(ii) estate management and administration services (and associated legal, financial, and other services carried out under the relevant enactment governing the trustee corporation):

      • “Activities governed by other regulatory frameworks

      • “(i) a principal officer of any entity providing a relevant service in the person's capacity as a principal officer:

      • “(j) the offeror or target company giving financial advice in the course of a takeover offer under the Takeovers Code:

      • “(k) an independent adviser giving financial advice in the course of that person's functions under the Takeovers Code:

      • “(l) an approved rating agency giving financial advice in connection with a rating given or to be given by it:

      • “(m) any form of communication made by or on behalf of an issuer that is contained in, or given in connection with, an offer of securities that—

        • “(i) does not constitute an offer of securities to the public under section 3 of the Securities Act 1978; or

        • “(ii) is exempt from Part 2 (other than sections 38B and 58) of that Act under section 5(2CB) or 5(2CBA) of that Act:

      • “(n) a person carrying on the business of dealing in futures contracts to the extent authorised to do so under section 38(1)(a) of the Securities Markets Act 1988 or if approved to do so under section 38(1)(b) of that Act:

      • “Documents required by law

      • “(o) providing or making available to a person any of the following documents or information:

        • “(i) a prospectus, an investment statement, or an advertisement within the meaning of section 2A of the Securities Act 1978:

        • “(ii) a document or information that is required by law to be provided or made available (for example, an annual report of a company), whether directly or as a condition of carrying out any activity or as a condition of an exemption from any enactment:

        • “(iii) any other exempted document or information (as specified in the regulations):

      • “Services provided to product provider

      • “(p) a person providing a service to a product provider in connection with a financial product of that provider in the course of an appointment by, or under a contract for services with, the product provider:

      • “Other exemptions in regulations

      • “(q) any other person providing a service in circumstances exempted under the regulations.

      “(2) If subsection (1) applies to a person (A), it applies equally to any controlling owner, director, employee, agent, or other person acting in the course of, and for the purposes of, A's business to the same extent as it would apply to A.

      “(3) In this section, relevant services means services that, but for subsection (1), would be a financial adviser service.

    “When financial adviser service is personalised service or class service

    “15 When financial adviser service is personalised service or class service

    • “(1) A financial adviser service is a personalised service if it is—

      • “(a) given to, or in respect of, a named client or a client that is otherwise readily identifiable by the financial adviser; and

      • “(b) a client would, in the circumstances in which the service is provided, reasonably expect the financial adviser to take into account the client's particular financial situation or goals (or any of them) in performing the service.

      “(2) A service is not personalised merely because the client comes within a class of persons having predefined characteristics and the financial adviser takes the fact that the client comes within that class into account.

      “(3) A financial adviser service is a class service if it is not a personalised service.

    “Subpart  1A—Restrictions on providing financial adviser services

    “16 Types of financial adviser

    • Under this Act there are the following types of financial adviser:

      • “(a) an individual who is authorised and registered (an authorised financial adviser):

      • “(b) an individual who is registered but not authorised:

      • “(c) an individual who is not an authorised financial adviser and who is an employee of a QFE or any member of a QFE group or a nominated representative of a QFE or a partner entity (a QFE adviser):

      • “(d) a QFE or any other entity that is registered:

      • “(e) any other person (whether an individual or an entity) who is an exempt provider.

    “Restrictions on providing financial adviser services

    “17 Who may provide financial adviser service

    • “(1) A person must not provide a financial adviser service unless—

      • “(a) the person is permitted to provide that service under sections 18 to 20; or

      • “(b) the person is—

        • “(i) registered or an exempt provider; and

        • “(ii) acting through a person to whom paragraph (a) applies (other than a QFE adviser); or

      • “(c) the person is a QFE or a member of a QFE group acting through a QFE adviser to whom paragraph (a) applies.

      “(2) Contraventions of this section may give rise to an offence (see section 114).

    “18 Who is permitted to provide personalised service to retail clients

    • The following individuals are permitted to provide a personalised service to a retail client:

      • “(a) if giving financial advice or providing a discretionary investment management service in relation to a category 1 product,—

        • “(i) an authorised financial adviser:

        • “(ii) a QFE adviser (but only if the QFE or a member of the QFE group is the product provider (or, in the case of a security, a promoter) of the relevant category 1 product):

      • “(b) if providing an investment planning service, an authorised financial adviser:

      • “(c) if giving financial advice or providing a discretionary investment management service in relation to a category 2 product,—

        • “(i) an authorised financial adviser:

        • “(ii) a registered individual:

        • “(iii) a QFE adviser.

    “19 Who is permitted to provide class service to retail clients

    • The following persons are permitted to provide a class service to a retail client:

      • “(a) an authorised financial adviser:

      • “(b) a QFE adviser:

      • “(c) a registered person (whether an individual or an entity):

      • “(d) an exempt provider (whether an individual or an entity), other than a person to whom paragraph (a) of the definition of exempt provider applies.

    “20 Who may provide financial adviser service to wholesale clients

    • The following persons are permitted to provide a financial adviser service to a wholesale client:

      • “(a) an authorised financial adviser:

      • “(b) a QFE adviser:

      • “(c) a registered person (whether an individual or an entity):

      • “(d) an exempt provider (whether an individual or an entity).

    “Restrictions on holding out

    “20A Who may hold themselves out as authorised financial adviser

    • “(1) A person (A) must not hold out (whether directly or indirectly) that A or any other person (B) is an authorised financial adviser unless A or B (as applicable) is an authorised financial adviser.

      “(2) Contraventions of this section may give rise to an offence (see section 115).

    “20B Who may hold themselves out as financial planner or investment planner

    • “(1) A person (A) must not hold out (whether directly or indirectly) that A or any other person (B) is—

      • “(a) a financial planner or an investment planner unless A or B (as applicable) is an authorised financial adviser who is authorised to provide investment planning services under section 55:

      • “(b) offering a financial or an investment planning service unless A or B (as applicable) is—

        • “(i) an authorised financial adviser who is authorised to provide investment planning services under section 55; or

        • “(ii) acting through an authorised financial adviser who is so authorised.

      “(2) Contraventions of this section may give rise to an offence (see section 115).

    “20C Who may hold themselves out as QFE or having QFE status

    • “(1) A person (A) must not hold out (whether directly or indirectly) that A or any other person (B) is a QFE or has QFE status unless A or B (as applicable) is a QFE.

      “(2) Contraventions of this section may give rise to an offence (see section 115).

    “Persons acting in course of business of employers and principals

    “20D Who must be member of dispute resolution scheme

    • A person (A) who provides a financial adviser service on behalf of the business of another person (B) need not be a member of an approved dispute resolution scheme for the purposes of registration if—

      • “(a) B is a member of an approved dispute resolution scheme; and

      • “(b) A's obligation to be a member of an approved dispute resolution scheme arises only by virtue of the financial adviser services provided on behalf of B's business.

    “20E Obligation to cease providing if employer or principal not permitted to provide

    • “(1) No QFE adviser (A) may provide a financial adviser service on behalf of the business of another person (B) if A knows that B is—

      • “(a) not currently registered or is not an exempt provider; or

      • “(b) in the case of a QFE, either not currently registered or has lost its QFE status.

      “(2) Contraventions of this section may give rise to an offence (see section 116).

    “20F Who is responsible for financial adviser obligations

    • “(1) If a financial adviser service is provided by a person (A) on behalf of the business of another person (B), the following persons are treated as the financial adviser having the financial adviser obligation under this Act:

      • “(a) if it is a personalised service provided to a retail client (unless paragraph (b) applies), both A and B:

      • “(b) if A is a QFE adviser and B is the QFE or a member of a QFE group, B only:

      • “(c) in any other case, B only.

      “(2) If B has a financial adviser obligation under subsection (1),—

      • “(a) any act or omission by A is also treated as being done by B; and

      • “(b) if it is necessary to show the state of mind of B, it is sufficient to show that A had that state of mind.

      “(3) However, subsection (1) does not apply to the financial adviser obligations in sections 37 and 45 (which apply to A only).

      “(4) Subsections (1) to (3) do not affect the liability of A or B under any other Act or rule of law for A's actions.”

11 Disclosure by qualifying financial entity

  • Section 26 is amended by repealing subsections (1) and (1A) and substituting the following subsection:

    • “(1) This section applies if a financial adviser (A) who is an employee or a nominated representative of a QFE, but who is not an authorised financial adviser, performs, in the course of the QFE's business, a financial adviser service (the financial adviser service) in relation to—

      • “(a) a category 2 product; or

      • “(b) a category 1 product of which the QFE is the issuer or promoter.”

11 New heading and sections 21 to 25 substituted

  • The heading before section 21 and sections 21 to 25 are repealed and the following heading and sections substituted:

    “Disclosure obligations for personalised services for retail clients

    “21 What is disclosure obligation and when does it apply

    • “(1) A disclosure obligation under this Part is an obligation to make disclosure under or in accordance with sections 22 to 31.

      “(2) A disclosure obligation applies only to a personalised service provided for a retail client.

    “22 Financial adviser must make disclosure before providing personalised service to retail client

    • “(1) A financial adviser who provides a personalised service for a retail client must disclose prescribed information to the client, in accordance with this Act and the regulations,—

      • “(a) before providing the service; or

      • “(b) if not practicable before, as soon as practicable after providing the service.

      “(2) Subsection (1) does not apply to a QFE adviser acting in that capacity.

    “23 What financial adviser must disclose

    • “(1) Regulations for the purposes of prescribing disclosure for financial advisers under section 22 may require disclosure,—

      • “(a) for authorised financial advisers, in relation to any or all of the matters referred to in subsection (2).

      • “(b) for other financial advisers, in relation to any or all of the matters referred to in subsection (2)(a) to (g).

      “(2) The matters are—

      • “(a) contact details:

      • “(b) the type of financial adviser:

      • “(c) financial adviser services provided (including financial products in relation to which a financial adviser service is provided):

      • “(d) fees:

      • “(e) material interests, relationships, or associations:

      • “(f) remuneration:

      • “(g) dispute resolution arrangements:

      • “(h) professional or business experience relevant to performance of a financial adviser service:

      • “(i) criminal convictions:

      • “(j) disciplinary proceedings:

      • “(k) adverse findings by a court or the Commission:

      • “(l) bankruptcy or other insolvency proceedings:

      • “(m) indemnity insurance:

      • “(n) matters required to be disclosed by the authorised financial adviser's terms and conditions of authorisation.

    “24 Disclosure statement

    • “(1) Disclosure under section 22(1) must be made by 1 or more disclosure statements in accordance with the regulations.

      “(2) A disclosure statement must—

      • “(a) be in writing; and

      • “(b) state when it was prepared; and

      • “(c) state the name, address, trading name (if any), telephone number, fax number, and email address of the financial adviser; and

      • “(d) be—

        • “(i) provided to the client; or

        • “(ii) delivered or sent to the client at the client's last known address or an address (including an electronic address) specified by the client for that purpose.

      “(3) Regulations may provide for the form that a disclosure statement must take.

    “25 Disclosure by QFE

    • “(1) A QFE or a member of a QFE group that, acting through a QFE adviser, provides a personalised service for a retail client must ensure that prescribed information is disclosed to the client, in accordance with the Act or the regulations,—

      • “(a) before the service is provided; or

      • “(b) if not practicable before, as soon as practicable after the service is provided.

      “(2) Regulations for the purposes of this section may require disclosure in relation to any or all of the following matters:

      • “(a) contact details:

      • “(b) the type of financial adviser:

      • “(c) the QFE's dispute resolution arrangements:

      • “(d) matters required to be disclosed by the QFE's terms and conditions of a grant of QFE status:

      • “(e) whether the QFE provides any other licensed service.

      “(3) Regulations for the purposes of this section may provide for the form that the disclosure must take.”

11A New sections 32 and 33 substituted

  • Sections 32 and 33 and the heading above section 33 are repealed and the following sections substituted:

    “32 What is conduct obligation and when does it apply

    • “(1) A conduct obligation under this Part is an obligation under sections 33 to 48.

      “(2) The conduct obligations in—

      • “(a) sections 33 to 35 apply to all financial adviser services:

      • “(b) section 36 applies to a class service provided to a retail client:

      • “(c) sections 37, 38, 45, and 45A apply to an authorised financial adviser, irrespective of the type of service:

      • “(d) sections 46 to 48 apply to a QFE and (in some cases) members of a QFE group, irrespective of the type of service.

    “33 Financial adviser must exercise care, diligence, and skill

    • A financial adviser, when providing a financial adviser service, must exercise the care, diligence, and skill that a reasonable financial adviser would exercise in the same circumstances, taking into account, but without limitation,—

      • “(a) the nature and requirements of the financial adviser's client or (if it is a class service) of the clients intended to receive the service; and

      • “(b) the nature of the service provided and the circumstances in which the service is provided; and

      • “(c) the type of financial adviser.”

11B Financial adviser must not engage in misleading or deceptive conduct

  • Section 34(1) is amended by omitting “the performance of” and substituting “the provision of”.

12 Restriction on use of term sharebroker

  • Section 36 is amended by repealing subsection (1) and substituting the following subsection:

    • “(1) In any advertising or promotional material, the term sharebroker must not be used in connection with a person unless the person, or the person’s employer, is a member of a registered exchange.”

12 New section 36 substituted

  • Section 36 is repealed and the following section substituted:

    “36 Regulations may impose specific conduct obligations for class retail services

    • A financial adviser must, when providing a class service to a retail client,—

      • “(a) (if required by regulations) ensure that the prescribed warning is given in the prescribed manner that the class service is not personalised; and

      • “(b) ensure compliance with the prescribed requirements relating to the competency of, or the use of adequate care, diligence, and skill by, the persons involved in providing the service (for example, a requirement to obtain a certificate from the principal officers of the adviser or a requirement to obtain the approval of an authorised financial adviser or registered financial adviser to financial advice); and

      • “(c) comply with any prescribed record-keeping or procedural requirements relating to those matters.”

12A Authorised financial adviser must not recommend or receive money for acquisition of securities if offer for subscription illegal

  • (1) The heading to section 38 is amended by omitting “or receive money for”.

    (2) Section 38(1) is amended by omitting “, and must not receive money from a person in respect of the acquisition of securities,”.

12B Sections 39 to 44 repealed

  • Sections 39 to 44 are repealed.

12C New section 45A inserted

  • The following section is inserted after section 45:

    “45A Authorised financial adviser must report breach of Act to Commission

    • “(1) If an authorised financial adviser (A) reasonably believes that a person has breached this Act or an obligation imposed under this Act (including the code) in a material respect, A must, as soon as practicable, report the breach to the Commission.

      “(2) If A makes a report under subsection (1) in good faith,—

      • “(a) no civil, criminal, or disciplinary proceedings may be brought against A in respect of the report:

      • “(b) no person may terminate the appointment or employment of A by reason of the report:

      • “(c) no tribunal, body, or authority that has jurisdiction in respect of the professional conduct of A may make an order against, or do any act in relation to, A in respect of the report:

      • “(d) the Commission must not disclose information that might identify A unless—

        • “(i) A consents in writing to the disclosure of the information; or

        • “(ii) the Commission believes that disclosure of the information is essential to the effective investigation of the alleged breach or is otherwise essential, having regard to the principles of natural justice.

      “(3) If A makes a report under subsection (1) (whether or not in good faith), the Commission must not disclose information that might identify a client of A unless—

      • “(a) the client consents in writing to the disclosure of the information; or

      • “(b) the Commission believes that disclosure of the information is essential to the effective investigation of the alleged breach or is otherwise essential, having regard to the principles of natural justice.

      “(4) A breach of subsection (1) must be treated as a breach of the code for the purposes of subpart 2 of Part 4.”

13 QFE must not engage in misleading or deceptive conduct in relation to financial adviser service by employee or agent

  • (1) The heading to section 47 is amended by omitting “agent” and substituting “nominated representative”.

    (2) Section 47(1) is amended by omitting “agent” and substituting “nominated representative”.

13 New heading and sections 46 to 48 substituted

  • The heading above section 46 and sections 46 to 48 are repealed and the following heading and sections substituted:

    “Conduct obligations related to QFEs

    “46 QFE must comply with terms and conditions of grant of QFE status

    • “(1) Every QFE and every partner entity of a QFE must comply with the terms and conditions of the QFE's grant of QFE status.

      “(2) Contraventions of this section give rise to the offences described in section 129.

    “47 QFE or member of QFE group must not engage in misleading or deceptive conduct in relation to financial adviser service by employee, agent, or nominated representative

    • “(1) A QFE or a member of a QFE group must not engage in conduct in relation to a financial adviser service by the QFE's or the member's employee, agent, or nominated representative that is misleading or deceptive or likely to mislead or deceive.

      “(2) Contraventions of this section give rise to the offences described in section 130.

    “48 Advertisement by QFE or member of QFE group in relation to financial adviser service must not be misleading, deceptive, or confusing

    • “(1) A QFE or a member of a QFE group must not advertise a financial adviser service in a way that is misleading, deceptive, or confusing.

      “(2) Contraventions of this section give rise to the offences described in section 131.”

13A Eligibility to be authorised

  • Section 54(b)(i) is amended by omitting “due inquiry” and substituting “making any inquiries that it considers appropriate”.

13B New sections 55 and 55A substituted

  • Section 55 is repealed and the following sections are substituted:

    “55 Commission must approve or decline application for authorisation

    • “(1) If an applicant for authorisation is eligible, the Commission must authorise that person in respect of 1 or more of the following for a specified period:

      • “(a) providing any financial adviser service, or specified kinds of financial adviser services, in relation to any category 1 product, specified category 1 products, or specified classes of category 1 product:

      • “(b) providing a discretionary investment management service on behalf of clients, generally or in specified cases, in relation to any category 1 product, specified category 1 products, or specified classes of category 1 product:

      • “(c) providing investment planning services generally or in specified cases.

      “(2) The authorisation may be subject to terms and conditions relating to financial adviser services or broking services or to both.

      “(3) If the Commission approves the application, the Commission must notify the applicant in writing of—

      • “(a) the authorisation; and

      • “(b) the terms and conditions (if any); and

      • “(c) the period of authorisation.

      “(4) The Commission may incorporate, with any modifications it considers appropriate, the standard conditions.

      “(5) If an applicant for authorisation is not eligible, the Commission must—

      • “(a) decline the application; and

      • “(b) notify the applicant in writing of—

        • “(i) the decision and the reasons for it; and

        • “(ii) the applicant’s right of appeal against the decision.

    “55A Variation of terms and conditions and period of authorisation

    • “(1) An authorised financial adviser may apply to the Commission for a variation of the terms and conditions of the adviser’s authorisation.

      “(2) The Commission may grant or decline the application.

      “(3) The Commission may, by notice to an authorised financial adviser, propose a variation of the terms and conditions of the adviser’s authorisation or the period of the adviser’s authorisation, or both, on either or both of the following grounds:

      • “(a) the business of the adviser has changed in a way that poses a material risk to consumers:

      • “(b) the adviser has been involved in market practices that are, in material respects, inconsistent with the purpose of this Act.

      “(4) The Commission must specify in the notice a reasonable period for the adviser to respond in writing.

      “(5) After considering any response received within the period specified in the notice, the Commission may, by notice to the adviser, vary the terms and conditions of the adviser’s authorisation or the period of the adviser’s authorisation, or both.

      “(6) The Commission may, in the notice under subsection (5), vary terms and conditions on a provisional basis and, if it does so, must, in the light of any changes in risk posed by the adviser’s business or market practices, review those terms and conditions by a date stated in the notice.

      “(7) On completion of the review, the Commission may do any of the following:

      • “(a) confirm 1 or more of the variations effected by subsection (5):

      • “(b) cancel 1 or more of the variations effected by subsection (5):

      • “(c) propose further terms and conditions by giving the authorised financial adviser a notice under subsection (3).

      “(8) The Commission must give the authorised financial adviser notice of any decision taken under subsection (7)(a) or (b).”

13C Renewal of authorisation

  • Section 58 is amended by repealing subsection (4) and substituting the following subsection:

    • “(4) In addition to the matters specified in section 54, the Commission must be satisfied that—

      • “(a) the applicant for renewal of authorisation has complied with the minimum professional standards for authorised financial advisers prescribed by the code; or

      • “(b) any failure, on the part of the applicant, to comply with those standards is not sufficiently serious or recent to preclude the renewal of the applicant’s authorisation.”

13D New section 59A inserted

  • The following section is inserted after section 59:

    “59A Commission's power to ban financial adviser who is registered but not authorised

    • “(1) This section applies if the Commission is satisfied that an individual (the affected individual)—

      • “(a) is a financial adviser, other than a QFE adviser, who is registered but not authorised; and

      • “(b) has persistently breached his or her conduct obligations.

      “(2) The Commission may, after following the procedure set out in section 60, order that the affected individual not provide any financial adviser services or not provide 1 or more specified classes of financial adviser service for a specified period that does not exceed 5 years.

      “(3) The Commission must give the affected individual a copy of the order.

      “(4) The order takes effect when it is given to the affected individual.

      “(5) The Commission must notify the Registrar in writing of the terms of the order, and may also publicly notify those terms as it sees fit.

      “(6) The Commission may, on application by the affected individual, after following the procedure set out in section 60, vary or revoke the order.

      “(7) Subsections (3) to (5) apply, with any necessary modifications, to an order that varies or revokes the original order.”

13E Reasonable opportunity to be heard

  • Section 60 is amended by inserting “or section 59A” after “section 59(2)”.

14 Application for QFE status

  • Section 65 is amended by adding the following subsection as subsection (2):

    • “(2) If the entity proposes to nominate 1 or more individuals as nominated representatives, the application must state, or be accompanied by a list that states, the name of each person proposed to be nominated.”

15 New section 68A inserted

  • The following section is inserted after section 68:

    “68A Nominated representatives of QFEs

    • “(1) In order to nominate an individual as one of its nominated representatives, a QFE must—

      • “(a) comply with the method (if any) prescribed for that purpose in the terms and conditions of its grant of QFE status; or

      • “(b) if those terms and conditions do not prescribe a method for that purpose, record the nomination in a written instrument that—

        • “(i) nominates the individual as a nominated representative of the QFE; and

        • “(ii) is dated and, if the nomination is to take effect on a later date, specifies that later date.

      “(2) The QFE may terminate the nomination by giving written notice to the individual concerned and to the Commission.”

14 New sections 63 to 77 substituted

  • Sections 63 to 77 are repealed and the following sections substituted:

    “63 What is qualifying financial entity (QFE)

    • “(1) A QFE is—

      • “(a) an entity that is registered and has QFE status; or

      • “(b) a number of partner entities that are each registered and jointly have QFE status.

      “(2) For the purposes of any powers or rights conferred, or obligations or liabilities imposed, on QFEs by this Act, a QFE described in subsection (1)(b) is taken to be a separate entity and a person.

      “(3) Subsection (2) does not limit any obligation or liability imposed on a partner entity.

    “64 Who may apply for QFE status

    • An application may be made to the Commission by—

      • “(a) a single entity for QFE status; or

      • “(b) 2 or more related bodies corporate for joint QFE status.

    “65 Application for QFE status

    • “(1) An application for QFE status must—

      • “(a) be in the prescribed form (if any); and

      • “(b) be accompanied by the prescribed fee (if any).

      “(2) If the applicant or applicants seek to have 1 or more entities approved as associated entities of the proposed QFE, the application must state the name of each entity sought to be approved as an associated entity and how that entity is related to the applicant or applicants.

      “(3) The application must set out the procedures that the applicant or applicants have for—

      • “(a) training employees and nominated representatives; and

      • “(b) setting standards for employees and nominated representatives; and

      • “(c) monitoring those standards.

    “66 Eligibility for QFE status

    • “(1) The Commission may confer QFE status on a single entity applying under section 64(a) or on 2 or more entities applying under section 64(b) if it is satisfied that—

      • “(a) each entity is registered or is entitled to be registered; and

      • “(b) no entity is debarred from applying for QFE status; and

      • “(c) on the grant of QFE status and at all times while a QFE, the single entity that will be the QFE has, or the partner entities that will be the QFE together have, the capacity to, and will,—

        • “(i) discharge its or their ongoing compliance obligations under section 76 and all other obligations on it under this Act or the regulations; and

        • “(ii) comply with the terms and conditions (if any) of the grant of QFE status; and

        • “(iii) maintain procedures to ensure that retail clients of the QFE receive adequate consumer protection.

      “(2) In determining under subsection (1)(c) whether clients receive adequate consumer protection, the Commission must, in relation to QFE advisers who provide personalised financial adviser services that relate to category 1 products,—

      • “(a) consider whether the clients will receive protection of a similar standard to that provided by advisers who are subject to the code; and

      • “(b) in doing so, take into account the scope of category 1 products in respect of which those QFE advisers provide financial adviser services.

    “67 Commission must approve or decline application for QFE status

    • “(1) If an applicant under section 64(a) is eligible, or if applicants under section 64(b) are eligible, for QFE status, the Commission must approve the application and grant the applicant or the applicants QFE status.

      “(2) The grant of QFE status is subject to the terms and conditions specified or incorporated in the grant.

      “(3) The Commission may incorporate, with any modifications it considers appropriate, the standard conditions.

      “(4) If the application also asks for the approval of 1 or more entities as associated entities of the QFE, the Commission may, by written determination, approve an entity as an associated entity of the QFE if that entity—

      • “(a) is registered or is entitled to be registered; or

      • “(b) is, under the FSP Act, an affiliated entity of one of the applicants.

      “(5) Even though an entity is eligible under subsection (4), the Commission may decline to approve the entity for any reason, including, without limitation, the absence of a direct connection between the entity and the QFE or any of its partner entities.

      “(6) If the Commission approves an associated entity, terms and conditions under subsection (2) may, without limitation, relate to—

      • “(a) the kinds of financial adviser services that may be provided by or on behalf of any associated entity:

      • “(b) any conditions and restrictions that are to apply to the provision of those services:

      • “(c) the way in which the QFE is to supervise any associated entity.

      “(7) The Commission is not precluded from approving an entity as an associated entity of a QFE merely because the entity is, or is proposed to be, the associated entity of another QFE.

    “68 Determination of application

    • “(1) If the Commission approves an application for a grant of QFE status, the Commission must notify the entity or entities in writing of—

      • “(a) the grant of QFE status; and

      • “(b) the terms and conditions; and

      • “(c) the period for which QFE status has been granted.

      “(2) If an applicant under section 64(a) is not, or 1 or more of the applicants under section 64(b) are not, eligible for QFE status, the Commission must—

      • “(a) decline the application; and

      • “(b) notify the entity or entities of—

        • “(i) the decision and the reasons for it; and

        • “(ii) the right of an applicant under section 64(a) to appeal, and the right of applicants under section 64(b) jointly to appeal, against the decision.

    “69 Name of QFE group

    • “(1) A QFE group has the name that is approved by the Commission and chosen by the applicant or applicants for QFE status that results in the formation of the group.

      “(2) Every application for QFE status that would, if approved, result in the formation of a QFE group must submit a name for the proposed group.

      “(3) The Commission may ask the applicant or applicants to submit another name.

    “70 Commission must notify Registrar of grant of QFE status

    • “(1) If the Commission grants an entity or entities QFE status, the Commission must notify the Registrar in writing of—

      • “(a) the name of the entity, or the names of the partner entities, granted QFE status:

      • “(b) the period for which QFE status has been granted:

      • “(c) if a QFE group has been formed, the name of the group:

      • “(d) if associated entities of the QFE have been approved, the names of those entities.

      “(2) The Commission may publicly notify the grant of QFE status and the other matters referred to in subsection (1) as it thinks fit.

    “71 Addition of associated entities

    • “(1) The QFE of a QFE group may apply to the Commission to approve the addition of 1 or more entities as associated entities of the QFE.

      “(2) The application must—

      • “(a) be in the prescribed form (if any); and

      • “(b) be accompanied by the prescribed fee (if any); and

      • “(c) name the entities sought to be added as associated entities.

      “(3) Section 67(3) to (5) apply with any necessary modifications.

      “(4) The Commission may amend the terms and conditions of the QFE's grant of QFE status to include, modify, or replace any terms and conditions of a kind described in section 67(6).

      “(5) The QFE may withdraw the application at any time before it is determined.

      “(6) If the Commission approves an entity as an associated entity under this section, the Commission—

      • “(a) must notify the Registrar in writing of the name of the entity; and

      • “(b) may publicly notify the inclusion of the associated entity in the QFE group as it thinks fit.

    “72 Termination of status of associated entity

    • The status of an associated entity terminates when—

      • “(a) the entity ceases to be registered; or

      • “(b) the Commission receives a written request from the entity or from the relevant QFE or any partner entity to cancel its status as associated entity; or

      • “(c) the QFE status of the relevant QFE is terminated.

    “73 Certification of QFE group

    • “(1) The Commission may issue a certificate stating that named entities are, as at the date of the certificate, a QFE group or that named entities were, during a specified period, a QFE group.

      “(2) A certificate issued under subsection (1) is, in the absence of proof to the contrary, evidence of its contents.

    “74 Nominated representatives of QFEs or partner entities

    • “(1) A QFE or a partner entity may nominate an individual as one of its nominated representatives by—

      • “(a) complying with the method (if any) prescribed for that purpose in the terms and conditions of the relevant grant of QFE status; or

      • “(b) if those terms and conditions do not prescribe a method for that purpose, recording the nomination in a written instrument that—

        • “(i) nominates the individual as a nominated representative of the QFE or of the partner entity; and

        • “(ii) is dated and, if the nomination is to take effect on a later date, specifies that later date.

      “(2) An individual may not be the nominated representative of 2 or more entities unless the entities are related bodies corporate.

      “(3) The QFE or the partner entity may terminate the nomination by giving written notice to the individual concerned and to the Commission.

      “(4) Every QFE must keep an up-to-date record of its nominated representatives.

    “75 Variation of terms and conditions and period of grant of QFE status

    • “(1) A QFE may apply to the Commission for a variation of the terms and conditions of the grant of QFE status.

      “(2) The Commission may grant or decline the application.

      “(3) The Commission may, by notice to a QFE, propose a variation of the terms and conditions of the QFE’s grant of QFE status or the period of the grant on either or both of the following grounds:

      • “(a) the business of the QFE or of the QFE group has changed in a way that poses a substantial risk to consumers:

      • “(b) the QFE or any member of the QFE group has been involved in market practices that are, in material respects, inconsistent with the purpose of this Act.

      “(4) The Commission must specify in the notice a reasonable period for the QFE to respond in writing.

      “(5) After considering any response received within the period specified in the notice, the Commission may, by notice to the QFE, vary the terms and conditions of the QFE’s grant of QFE status or the period of the grant, or both.

      “(6) The Commission may, in the notice under subsection (5), vary terms and conditions on a provisional basis and, if it does so, the Commission must, in the light of any changes in risk posed by the business or market practices of the QFE or any member of the QFE group, review those terms and conditions by a date stated in the notice.

      “(7) On completing the review, the Commission may do any of the following:

      • “(a) confirm 1 or more of the variations effected by subsection (5):

      • “(b) cancel 1 or more of the variations effected by subsection (5):

      • “(c) propose new terms and conditions or a new period of grant by giving the QFE a further notice under subsection (3).

    “75A Termination of QFE status

    • “(1) The QFE status of an entity or of partner entities terminates when—

      • “(a) the period of a grant of QFE status expires; or

      • “(b) the Commission receives a written request from the QFE or from any partner entity requesting the Commission to cancel the QFE status; or

      • “(c) the entity that forms, or any of the partner entities that jointly form, the QFE ceases to be registered; or

      • “(d) the Commission cancels its QFE status under section 75D(2).

      “(2) The Commission must notify the Registrar in writing of the termination of QFE status under subsection (1)(a), (b), or (d).

    “75B Commission may designate certain QFE products as beyond scope of QFE advisers

    • “(1) If, because of the complexity of a particular category 1 product, the Commission has concerns about the provision of personalised services in relation to that product by QFE advisers, the Commission may specify those concerns in a notice to the QFE or the partner entity whose QFE advisers provide those services.

      “(2) A notice under subsection (1) may be given only in exceptional circumstances.

      “(3) The Commission must specify in the notice a reasonable period for the relevant entity to respond in writing and must ask the entity to satisfy the Commission that the QFE advisers are able to, and will, provide financial adviser services in relation to the category 1 product concerned with the appropriate level of professionalism and competence.

      “(4) After considering the entity's response, the Commission may, by notice to the entity, determine that a QFE adviser may not provide a personalised financial adviser service to a retail client directly in relation to the specified category 1 product.

      “(5) A determination under subsection (4) has effect according to its tenor despite anything in section 18.

      “(6) The Commission may at any time, by notice to the entity, revoke a determination under subsection (4).

    “75C Renewal of QFE status

    • “(1) A QFE may apply for renewal of QFE status.

      “(2) An application for renewal of QFE status must be—

      • “(a) made in the prescribed form (if any); and

      • “(b) accompanied by the prescribed fee (if any).

      “(3) Sections 64 to 70 apply, with any necessary modifications, to an application for renewal of QFE status.

      “(4) If an application for renewal of QFE status has been made but not determined before the date on which the QFE status is due to expire, the QFE status continues until the application is determined.

      “(5) The renewal of QFE status takes effect from the date of expiry of the previous grant of QFE status.

    “Commission's powers in relation to default by QFE or by members of QFE group

    “75D Commission’s powers in relation to QFE default

    • “(1) This section applies if the Commission is satisfied that—

      • “(a) a QFE or any partner entity of a QFE has ceased to be eligible for QFE status; or

      • “(b) the QFE or any member of the QFE group has breached or is in breach of this Act or the regulations; or

      • “(c) the QFE or any member of the QFE group is in breach of a term or condition of the grant of QFE status; or

      • “(d) the QFE or any partner entity of the QFE has failed to comply with a direction given to it by the Commission under section 75F; or

      • “(e) the QFE or any partner entity of the QFE has failed to pay a fee or levy as required by this Act or the regulations.

      “(2) In any case to which this section applies, the Commission may, after following the procedure set out in section 75E and subject to subsections (3) and (4),—

      • “(a) cancel the QFE’s status; or

      • “(b) cancel the QFE’s status and debar, for a specified period, the entity, any partner entity, and any associated entity of the former QFE from re-applying for QFE status; or

      • “(c) suspend the QFE’s status for a specified period or until the suspended QFE or any partner entity, or any associated entity of the suspended QFE, does any thing that the Commission requires; or

      • “(d) amend the terms and conditions of the QFE’s grant of status; or

      • “(e) order that the QFE pay a fine not exceeding $50,000; or

      • “(f) censure the QFE; or

      • “(g) take no further action.

      “(3) The Commission may take only 1 of the actions specified in subsection (2), except that it may order the QFE to pay a fine not exceeding $50,000 in addition to taking an action under subsection (2)(d) or (f).

      “(4) All partner entities of a QFE are jointly and severally liable for the payment of a fine that the QFE is ordered to pay under subsection (2)(e).

      “(5) The Commission must not order the QFE to pay a fine in relation to an act or omission that constitutes an offence for which the QFE or any partner entity of the QFE has been convicted by a court.

      “(6) If the Commission cancels or suspends the QFE status of an entity, the Commission must notify the Registrar in writing of the cancellation or suspension, and, in the case of suspension, the period of suspension.

      “(7) The Commission may publicly notify the action it takes under subsection (2) as it sees fit.

    “75E Reasonable opportunity to be heard

    • The Commission must not take any of the actions specified in section 75D(2) unless it has first—

      • “(a) informed the QFE and any partner entities of the QFE in writing of the reasons for taking any of those actions; and

      • “(b) given the QFE and any partner entities of the QFE or their representatives a reasonable opportunity to make written submissions and be heard on the question.

    “75F Commission may give QFE direction

    • “(1) This section applies if the Commission has reason to believe that a QFE is in breach of a disclosure or conduct obligation.

      “(2) The Commission may give the QFE, and every partner entity of the QFE, notice of its alleged breach and, if the Commission does give a notice of breach, the Commission must also give the QFE a reasonable opportunity to respond.

      “(3) If the Commission concludes, after considering the QFE’s response, that the QFE is in breach, the Commission may give the QFE a direction in writing.

      “(4) The direction may—

      • “(a) direct the QFE, any partner entity, or any associated entity of the QFE to comply with the disclosure or conduct obligation:

      • “(b) stipulate any steps that the QFE, any partner entity, or any associated entity of the QFE must take in order to comply with the disclosure or conduct obligation:

      • “(c) require the QFE to report to the Commission within 28 days of the date of the direction stating how and by when the Commission’s direction will be implemented.

      “(5) If the QFE, any partner entity, or any associated entity of the QFE fails to comply with a direction by the Commission, the QFE and every partner entity commits an offence (see section 132).

      “(6) Nothing in this section precludes the Commission from exercising any of its other powers under this Act against a QFE.

    “75G Other provisions concerning Commission's powers in relation to QFE default

    • “(1) A fine imposed by the Commission under section 75D(2)(e) is recoverable in any court as a debt due to the Commission.

      “(2) At the end of a period of suspension of QFE status, a QFE's status is immediately revived, unless its QFE status has been further suspended or has been cancelled.

      “(3) Suspension or cancellation is effective when a written notice of the suspension or cancellation is sent to the QFE by the Commission.

    “QFE’s obligations

    “76 Ongoing obligations of QFEs and of partner entities

    • “(1) A QFE, and every partner entity of a QFE, must—

      • “(a) ensure compliance by the QFE and, where the QFE is part of a QFE group, by every member of that group, and by each employee and nominated representative of the QFE and of every member of that group, with the terms and conditions of the grant of QFE status; and

      • “(b) where an associated entity is the associated entity not only of the QFE but also of another QFE, ensure compliance by the associated entity and by each employee of the associated entity with the terms and conditions of the grant of QFE status of that other QFE; and

      • “(c) in relation to QFE advisers who are employees of the QFE or of a member of the QFE group, ensure compliance by each of those persons with his or her financial adviser obligations; and

      • “(d) in relation to QFE advisers who are nominated representatives of the QFE or of a partner entity, ensure compliance by each of those persons with his or her financial adviser obligations, whether or not the nominated representative acts for the QFE or for the partner entity or for any related company of the QFE or the partner entity; and

      • “(e) in relation to advisers of the QFE or of a member of the QFE group who perform a financial adviser service that, by virtue of sections 17 and 18 only an authorised financial adviser is permitted to perform, ensure that each of those persons is authorised:

      • “(f) provide the Commission, whenever reasonably required by the Commission and in any case in accordance with any requirements specified in the terms and conditions of its grant of QFE status, with an up-to-date list of the names of—

        • “(i) the authorised financial advisers of the QFE and of any members of the QFE group; and

        • “(ii) the nominated representatives of the QFE and of any partner entity; and

      • “(g) provide an annual report to the Commission in accordance with section 77; and

      • “(h) comply with a direction by the Commission given under section 72; and

      • “(i) comply with its other obligations under this Act and the regulations.

      “(2) A contravention of subsection (1)(e) gives rise to the offences described in section 133.

    “77 QFE must provide annual report to Commission

    • “(1) Within 5 months after the end of its financial year, a QFE must send to the Commission a written report in respect of that year (the reporting year)—

      • “(a) certifying that the QFE and every member of the QFE group has complied with its obligations under this Act and the regulations, and with the terms and conditions of the grant of QFE status; and

      • “(b) if the QFE or any member of the QFE group has not complied with its obligations under this Act and the regulations, and with the terms and conditions of the grant of QFE status, stating those respects in which it has failed to comply; and

      • “(c) if the QFE is aware of any breach of a financial adviser obligation by an employee, agent, or nominated representative of the QFE or of a member of the QFE group, stating—

        • “(i) the name of that person; and

        • “(ii) the nature of that person’s breach or breaches; and

      • “(d) containing any other information required by the regulations; and

      • “(e) containing the information (if any) that is required to be contained in the report by the terms and conditions of the grant of QFE status.

      “(2) The report may be submitted by any partner entity of the QFE.

      “(3) The report must be signed by either—

      • “(a) a principal officer of the QFE; or

      • “(b) a principal officer of a partner entity of the QFE.

      “(4) Contraventions of subsection (1) give rise to the offences described in section 134.”

16 New section 75 substituted

  • Section 75 is repealed and the following section substituted:

    “75 Exemption from liability for employee or nominated representative of QFE

    • “(1) This section applies if a financial adviser who is an employee or a nominated representative of a QFE, but who is not an authorised financial adviser, gives financial advice or makes an investment transaction, in the course of the QFE's business, in relation to—

      • “(a) a category 2 product; or

      • “(b) a category 1 product of which the QFE is the issuer or promoter.

      “(2) A financial adviser to whom this section applies is exempt from liability under this Act for contravening a financial adviser obligation.”

17 QFE's ongoing compliance obligations

  • (1) Section 76(1) is amended by omitting “agents” in each place where it appears and substituting in each case “nominated representatives”.

    (2) Section 76(1) is amended by inserting the following paragraph after paragraph (c):

    • “(ca) provide the Commission, whenever reasonably required by the Commission and in any case in accordance with any requirements specified in the terms and conditions of its grant of QFE status, with an up-to-date list of the names of the QFE's nominated representatives; and”.

18 QFE must provide annual report to Commission

  • Section 77(1) is amended by omitting “agent” in each place where it appears and substituting in each case “nominated representative”.

17 New Part 3A inserted

  • The following Part is inserted after Part 3:

    “Part 3A
    “Brokers' disclosure and conduct obligations

    “Who is broker and what is broking service

    “77A Who is broker

    • “(1) A broker is an individual or an entity who carries on a business of providing or offering to provide a broking service to a client (whether or not the business is the provider's only business or the provider's principal business).

      “(2) See section 77V in the case of a person who provides a broking service on behalf of another person's business.

    “77B What is broking service

    • “(1) A broking service is the receipt, holding, payment, or transfer of client money or client property by a person acting as an intermediary for a client.

      “(2) A person acts as an intermediary if the person does not receive, hold, pay, or transfer the money or property on the person's own account.

      “(3) The mere transmission of a non-transferable instrument payable to another person is not a broking service.

    “77C Exemption for incidental service

    • “(1) A service is not a broking service for the purposes of this Act if the service is provided only as an incidental part of another business that is not otherwise a financial service.

      “(2) In this section, a service is incidental to another business if it is carried on to facilitate the carrying out of another business, or is ancillary to another business.

      “(3) Regulations may declare a class of service provided in the course of a class of business to be incidental, or that a class of business is not a financial service, for the purposes of subsection (1)(a).

    “77D Other exemptions

    • “(1) None of the following is a broking service for the purposes of this Act:

      • “(a) a lawyer, incorporated law firm, conveyancing practitioner, chartered accountant, tax agent, real estate agent, registered legal executive, or other exempted class of service provider (as specified in the regulations) providing a broking service in the ordinary course of business of that kind:

      • “(b) a statutory officer, Crown organisation (other than the Public Trust), or the Reserve Bank of New Zealand—

        • “(i) discharging any duties or exercising any powers of the statutory officer, Crown organisation, or the Reserve Bank of New Zealand under any enactment; or

        • “(ii) doing anything that is incidental to the discharge of the functions of the statutory officer, Crown organisation, or the Reserve Bank of New Zealand under any enactment:

      • “(c) a designated settlement system under section 156N of the Reserve Bank of New Zealand Act 1989, and any operator of that system, receiving, holding, paying, or transferring client money or client property in accordance with the rules of the settlement system:

      • “(d) an employer providing a broking service to an employee in connection with a financial product made available through the person's workplace:

      • “(e) any other person providing a service in circumstances exempted under the regulations.

      “(2) If subsection (1) applies to a person (A), it applies equally to any controlling owner, director, employee, agent, or other person acting in the course of, and for the purposes of, A's business to the same extent as it would apply to A.

    “Disclosure obligations for services for retail clients

    “77E What is disclosure obligation and when does it apply

    • “(1) A disclosure obligation under this Part is an obligation to make disclosure under or in accordance with sections 77G to 77J.

      “(2) A disclosure obligation applies only to a broking service provided for a retail client.

    “77F Broker must make disclosure before receiving client money or client property from retail client

    • A broker must disclose prescribed information to a retail client, in accordance with this Act and the regulations,—

      • “(a) before receiving client money or client property from or on behalf of the client; or

      • “(b) if not practicable before, as soon as practicable after doing so.

    “77G What broker must disclose and form of disclosure

    • “(1) Regulations for the purposes of prescribing disclosure for brokers under section 77F may require disclosure in relation to any or all of the following matters:

      • “(a) contact details:

      • “(b) fees:

      • “(c) material interests, relationships, or associations:

      • “(d) remuneration:

      • “(e) dispute resolution arrangements:

      • “(f) in relation to the broker and, if the broker is an entity, each principal officer,—

        • “(i) criminal convictions:

        • “(ii) disciplinary proceedings:

        • “(iii) adverse findings by a court or the Commission:

        • “(iv) bankruptcy or other insolvency proceedings:

      • “(g) procedures for handling client money or client property:

      • “(h) indemnity insurance.

      “(2) Regulations for the purposes of this section may provide for the form that the disclosure must take.

    “77H Disclosure must not be misleading, deceptive, or confusing

    • Disclosure under a disclosure obligation must not be misleading, deceptive, or confusing at the time that the disclosure is made.

    “77I Disclosure of additional information

    • “(1) Disclosure of the matters that must be disclosed under a disclosure obligation may be accompanied by disclosure of additional information.

      “(2) Additional disclosure that accompanies disclosure under a disclosure obligation must not be misleading, deceptive, or confusing at the time it is made.

    “77J No compliance with disclosure obligation if disclosure out of date

    • “(1) Previous disclosure does not discharge a broker from a disclosure obligation if the previous disclosure is out of date when the client money or client property is received by the broker.

      “(2) The previous disclosure is out of date if,—

      • “(a) since the date of the disclosure, there has been a material change in any matter that must be disclosed; and

      • “(b) a reasonable person in the position of the client would consider that the change would materially affect any of the following decisions by the client:

        • “(i) to proceed with the broking service by the broker in question (B):

        • “(ii) to postpone or countermand the performance of a broking service by B.

    “Brokers' conduct obligations

    “77K What is conduct obligation and when does it apply

    • “(1) A conduct obligation under this Part is an obligation under sections 77L to 77V.

      “(2) The conduct obligations in sections 77L to 77P apply to all broking services.

      “(3) The conduct obligations in sections 77Q to 77V—

      • “(a) apply only to broking services provided for a retail client; and

      • “(b) do not apply to a broker within the meaning of the Insurance Intermediaries Act 1994 in relation to any money to which section 14 or 15 of that Act applies.

    “77L Broker must exercise care, diligence, and skill

    • A broker must, when providing a broking service, exercise the care, diligence, and skill that a reasonable broker would exercise in the same circumstances, taking into account, but without limitation,—

      • “(a) the nature and requirements of the client; and

      • “(b) the nature of the services provided for the client and the circumstances in which the services are provided.

    “77M Broker must not engage in misleading or deceptive conduct

    • “(1) A broker must not engage in conduct in relation to the provision of a broking service that is misleading or deceptive or likely to mislead or deceive.

      “(2) A person who knowingly or recklessly contravenes subsection (1) commits an offence (see section 118).

    “77N Advertisement of broking services must not be misleading, deceptive, or confusing

    • “(1) A broker must not advertise a broking service in a way that is misleading, deceptive, or confusing.

      “(2) A person who knowingly or recklessly contravenes subsection (1) commits an offence (see section 119).

    “77O Restriction on use of term sharebroker

    • “(1) In any advertising or promotional material, the term sharebroker must not be used in connection with a person unless the person, or the person's employer, is a member of a registered exchange.

      “(2) A person who knowingly or recklessly contravenes subsection (1) commits an offence (see section 120).

    “77P Broker must not receive client money if offer for subscription illegal

    • “(1) A broker (A) must not receive client money or client property from a person for the acquisition of securities if—

      • “(a) when the securities were or are offered for subscription, the offer was or is illegal; and

      • “(b) the illegality has not been remedied; and

      • “(c) A knows or ought to know that, when the securities were or are offered for subscription, the offer was or is illegal.

      “(2) A person who contravenes subsection (1) commits an offence (see section 134A).

    “Trust accounting obligations for services for retail clients

    “77Q Broker must pay client money into separate trust account

    • “(1) A broker who receives client money or client property, in his, her, or its capacity as a broker for a retail client,—

      • “(a) must hold the client money or client property, or ensure the client money or client property is held, on trust for the client; and

      • “(b) must ensure that the client money is paid promptly into a bank in New Zealand (or into any other prescribed entity) to a trust account of the broker or of a related person or entity specified in the regulations.

      “(2) A person who contravenes subsection (1) commits an offence (see section 134B).

    “77R Broker must account for client money and client property

    • “(1) A broker who receives or holds client money and client property on trust for a retail client must account properly, or ensure that account is properly made, to the client for that client money or client property.

      “(2) A person who contravenes subsection (1) commits an offence (see section 134C).

    “77S Broker must keep records of client money and client property

    • “(1) A broker who receives or holds client money on trust for a retail client must keep, or ensure that there are kept, trust account records that disclose clearly the position of the client money in the trust accounts.

      “(2) A broker who receives or holds client property on trust for a retail client must keep, or ensure that there are kept, records that—

      • “(a) identify the client property; and

      • “(b) show the date when the client property was received; and

      • “(c) if the client property has been disposed of, show where the client property was disposed of and to whom.

      “(3) A broker must keep the records required by this section, or ensure that they are kept, in a manner that enables those records to be conveniently and properly audited or inspected.

      “(4) A person who contravenes any of subsections (1) to (3) commits an offence (see section 134D).

    “77T Restrictions on use of client money and client property

    • “(1) A person must not use or apply client money or client property received or held on trust for a retail client by a broker in any way except—

      • “(a) as expressly directed by the client (either generally or specifically); or

      • “(b) in accordance with section 77Q (which relates to payment of client money into a trust account).

      “(2) A person who contravenes subsection (1) commits an offence (see section 134E).

    “77U Protection of client money and client property held on trust

    • “(1) The client money or client property that is received or held by a broker on trust for a retail client—

      • “(a) is not available for the payment of the debts of any other creditor of the broker; and

      • “(b) is not liable to be attached or taken in execution under the order or process of any court at the instance of another creditor of the broker.

      “(2) Nothing in section 77T or this section takes away or affects any lawful lien or claim that a broker who holds client money has against the client money.

    “Persons acting in course of business of employers or principals

    “77V Who is responsible for broker obligations

    • “(1) If a broking service is provided by a person (A) on behalf of the business of another person (B), B (and not A) is treated as the broker having the broker obligations under this Act.

      “(2) If B has a broker obligation under subsection (1)—

      • “(a) any act or omission by A is also treated as being done by B; and

      • “(b) if it is necessary to show the state of mind of B, it is sufficient to show that A had that state of mind.

      “(3) Subsections (1) and (2) do not affect the liability of A or B under any other Act or rule of law for A's actions.

    “Commission's direction in respect of breach of disclosure or conduct obligation

    “77W Commission may give broker direction in respect of breach of disclosure or conduct obligation

    • “(1) This section applies if the Commission has reason to believe that a broker is in breach of a disclosure or conduct obligation under this Part.

      “(2) The Commission may give the broker notice of his, her, or its alleged breach and, if the Commission does give a notice of breach, the Commission must also give the broker a reasonable opportunity to respond.

      “(3) If the Commission concludes, after considering the broker's response, that the broker is in breach, the Commission may give the broker a direction in writing.

      “(4) The direction may—

      • “(a) direct the broker to comply with the disclosure or conduct obligation:

      • “(b) stipulate any steps that the broker must take in order to comply with the obligation:

      • “(c) require the broker to report to the Commission within 28 days of the date of the direction stating how and when the Commission's direction will be implemented.

      “(5) A broker who fails to comply with a direction by the Commission commits an offence (see section 134F).

      “(6) Nothing in this section precludes the Commission from exercising any of its other powers under this Act against a broker.”

18 Part 4 heading amended

  • The heading to Part 4 is amended by inserting “and brokers” after “financial advisers”.

19 Content of code

  • Section 86 is amended by adding the following subsection:

    • “(4) The code may limit or modify standards, or provide for separate standards, for the duration of 1 or more periods of transition.”

20 New section 94 substituted

  • Section 94 is repealed and the following section substituted:

    “94 Code comes into force by Gazette notice

    • “(1) After the Minister has approved the draft code or after the 90-day deadline for approval specified in section 93 has expired, the Commissioner must give notice in the Gazette of the date or dates on which the provisions of the code come into force.

      “(2) The notice may state different dates for different provisions, but no date may be before the 28th day after the date on which the notice is published in the Gazette.

      “(3) Each provision in the code comes into force on the date stated in the notice that applies to the provision.

      “(4) The code and the notice are each regulations for the purposes of the Regulations (Disallowance) Act 1989 and the Acts and Regulations Publication Act 1989.”

21 New section 98 substituted

  • Section 98 is repealed and the following section substituted:

    “98 Reference of complaint to disciplinary committee

    • When the Commission has, under section 97, investigated a complaint about an authorised financial adviser, it must refer the complaint to the disciplinary committee if, in the Commission's opinion, the conduct complained of amounts to a breach of the code.”

22 Offence of performing financial adviser service without being registered

  • (1) Section 114(2)(b) is amended by omitting “agent” and substituting “nominated representative”.

    (2) Section 114(2) is amended by repealing paragraph (c) and substituting the following paragraph:

    • “(c) the financial advisers service is performed by an individual who is a registered financial adviser.”

23 Offence of performing financial adviser service without being authorised

  • (1) Section 115(2) is amended by omitting “agent” and substituting “nominated representative”.

    (2) Section 115 is amended by repealing subsection (3) and substituting the following subsection:

    • “(3) A person has a defence to a charge under subsection (1) if the person proves on a balance of probabilities that the financial adviser service to which the charge relates was performed by an individual who is an authorised financial adviser.”

24 New section 116 substituted

  • Section 116 is repealed and the following section substituted:

    “116 Offences in relation to employer or principal failing to maintain registration

    • “(1) A person who contravenes section 18(1)(a) or (2)(a) commits an offence and is liable on summary conviction to a fine not exceeding $10,000.

      “(2) A person who contravenes section 18(1)(b) or (2)(b) commits an offence and is liable on summary conviction to a fine not exceeding $5,000.”

22 New heading and sections 114 to 116 substituted

  • Sections 114 to 116 and the heading before section 114 are repealed and the following heading and sections substituted:

    “Offences: restrictions on providing services and holding out

    “114 Offence of providing financial adviser service without being permitted to do so

    • “(1) A person who provides a financial adviser service when not permitted to do so under section 18 commits an offence and is liable on summary conviction,—

      • “(a) in the case of an individual, to a fine not exceeding $10,000:

      • “(b) in the case of an entity, to a fine not exceeding $50,000.

      “(2) A person who provides a financial adviser service when not permitted to do so under section 19 or 20 commits an offence and is liable on summary conviction,—

      • “(a) in the case of an individual, to a fine not exceeding $5,000:

      • “(b) in the case of an entity, to a fine not exceeding $10,000.

      “(3) A person (A) has a defence to a charge under subsection (1) or (2) if A proves on the balance of probabilities that A did not know, and ought not reasonably to have known, that A did not come within the requirements of the relevant section.

    “115 Offence of holding out as authorised financial adviser, financial planner, or QFE

    • A person who knowingly or recklessly contravenes section 20A, 20B, or 20C commits an offence and is liable on summary conviction,—

      • “(a) in the case of an individual, to a fine not exceeding $10,000:

      • “(b) in the case of an entity, to a fine not exceeding $50,000.

    “116 Offence of continuing to provide if employer or principal not permitted to provide

    • A person who contravenes section 20E commits an offence and is liable on summary conviction to a fine not exceeding $5,000.”

Disclosure offences: financial advisers, QFEs, and brokers

23 Failure to make disclosure under or in accordance with disclosure obligation

  • Section 117(b) is amended by omitting “a QFE” and substituting “an entity”.

24 Heading above section 118 amended

  • The heading above section 118 is amended by adding “and brokers”.

24D New sections 118 to 120 substituted

  • Sections 118, 119, and 120 are repealed and the following sections substituted:

    “118 Offence of misleading or deceptive conduct by financial adviser or broker

    • A person who knowingly or recklessly contravenes section 34(1) or section 77M commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $100,000:

      • “(b) in the case of an entity, not exceeding $300,000.

    “119 Offence of misleading, deceptive, or confusing advertisement by financial adviser or broker

    • A person who knowingly or recklessly contravenes section 35(1) or section 77N commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $100,000:

      • “(b) in the case of an entity, not exceeding $300,000.

    “120 Offence of contravening restrictions on use of term sharebroker

    • A person who knowingly or recklessly contravenes section 77O commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $10,000:

      • “(b) in the case of an entity, not exceeding $50,000.”

24E Offence of recommending or receiving money in connection with offer of securities when subscription illegal

  • The heading to section 121 is amended by omitting “or receiving money in connection with”.

24F Sections 122 to 125 repealed

  • Sections 122 to 125 are repealed.

25 Offence of misleading or deceptive conduct in relation to financial adviser service by employee or agent

  • The heading to section 130 is amended by omitting “agent” and substituting “nominated representative”.

25 New heading and sections 129 to 134 substituted

  • The heading above section 129 and sections 129 to 134 are repealed and the following heading and sections substituted:

    “Offences: QFEs and QFE groups only

    “129 Offence of failing to comply with terms and conditions of QFE status

    • “(1) If a QFE contravenes section 46(1), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $25,000:

      • “(a) the QFE:

      • “(b) every partner entity of the QFE.

      “(2) If a partner entity of a QFE contravenes section 46(1), every partner entity of the QFE commits an offence and is liable on summary conviction to a fine not exceeding $25,000.

    “130 Offence of misleading or deceptive conduct in relation to financial adviser service by employee, agent, or nominated representative

    • “(1) If a QFE knowingly or recklessly contravenes section 47(1), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $300,000:

      • “(a) the QFE:

      • “(b) every partner entity of the QFE.

      “(2) If an associated entity of a QFE knowingly or recklessly contravenes section 47(1), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $300,000:

      • “(a) the associated entity of the QFE:

      • “(b) the QFE:

      • “(c) every partner entity of the QFE.

    “131 Offence of misleading, etc, advertisement of financial adviser service by employee, agent, or nominated representative

    • “(1) If a QFE knowingly or recklessly contravenes section 48(1), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $300,000:

      • “(a) the QFE:

      • “(b) every partner entity of the QFE.

      “(2) If an associated entity of a QFE knowingly or recklessly contravenes section 48(1), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $300,000:

      • “(a) the associated entity of the QFE:

      • “(b) the QFE:

      • “(c) every partner entity of the QFE.

    “132 Offence of failing to comply with Commission’s direction

    • If a QFE fails to comply with a direction of the Commission given under section 75F(3), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $25,000:

      • “(a) the QFE:

      • “(b) every partner entity of the QFE.

    “133 Offence of failing to comply with obligations in relation to authorised financial advisers

    • If a QFE or a partner entity contravenes section 76(1)(e), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $50,000:

      • “(a) the QFE:

      • “(b) every partner entity of the QFE.

    “134 Offence of failing to provide annual report

    • If a QFE contravenes section 77(1), each of the following persons commits an offence and is liable on summary conviction to a fine not exceeding $25,000:

      • “(a) the QFE:

      • “(b) every partner entity of the QFE.”

26 Offence of misleading, etc, advertisement of financial adviser service by employee or agent

  • The heading to section 131 is amended by omitting “agent” and substituting “nominated representative”.

26A New heading and sections 134A to 134F inserted

  • The following heading and sections are inserted after section 134:

    “Offences: broking services only

    “134A Offence of receiving client money if offer for subscription illegal

    • A person who contravenes section 77P commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $100,000:

      • “(b) in the case of an entity, not exceeding $300,000.

    “134B Offence of contravening requirement to pay client money into separate trust account

    • A person who contravenes section 77Q commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $5,000:

      • “(b) in the case of an entity, not exceeding $25,000.

    “134C Offence of failing to account for client money and client property

    • A person who contravenes section 77R commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $5,000:

      • “(b) in the case of an entity, not exceeding $25,000.

    “134D Offence in relation to records of client money and client property

    • A person who contravenes any of section 77S(1) to (3) commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $5,000:

      • “(b) in the case of an entity, not exceeding $25,000.

    “134E Offence of breaching restrictions on use of client money and client property

    • A person who contravenes section 77T commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $5,000:

      • “(b) in the case of an entity, not exceeding $25,000.

    “134F Offence of failing to comply with Commission’s direction

    • A person who fails to comply with a direction of the Commission given under section 77W commits an offence and is liable on summary conviction to a fine,—

      • “(a) in the case of an individual, not exceeding $5,000:

      • “(b) in the case of an entity, not exceeding $25,000.”

27 New heading inserted

  • (1) The following heading is inserted above section 135:

    “Miscellaneous offences”.

    (2) The heading above section 136 is repealed.

27A New headings and sections 137A to 137Q inserted

  • The following headings and sections are inserted after section 137:

    “Subpart 4—Injunctions, banning orders, and other remedies

    “Injunctions

    “137A Injunctions against contraventions

    • “(1) The High Court may, on application by the Commission, grant an injunction restraining a person from engaging in conduct that constitutes or would constitute a contravention of a provision of this Act if—

      • “(a) the Court is satisfied that the person has engaged in conduct of that kind; or

      • “(b) it appears to the Court that, if an injunction is not granted, it is likely that the person will engage in conduct of that kind.

      “(2) In subsection (1), contravention includes aiding, abetting, counselling, or procuring the contravention.

      “(3) The Court may grant an interim injunction restraining a person from engaging in conduct of a particular kind if in its opinion it is desirable to do so.

      “(4) Subsections (1)(a) and (3) apply whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind.

      “(5) Subsections (1)(b) and (3) apply whether or not the person has previously engaged in conduct of that kind or there is an imminent danger of substantial damage to any other person if that person engages in conduct of that kind.

      “(6) In this section, engaging in conduct means doing or refusing to do an act, and includes—

      • “(a) omitting to do an act; or

      • “(b) making it known that an act will or will not be done.

      “Compare: 1988 No 234 ss 2, 42K, 42L

    “137B Undertaking as to damages not required by Commission

    • “(1) If the Commission applies to the High Court for the grant of an interim injunction under section 137A, the Court must not, as a condition of granting an interim injunction, require the Commission to give an undertaking as to damages.

      “(2) However, in determining the Commission's application for the grant of an interim injunction, the Court must not take into account that the Commission is not required to give an undertaking as to damages.

      “Compare: 1988 No 234 ss 42M

    “137C When Court may make banning order

    • The High Court may, on application by the Commission, make an order (a banning order) against a person if the Court is satisfied that—

      • “(a) the person has been convicted of an offence against any of the following sections:

        • “(i) section 118 (misleading or deceptive conduct by financial adviser or broker):

        • “(ii) section 119 (misleading, deceptive, or confusing advertisement by financial adviser or broker):

        • “(iii) section 134A (receiving client money if offer for subscription illegal); or

      • “(b) the person has been convicted of an offence against any of sections 58, 59, and 59A of the Securities Act 1978 or a pecuniary penalty order has been made against the person under that Act; or

      • “(c) the person has been convicted of a crime involving dishonesty as defined in section 2(1) of the Crimes Act 1961; or

      • “(d) the person has persistently contravened this Act or the Securities Act 1978; or

      • “(e) the person has been prohibited in an overseas jurisdiction from carrying on activities that the Court is satisfied are substantially similar to any of the activities referred to in section 137D.

      “Compare: 1988 No 234 s 43K

    “137D Terms of banning orders

    • A banning order may prohibit or restrict the person against whom it is made from doing all or any of the following things, without the leave of the High Court, for a period stated in the order of 10 years or less:

      • “(a) providing financial adviser services or broking services:

      • “(b) being a director or promoter of, or in any way, whether directly or indirectly, being concerned or taking part in the management of, any incorporated or unincorporated body that provides financial adviser services or broking services (other than an overseas company, or an incorporated or unincorporated body, that does not carry on business in New Zealand):

      • “(c) contributing, as employee or agent, to the provision of financial adviser services or broking services.

      “Compare: 1988 No 234 s 43L

    “137E Offence of contravening banning order

    • A person who acts in contravention of a banning order commits an offence and is liable on conviction on indictment,—

      • “(a) in the case of an individual, to imprisonment for a term not exceeding 3 years or to a fine not exceeding $100,000, or to both:

      • “(b) in the case of a body corporate, to a fine not exceeding $300,000.

      “Compare: 1988 No 234 ss 43E(2), 43M

    “Orders to preserve assets to satisfy claims

    “137F When High Court may prohibit payment or transfer of money, securities, or other property

    • “(1) This section applies if—

      • “(a) an investigation is being carried out under the Securities Act 1978 in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or

      • “(b) a prosecution has begun against a person for a contravention of this Act.

      “(2) The High Court may, on application by the Commission or by an aggrieved person, make 1 or more of the orders listed in section 137G if the court considers it necessary or desirable to do so for the purpose of protecting the interests of an aggrieved person.

      “(3) In this section and section 137G,—

      “aggrieved person means any person to whom a relevant person is liable

      “liable means liable, or may be or become liable, to pay money (whether in respect of a debt, by way of damages or compensation, or otherwise) or to account for securities or other property

      “relevant person means a person referred to in subsection (1).

      “Compare: 1988 No 234 s 43P

    “137G What orders may be made

    • “(1) The orders that may be made under section 137F are—

      • “(a) an order prohibiting the relevant person from transferring, charging, or otherwise dealing with money, securities, or other property held or controlled by the relevant person:

      • “(b) an order prohibiting a person who is indebted to the relevant person or to an associated person of the relevant person from making a payment in total or partial discharge of the debt to, or to another person at the direction or request of, the person to whom the debt is owed:

      • “(c) an order prohibiting a person holding money, securities, or other property, on behalf of the relevant person, or on behalf of an associated person of the relevant person, from paying all or any of the money, or transferring, or otherwise parting with possession of, the securities or other property, to, or to another person at the direction or request of, the person on whose behalf the money, securities, or other property, is or are held:

      • “(d) an order prohibiting the taking or sending out of New Zealand by a person of money of the relevant person or of an associated person of the relevant person:

      • “(e) an order prohibiting the taking, sending, or transfer by a person of securities or other property of the relevant person, or of an associated person of the relevant person, from a place in New Zealand to a place outside New Zealand (including the transfer of securities from a register in New Zealand to a register outside New Zealand):

      • “(f) an order requiring the relevant person, or any person holding money, securities, or other property on behalf of the relevant person or an associated person of the relevant person, to pay or transfer money, securities, or other property to a specified person to be held on trust pending determination of the investigation or prosecution:

      • “(g) an order appointing,—

        • “(i) if the relevant person is a natural person, a receiver or trustee, having any powers that the court orders, of the property or of part of the property of that person; or

        • “(ii) if the relevant person is a body corporate, a receiver or receiver and manager, having any powers that the court orders, of the property or of part of the property of that person:

      • “(h) if the relevant person is a natural person, an order requiring that person to deliver up to the court his or her passport and any other documents that the court thinks fit:

      • “(i) if the relevant person is a natural person, an order prohibiting that person from leaving New Zealand, without the consent of the court.

      “(2) A reference in subsection (1)(e) or (g) to property of a person includes a reference to property that the person holds otherwise than as sole beneficial owner, for example,—

      • “(a) as trustee for, as nominee for, or otherwise on behalf of or on account of, another person; or

      • “(b) in a fiduciary capacity.

      “(3) An order may be expressed to operate for a specified period or until the order is discharged by a further order under this section.

      “Compare: 1988 No 234 s 43Q

    “137H Interim orders

    • “(1) If an application is made to the High Court for an order under section 137F, the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application.

      “(2) The Court must not require the applicant or any other person, as a condition of granting an interim order under this section, to give an undertaking as to damages.

      “(3) In determining an application for the grant of an interim order, the Court must not take into account that the applicant is not required to give an undertaking as to damages.

      “Compare: 1988 No 234 s 43R

    “137I Relationship with other law

    • “(1) Nothing in sections 137G to 137H affects the powers that the Court has apart from those sections.

      “(2) This section has effect subject to the Insolvency Act 2006.

      “Compare: 1988 No 234 s 43S

    “137J Offence of breaching orders

    • A person commits an offence who contravenes an order by the Court under section 137G or 137H that is applicable to the person and is liable on conviction on indictment,—

      • “(a) in the case of an individual, to imprisonment for a term not exceeding 3 years or to a fine not exceeding $100,000, or to both:

      • “(b) in the case of a body corporate, to a fine not exceeding $300,000.

      “Compare: 1988 no 234 s 43T

    “Pecuniary and compensatory orders for contravening wholesale certification requirement

    “137JA Pecuniary order for contravening wholesale certification requirement

    • “(1) The High Court may, on application by the Commission, order a person to pay a pecuniary penalty to the Crown if the Court is satisfied that the person has, without reasonable excuse, contravened a wholesale certification requirement under section 5E.

      “(2) The amount of the pecuniary penalty must not, in respect of each act or omission, exceed $100,000 in the case of an individual or $300,000 in the case of an entity.

      “(3) In setting the amount of the pecuniary penalty, the Court must take into account all of the following matters:

      • “(a) the nature and extent of the contravention:

      • “(b) the nature and extent of any loss or damage suffered by a person as a result of the contravention, including the effect on a person of the loss of an opportunity to make a complaint to an approved dispute resolution scheme:

      • “(c) the circumstances in which the contravention took place (including whether the contravention was intentional, inadvertent, or caused by negligence):

      • “(d) whether the person has previously been found by the court in proceedings under this Act to have engaged in similar conduct.

      “(4) A financial adviser or broker may not be liable to more than 1 pecuniary penalty in respect of the same conduct.

      “(5) Proceedings under this section may be commenced at any time within 3 years after the contravention occurred.

    “137JB Compensation for contravention of wholesale certification requirement

    • “(1) If the Court orders a person to pay a pecuniary penalty under section 137JA in respect of the contravention of a wholesale certification requirement, the Court may, in addition, order a person to pay compensation to any person who has suffered, or is likely to suffer, loss or damage as a result of the contravention (the aggrieved person).

      “(2) An application for orders under this section may be made by the Commission or any aggrieved person.

      “(3) The application must be made within 1 year of the date of the pecuniary penalty order.

      “(4) The Court may make an order under this section whether or not any aggrieved person is a party to the proceedings.

      “(5) In proceedings under this section, the Court may make such orders as it thinks fit.

    “Temporary banning orders against financial adviser and broker

    “137K When Commission may make temporary banning orders for financial adviser services or broking services

    • The Commission may make an order (a temporary banning order) against a person in accordance with sections 137L to 137P if the Commission is satisfied that—

      • “(a) the person has persistently contravened this Act or the Securities Act 1978; or

      • “(b) the person has been prohibited in an overseas jurisdiction from carrying on activities that the Commission is satisfied are substantially similar to any of the activities referred to in section 137L.

      “Compare: 1988 No 234 s 42D

    “137L Terms of temporary banning order

    • A temporary banning order may prohibit or restrict a person from doing all or any of the following things, without the leave of the Commission, for a period stated in the order of 14 days or less:

      • “(a) providing financial adviser services or broking services:

      • “(b) being a director or promoter of, or in any way, whether directly or indirectly, being concerned or taking part in the management of, any incorporated or unincorporated body that provides financial adviser services or broking services (other than an overseas company, or an incorporated or unincorporated body, that does not carry on business in New Zealand):

      • “(c) contributing, as employee or agent, to the provision of financial adviser services or broking services.

      “Compare: 1988 No 234 s 42E

    “Process for Commission's orders

    “137M Commission must follow steps before making orders

    • “(1) Unless section 137N applies, the Commission may make a temporary banning order only if it first takes the following steps:

      • “(a) gives the person to whom the order is directed written notice of—

        • “(i) the nature of the alleged contravention; and

        • “(ii) the proposed terms of the order; and

        • “(iii) the reasons for the proposed order; and

      • “(b) gives that notice at least 24 hours before the Commission makes the order; and

      • “(c) gives the person an opportunity to make written submissions within that notice period; and

      • “(d) has regard to any written submissions made to it within that notice period and (if applicable) written or oral submissions made at a meeting of the Commission.

      “(2) However, the Commission may shorten these steps in accordance with section 137N in the circumstances specified in that section.

      “Compare: 1988 No 234 s 42F

    “137N Commission may shorten steps for specified orders

    • “(1) If the Commission thinks it necessary or desirable in the public interest for a temporary banning order to be made more urgently than section 137M permits, it—

      • “(a) may give less than 24 hours' notice before it makes the order, and the notice may be oral, not written; and

      • “(b) may give persons an opportunity to make only oral submissions, not written, to a member, officer, or employee of the Commission (as the Commission determines).

      “(2) However, the Commission must include in the notice under section 137M the reasons for acting urgently and must otherwise comply with the steps set out in that section.

      “Compare: 1988 No 234 s 42G

    “137O Commission must give notice after making orders

    • “(1) If the Commission makes a temporary banning order, the Commission—

      • “(a) must, as soon as is reasonably practicable, give written notice to the person to whom the order is directed of—

        • “(i) the terms of the order; and

        • “(ii) the reasons for the order; and

        • “(iii) may also give notice to any other person of those matters.

      “(2) The Commission must also, as soon as practicable after making the temporary banning order, give notice on an Internet site maintained by or on behalf of the Commission (and may give public notice by any other means also) of the name of the person against whom the order is made and the period or dates for which the ban applies.

      “Compare: 1988 No 234 s 42H

    “137P General provisions on temporary banning orders

    • “(1) The Commission may make a temporary banning order on the terms and conditions that the Commission thinks fit.

      “(2) The Commission may vary a temporary banning order in the same way as it makes such an order under sections 137M to 137O.

      “(3) The Commission may revoke a temporary banning order or suspend it on the terms and conditions it thinks fit.

      “(4) A temporary banning order is subject to appeal only in accordance with section 69P of the Securities Act 1978.

      “Compare: 1988 No 234 s 42I

    “137Q Offence of failing to comply with Commission's orders

    • “(1) A person who contravenes a temporary banning order commits an offence and is liable on summary conviction to a fine not exceeding $30,000.

      “(2) No person may be convicted of an offence against subsection (1) if—

      • “(a) the person proves that the contravention occurred without the person's knowledge or without the person's knowledge of the order; or

      • “(b) the contravention was in respect of matters that, in the court's opinion, were immaterial; or

      • “(c) the court thinks that the contravention, in the circumstances of the case, ought reasonably to be excused.

      “Compare: 1988 No 234 s 42J”

27B Right of appeal

  • Section 138(1)(a)(iv) is amended by omitting “section 61 or 73” and substituting “section 49, 61, 73, or 77W”.

27BA New heading and sections 147A to 147E inserted

  • The following heading and sections are inserted after section 147:

    “Standard conditions for incorporation in authorisation and grants

    “147A Approval of standard conditions for incorporation in authorisations and grants of QFE status

    • “(1) The Commission may, by notice in the Gazette,—

      • “(a) approve standard conditions for incorporation in authorisations of financial advisers under section 55:

      • “(b) approve standard conditions for incorporation in grants of QFE status under section 67.

      “(2) The notice may state a date in relation to any specified standard condition on which the standard condition is incorporated into the authorisations of financial advisers or into the grants of QFE status.

      “(3) However, if a standard condition proposed to be approved does not relate to a reporting or accounting requirement, a date may be stated under subsection (2) in relation to that standard condition only if that standard condition—

      • “(a) will, in the opinion of the Commission, have little or no effect on authorised financial advisers or, as the case requires, on QFEs, or will be solely beneficial; or

      • “(b) is made in response to an emergency; or

      • “(c) is necessary to comply with statutory or international obligations; or

      • “(d) is necessary to avoid an unfair commercial advantage being taken; or

      • “(e) is necessary to avoid the defeat of the purpose of the Act.

      “(4) The notice in the Gazette need not set out the standard conditions, but those conditions must be—

      • “(a) published on an Internet site maintained by or on behalf of the Commission; and

      • “(b) made available in printed form for purchase on request by members of the public.

    “147B Requirement to consult on proposal to incorporate material by reference

    • “(1) Before the Commission approves standard conditions under section 147A, the Commission must—

      • “(a) make copies of the proposed standard conditions available for inspection during working hours for a reasonable period, free of charge; and

      • “(b) state where copies of the proposed standard conditions are available for purchase; and

      • “(c) make copies of the proposed standard conditions available on an Internet site maintained by or on behalf of the Commission; and

      • “(d) give notice in the Gazette stating—

        • “(i) how the proposed standard conditions can be inspected, purchased, or accessed on the Internet site address; and

        • “(ii) specifying a period within which any person may make a written submission to the Commission on the proposed standard conditions and, if applicable, on the date on which the standard condition is to be incorporated.

      “(2) If the Commission proposes that any standard condition should be incorporated on a specified date, the notice given under subsection (1)(d) must also state why the Commission considers that the standard condition should apply to current authorisations of financial advisers or to current grants of QFE status ahead of the renewal of those authorisations or grants.

      “(3) The Commission must consider any submissions received within the period specified under subsection (1)(d)(ii).

    “147C Variation or revocation of standard conditions

    • “(1) The Commission may approve variations or revocations of any standard conditions under section 147A in the same way as standard conditions are approved under that section.

      “(2) Sections 147A and 147B apply to any proposed approval of variation or revocation of standard conditions, with any necessary modifications.

    “147D When standard conditions come into force

    • The approval of standard conditions, or of variation or revocation of standard conditions, comes into force on the 28th day after the date on which the approval is notified in the Gazette.

    “147E Incorporation of changed standard conditions into existing authorisations or grants

    • A standard condition, or a variation or revocation of a standard condition, that has come into force is incorporated into the authorisation of an authorised financial adviser or into the grant of QFE status of a QFE—

      • “(a) if the notice approving the condition, variation, or revocation states a date under section 147A(2), on that date; and

      • “(b) in any other case, when, and to the extent that, the condition is incorporated on the renewal of the authorisation or grant under section 58 or 75C.”

27C New sections 148 to 148B substituted

  • Section 148 is repealed and the following sections substituted:

    “148 Commission may grant exemptions

    • “(1) The Commission may, in its discretion and on any terms and conditions as it thinks fit, exempt any person or class of persons, service or class of service, or any transaction or class of transactions from—

      • “(a) compliance with any obligation under this Act, the regulations, or the code:

      • “(b) the obligation to register under the FSP Act by virtue of providing financial adviser services or broking services.

      “(2) The Commission must be satisfied, before it grants an exemption (except as provided in subsection (3)), that—

      • “(a) the cost of compliance with the relevant obligation—

        • “(i) would be unreasonable; or

        • “(ii) would not be justified by the benefit of compliance; or

      • “(b) the relevant person, service, or transaction is subject to the regulations of an overseas jurisdiction and the Commission is satisfied that, in the circumstances, the protection of the New Zealand public is unlikely to be prejudiced.

      “(3) If a proposed exemption would exempt a person applying to be an authorised financial adviser from obligations imposed by the code in respect of competence, the Commission must be satisfied that the exemption would not undermine consumer protection and that—

      • “(a) the applicant has qualifications that are comparable to standards required by the code; or

      • “(b) the cost of compliance with the obligation would be—

        • “(i) unreasonable; or

        • “(ii) not justified by the benefit of compliance.

    “148A Commission may vary or revoke exemption

    • “(1) The Commission may vary the exemption in the same way as it may grant the exemption under section 148.

      “(2) The Commission may revoke the exemption.

    “148B Status of exemptions, variations, or revocations

    • “(1) An exemption under section 148, or a variation or revocation of an exemption under section 148A, is a regulation for the purposes of the Regulations Disallowance Act 1989, but is not a regulation for the purposes of the Acts and Regulations Publication Act 1989 unless it is a class exemption.

      “(2) An exemption that is not a class exemption must, as soon as practicable after being granted, be—

      • “(a) published on an Internet site maintained by or on behalf of the Commission; and

      • “(b) notified in the Gazette; and

      • “(c) made available in printed form for purchase on request by members of the public.

      “(3) In this section and in section 149, class exemption means an exemption that—

      • “(a) is not an exemption from the code; and

      • “(b) applies to a class of persons or transactions; but

      • “(c) does not include an exemption granted in relation to a particular person, service, or transaction.”

27CA Commission must notify reasons for exemption

  • (1) The heading to section 149 is amended by adding “other than class exemption”.

    (2) Section 149 is amended by repealing subsection (1) and substituting the following subsection:

    • “(1) When the Commission grants an exemption other than a class exemption, the Commission must notify the reasons for granting the exemption (including why the exemption is appropriate) in the Gazette.”

27D Section 150 repealed

  • Section 150 is consequentially repealed.

27E New section 153 substituted

  • Section 153 is repealed and the following section substituted:

    “153 Levy

    • “(1) The Governor-General may, by Order in Council made on the recommendation of the Commission, make regulations requiring authorised financial advisers and QFEs to pay a levy to the Commission.

      “(2) The purpose of the levy is to meet, in whole or in part, the costs of the Commission, the Commissioner, the code committee, and the disciplinary committee in performing their functions and duties under this Act (and the costs of collecting the levy).

      “(3) Regulations under this section may—

      • “(a) specify an amount payable as the levy or a method of calculating or ascertaining the levy (which may be based on the estimated costs):

      • “(b) include or provide for including in the levy any shortfall in recovering the actual costs:

      • “(c) refund or provide for refunds of any over-recovery of those actual costs:

      • “(d) specify the financial year or part financial year to which the levy applies, and apply the levy to that financial year or part financial year and each subsequent financial year until the levy is revoked or repealed:

      • “(e) for the first financial year to which the levy applies, include in the levy costs from 1 January 2009:

      • “(f) require payment of a levy for a financial year or part financial year irrespective of the fact that the regulations may be made after that financial year has commenced:

      • “(g) provide for the collection and payment of the levy, including the time by which the levy must be paid:

      • “(h) exempt a person or class of persons from liability to pay the levy, in whole or in part:

      • “(i) provide for a waiver or refund of the levy, in whole or in part, for a person or class of persons:

      • “(j) provide for interest to be paid if a person fails to pay the levy by the due date:

      • “(k) provide for the cancellation of authorisation of an authorised financial adviser who fails to pay the levy by the due date:

      • “(l) provide for the cancellation of QFE status of a QFE who fails to pay the levy by the due date.

      “(4) Regulations under this section may make different provision for authorised financial advisers and QFEs and for different classes of authorised financial adviser and QFE.

      “(5) The levy is recoverable as a debt due to the Commission.”

28 General regulations

  • Section 154(1)(a) is repealed.

28 New section 154 substituted

  • Section 154 is repealed and the following section substituted:

    “154 General regulations

    • “(1) The Governor-General may, by Order in Council made on the recommendation of the Minister in accordance with subsections (3) and (4), make regulations—

      • “(a) exempting any person, service, document, or product or class of persons, services, documents, or products from all or any of the provisions of this Act or the regulations, and prescribing the terms and conditions (if any) of the exemption:

      • “(b) specifying the person that is the product provider in relation to a financial product other than a security, consumer credit contract, or contract of insurance:

      • “(c) specifying a product as a category 1 product:

      • “(d) specifying a product as a category 2 product:

      • “(e) providing for disclosure by financial advisers under sections 22 to 24 and for QFEs under section 25:

      • “(f) prescribing the form of disclosure that (in addition to the matters set out in subsection (2)) may include a maximum length of a form and that some or all of the information that must be disclosed must be included in 1 disclosure statement:

      • “(g) providing for disclosure by brokers under section 77F and 77G:

      • “(h) prescribing when, and subject to what terms and conditions, disclosure may be made in a joint disclosure document (whether by financial advisers or by brokers jointly, or by 1 or more persons in different capacities) and the form of a joint disclosure document:

      • “(i) prescribing the following matters in relation to Part 3A:

        • “(i) the duties of brokers in relation to their trust accounts (including who may be a related person or entity for the purposes of section 77Q and what entities are prescribed for the purposes of the trust account), and other provisions regulating their establishment and use:

        • “(ii) provisions regulating the keeping, inspection, and audit of trust account records or other records in connection with the receipt, holding, payment, and transfer of client money and client property, and prescribing the duties in relation to those records:

        • “(iii) any other requirements necessary or desirable to ensure that trust accounts are duly kept and that persons on whose behalf client money and client property are held by brokers are informed of the client money and client property held and of the transactions made in connection with it:

      • “(j) prescribing the form of an application for authorisation:

      • “(k) prescribing the form of an application for the grant of QFE status:

      • “(l) prescribing information that must be contained in a QFE's annual report:

      • “(m) prescribing the procedure of the code committee:

      • “(n) prescribing the procedure of the disciplinary committee:

      • “(o) providing for any other matters contemplated by this Act, necessary for its administration, or necessary for giving it full effect.

      “(2) In subsection (1), prescribing the form includes specifying additional content, means of communication, or any other requirement of form without necessarily specifying the use of a particular form.

      “(3) Regulations for the purposes of subsection (1) may make different provision for different classes of financial adviser or broker, financial adviser service or broking service, and client, and for different circumstances in which a financial adviser service or broking service is provided.

      “(4) The Minister must consult with the Commission before making a recommendation under subsection (1).

      “(5) The Minister must not recommend the making of regulations under subsection (1)(a) unless the Minister is satisfied that—

      • “(a) the exemption is consistent with the purposes of the Act; and

      • “(b) the costs of compliance with the provision or provisions to which the exemption relates would be unreasonable or not justified by the benefit of compliance; and

      • “(c) the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption.”

28B Section 159 repealed

  • Section 159 is consequentially repealed.

29 New sections 168 and 169 added

  • The following sections are section is added:

    “168 Grant of authorisations in transitional period without prior inquiry into convictions

    • “(1) In this section, transitional period means the period that commences on the commencement of section 55 and ends on the commencement of section 14.

      “(2) In the transitional period, the Commission may authorise a person under section 55 even though it has not yet undertaken or completed its inquiries in relation to section 54(b).

      “(3) An authorisation granted in reliance on subsection (2) is subject to the condition that it ceases to have effect if, before the expiry of the transitional period, the Commission notifies the applicant for authorisation that he or she is, given section 54(b), ineligible to be authorised.

      “(4) If, at any time after the expiry of the transitional period, the Commission is satisfied that an authorised financial adviser is, given section 54(b), ineligible to be authorised, but that the adviser has been granted authorisation in reliance on subsection (2), section 59(1)(a) applies to that adviser as if he or she had ceased to be eligible for authorisation.

    “169 Applications for QFE status made in transitional period

    • “(1) In this section, transitional period means the period that commences on the commencement of section 65 and ends on the commencement of section 14.

      “(2) Section 65(2) does not apply to an application for QFE status that is made in the transitional period.

      “(3) A QFE that attains its QFE status in the transitional period must provide the Commission with a list of the names of the individuals who, as at the day on which the transitional period ends, are the QFE's nominated representatives.”

30 Enactments amended consequential on principal Act

  • The enactments specified in the Schedule are amended in the manner indicated in that schedule.

Part 2
Amendments to Financial Service Providers (Registration and Dispute Resolution) Act 2008

31 Commencement of provisions of principal Act

  • To avoid doubt, a provision of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 that is amended or enacted by any of sections 36 to 38 sections 35B to 38A comes into force in accordance with section 2(1) of that Act (as substituted by section 33A of this Act).

32 Principal Act amended

  • This Part amends the Financial Service Providers (Registration and Dispute Resolution) Act 2008.

33 Purpose

  • The purpose of this Part is to prepare for the effective and efficient implementation of the principal Act by making a number of necessary and desirable amendments to that Act.

33A Commencement

  • Section 2 is amended by repealing subsection (1) and substituting the following subsection:

    • “(1) Part 2 and section 48 come into force on a date to be appointed by the Governor-General by Order in Council; and 1 or more orders may be made that do either or both of the following:

      • “(a) bring different provisions into force on different dates:

      • “(b) bring provisions into force on different dates in respect of different types of financial service or financial service provider.”

33B Overview

  • Section 3 is amended by repealing subsection (2) and substituting the following subsection:

    • “(2) In order to be registered, financial service providers are generally required to be members of a dispute resolution scheme if they provide financial services to retail clients.”

34 Interpretation

  • (1AA) The definitions of insurance business and licensed service in section 4 are repealed.

    (1) The definition of person in section 4 is amended by omitting “an unincorporated body, and a superannuation scheme as defined in section 2A of the Superannuation Schemes Act 1989” and substituting “and an unincorporated body”.

    (2) Section 4 is amended by inserting the following definitions in their appropriate alphabetical order:

    “broker has the meaning given by section 77A of the Financial Advisers Act 2008

    “broking service has the meaning given by sections 77B and 77C of the Financial Advisers Act 2008

    “contract of insurance—

    • “(a) includes a contract of life insurance (including endowment and annuity contracts) and reinsurance; but

    • “(b) does not include a class of contract declared not to be a contract of insurance by regulations

    “insurer means a person by whom or on whose behalf the risk or part of the risk to which any contract of insurance relates is accepted

    “licensed means licensed, registered, authorised, or otherwise approved by a licensing authority

    “licensed service means a financial service in respect of which a licensing enactment requires a person to be licensed, registered (other than under this Act), authorised, or otherwise approved by a licensing authority (or to be exempt from that requirement) to—

    • “(a) provide the service; or

    • “(b) hold out that the person provides the service

    “licensing enactment means an enactment identified in Schedule 2

    “retail client has the meaning set out in section 49

    “wholesale client has the meaning set out in section 49”.

34B Meaning of financial service

  • (1) Section 5 is amended by inserting the following paragraph after paragraph (a):

    • “(ab) a broking service:”.

    (2) Section 5 is amended by repealing paragraph (i) and substituting the following paragraph:

    • “(i) participating in an offer of securities to the public as an issuer or a promoter or acting, in respect of those securities, in a capacity as a trustee, unit trustee, superannuation trustee, statutory supervisor, or manager (within the meaning of those terms in section 2(1) of the Securities Act 1978):”.

    (3) Section 5 is amended by repealing paragraph (m) and substituting the following paragraph:

    • “(m) acting as an insurer:”.

35 Application of Act

  • (1) Section 7(2) is amended by adding the following paragraphs:

    • “(n) a nominated representative (within the meaning of the Financial Advisers Act 2008) while acting in that capacity in accordance with that Act:

    • “(o) an employer while providing financial services to enable employees of the employer to obtain rights or benefits under a registered superannuation scheme (as defined in section 2(1) of the Superannuation Schemes Act 1989) or a KiwiSaver scheme (as defined in section 4(1) of the KiwiSaver Act 2006), being a scheme in which that employer and other employers participate for the benefit of their employees.”

    (2) Section 7 is amended by repealing subsection (3) and substituting the following subsection:

    • “(3) This Act does not apply to any financial services that are provided, in the course of a company's business, by the company or an employee of the company to no persons other than related companies.”

35 New section 7 substituted

  • Section 7 is repealed and the following section substituted:

    “7 Application of Act

    • “(1) This Act applies to persons who are in the business of providing a financial service.

      “(2) None of the following persons are in the business of providing a financial service for the purposes of this Act to the extent this subsection applies to them:

      • “(a) a lawyer, incorporated law firm, conveyancing practitioner, chartered accountant, tax agent, or real estate agent providing a service in the ordinary course of business of the relevant kind:

      • “(b) a government department listed in Schedule 1 of the State Sector Act 1988:

      • “(c) the Reserve Bank of New Zealand (and any subsidiaries):

      • “(d) the statutory entities listed in Schedule 1 of the Crown Entities Act 2004:

      • “(e) a person engaged in terminating the business of a financial service provider after that provider has been deregistered:

      • “(f) a non-profit organisation in respect of free financial services:

      • “(g) an affiliated entity:

      • “(h) an executor, administrator, or trustee in respect of services provided in the administration of an estate or a trustee in respect of services provided to beneficiaries of a family trust:

      • “(i) a nominated representative (within the meaning of the Financial Advisers Act 2008) while acting in that capacity:

      • “(j) an employer while providing services to enable employees of the employer to obtain rights or benefits under a registered superannuation scheme (as defined in section 2(1) of the Superannuation Schemes Act 1989) or a KiwiSaver scheme (as defined in section 4(1) of the KiwiSaver Act 2006), being a scheme in which that employer participates for the benefit of its employees:

      • “(k) any other person exempted under any other enactment in respect of a class of financial services.

      “(3) If subsection (2) applies to a person (A), it applies equally to any controlling owner, director, employee, agent, or other person while acting in the course of, and for the purposes of, A's business to the same extent as it would apply to A.

      “(4) However, subsections (2) and (3) do not apply if, and to the extent that, any other enactment requires a person referred to in those subsections to be registered under this Act.”

35A New section 8A inserted

  • The following section is inserted after section 8:

    “8A Territorial scope

    • This Act applies to a person who—

      • “(a) is ordinarily resident in New Zealand (within the meaning of section 4 of the Crimes Act 1961) or is incorporated or carrying on business in New Zealand, regardless of where the financial service is provided; or

      • “(b) is, or is required to be, a licensed provider under a licensing enactment.”

35B No being in business of providing financial service unless registered

  • Section 11(1) is amended by inserting “for that service” after “registered”.

35C No holding out that in business of providing financial service unless registered

  • Section 12 is amended by repealing subsection (1) and substituting the following subsection:

    • “(1) A person to whom this Act applies must not—

      • “(a) hold out that the person is registered under this Act unless that person is registered under this Part; or

      • “(b) hold out that the person is registered in respect of a particular service or entitled, qualified, able, or willing to be in the business of providing a financial service unless that person is registered for that service under this Part.”

35D Qualifications for registration as financial service provider

  • Section 13 is amended by repealing paragraph (c) and substituting the following paragraph:

    • “(c) the Registrar is satisfied that—

      • “(i) the person is in, or intends to be in, the business of providing a financial service; and

      • “(ii) if that service involves a licensed service, the person is, or will be (on and from commencing to be in that business), a licensed provider or exempt under the licensing enactment from the requirement to be licensed.”

36 Disqualified person

  • Section 14(1) is amended by adding “; or” and also by adding the following paragraph:

    • “(c) a person who does not intend to offer financial services to persons in New Zealand.”

36 Application to be registered as financial service provider

  • (1) Section 15(1)(a) is amended by inserting the following subparagraph after subparagraph (ii):

    • “(iia) the class or classes of financial service to which the application relates:”.

    (2) Section 15(2) is amended by omitting “required to become a licensed provider”.

36A Registration of financial service provider

  • Section 16(1)(a) is amended by inserting the following subparagraph after subparagraph (ii):

    • “(iia) the class or classes of financial service for which the provider is registered:”.

36B New section 16A inserted

  • The following section is inserted after section 16:

    “16A Registration of unincorporated body as financial service provider

    • “(1) This section applies if the members of an unincorporated body (including the partners in a partnership, members of a joint venture, or trustees of a trust) are jointly in the business of providing a financial service.

      “(2) If this section applies,—

      • “(a) the members of the unincorporated body are not individually to be treated as being in the business of providing the relevant financial service; and

      • “(b) only the unincorporated body (and not the individual members) needs to be registered as a financial service provider for the relevant service; and

      • “(c) the unincorporated body must be the applicant for registration and is the financial service provider for the relevant service under this Act; and

      • “(d) the members of the unincorporated body are jointly and severally liable for the obligations of being a financial service provider for the relevant service under this Act.”

36C New section 16B inserted

  • The following section is inserted after the heading above section 17:

    “16B Amendment to registration

    • “(1) An application to amend the class or classes of financial service for which a financial service provider is registered must be made to the Registrar and must—

      • “(a) state whether the application relates to a licensed service, and if so, which particular licensed service; and

      • “(b) be in the form (if any) required by the Registrar and be accompanied by the prescribed fee (if any); and

      • “(c) confirm that the person is not disqualified under section 14; and

      • “(d) contain, or be accompanied by, any prescribed information or documents.

      “(2) If the Registrar accepts that an applicant is qualified to be registered as a financial service provider for that class of financial services, the Registrar must amend the register accordingly.

      “(3) If the Registrar does not accept that an applicant is qualified to be registered as a financial service provider for that class of financial service, the Registrar must notify the applicant and any relevant licensing authority of the Registrar's decision.”

36D Duty to notify changes relating to financial service provider

  • Section 17(1) is amended by repealing paragraphs (a) and (b) and substituting the following paragraphs:

    • “(a) a financial service provider, if—

      • “(i) the provider knows that the provider is no longer qualified for registration in accordance with section 13; or

      • “(ii) the provider is in the business of providing a different class of financial service than the class for which it is registered; or

      • “(iii) the provider knows that any details on the register are no longer correct:

    • “(b) the licensing authority, if the licensing authority knows that a financial service provider has ceased to be licensed:”.

36E Deregistration of financial service provider

  • (1) Section 18(1) is amended by repealing paragraph (b) and substituting the following paragraph:

    • “(b) is not (within 3 months after registration) in the business of providing a financial service or (at any time) is no longer in the business of providing a financial service; or”.

    (2) Section 18(1) is amended by adding “; or” and also by adding the following paragraph:

    • “(e) has failed to pay the levy under section 78A by the due date.”

36F Reregistration of financial service provider

  • Section 22(1) is amended by adding “; or” and also by adding the following paragraph:

    • “(c) on the grounds set out in section 18(1)(e) if the Registrar is satisfied that the levy has been paid.”

36G Purpose of register

  • Section 26(a)(ii) is amended by inserting the following subsubparagraph after subsubparagraph (B):

    • “(BA) the class or classes of financial service for which a financial service provider is registered; and”.

36H Contents of register

  • Section 27 is amended by inserting the following paragraph after paragraph (b):

    • “(ba) the class or classes of financial service for which the registered financial service provider is registered:”.

37 Registrar must amend register in certain circumstances

  • (1) Section 29(c) is amended by inserting “, or ceased to be,” after “has become”.

    (2) Section 29 is amended by repealing paragraphs (d) and (e) and substituting the following paragraphs:

    • “(d) the Registrar is satisfied at any time that an amendment is needed to update any of the details on the register or to correct a mistake or omission; or

    • “(e) regulations made under this Act require the Registrar to do so in circumstances specified by the regulations.”

37A Registrar's inspection powers

  • Section 37(9)(a) is amended by inserting “or a particular financial service” after “financial service”.

37B Regulations under Part 1 and this Part

  • (1) Section 44(1) is amended by inserting “on the recommendation of the Minister” after “Order in Council”.

    (2) Section 44(1) is amended by inserting the following paragraphs after paragraph (a):

    • “(ab) exempting any service or person or class of service or persons from the application of this Act, and prescribing the terms and conditions (if any) of the exemption:

    • “(ac) prescribing how the financial services referred to in section 5 must be divided into the classes of financial service for which a person may be registered:”.

    (3) Section 44 is amended by inserting the following subsection after subsection (1):

    • “(1A) The Minister must, in relation to a recommendation under subsection (1)(b),—

      • “(a) before making a recommendation, have regard to New Zealand's obligations under the FATF Recommendations; and

      • “(b) not make the recommendation unless the Minister is satisfied that the costs of compliance with this Act would be unreasonable or not justified by the benefit of compliance.”

38 New section 46 substituted

  • Section 46 is repealed and the following section substituted:

    “46 Territorial scope

    • “(1) This Act applies to each of the following:

      • “(a) a person who provides a financial service in New Zealand:

      • “(b) a person who is a licensed provider, whether the person is in New Zealand or outside New Zealand:

      • “(c) a person who is required, by the Financial Advisers Act 2008, to be registered or licensed, whether the person is in New Zealand or outside New Zealand.

      “(2) For the purposes of subsection (1), no account is to be taken of the place where the person—

      • “(a) resides; or

      • “(b) is incorporated; or

      • “(c) carries on business.”

38 Section 46 repealed

  • Section 46 is repealed.

38A Financial service provider must be member of dispute resolution scheme

  • (1) Section 48(1) is amended by omitting “the public” and substituting “a retail client”.

    (2) Section 48 is amended by adding the following subsection:

    • “(3) However, this obligation does not apply—

      • “(a) to a financial service provider if—

        • “(i) it is in the business of providing financial services only because it is an issuer or promoter participating in 1 or more offers of securities to the public; and

        • “(ii) doing so is not its only or principal business; or

      • “(b) to a financial service provider if it is exempted from the obligation under any other Act or by regulations made under section 79.”

38B New sections 49 to 49E substituted

  • Section 49 is repealed and the following sections are substituted:

    “49 Who are retail clients

    • “(1) A retail client is any person who receives a financial service who is not a wholesale client.

      “(2) The following persons who receive a financial service are wholesale clients in respect of that financial service:

      • “(a) a person who is in the business of providing any financial service and receives the financial service in the course of that business:

      • “(b) a person whose principal business is the investment of money or who, in the course of and for the purposes of the person's business, habitually invests money:

      • “(c) an entity to which at least 1 of the following applied at the end of each of the last 2 completed accounting periods:

        • “(i) at the balance date, the net assets of the entity exceeded $1 million:

        • “(ii) the turnover of the entity for the accounting period exceeded $1 million:

      • “(d) a related body corporate (within the meaning of section 5B(2) of the Securities Markets Act 1988) of an entity to which paragraph (c) applies:

      • “(e) a local authority, a Crown entity, a State enterprise, the Reserve Bank of New Zealand, and the National Provident Fund (or a company appointed under clause 3(1)(b) of Schedule 4 of the National Provident Fund Restructuring Act 1990):

      • “(f) a person who falls within 1 or more of the categories listed in section 3(2), 5(2CB), or 5(2CBA) of the Securities Act 1978 if the service relates to securities that may be offered to that person, or that have been subscribed for by that person, in a private offer of securities:

      • “(g) an eligible investor under section 49A.

      “(3) If subsection (1) applies to a person (A), it applies equally to any director, employee, agent, or other person acting in the course of, and for the purposes of, A's business to the same extent as it would apply to A.

      “(4) In this section,—

      “entity—

      • “(a) includes a body corporate and an unincorporated body (including partners in a partnership, members of a joint venture, or the trustees of a trust) and the sole trustee of a trust acting in his, her, or its capacity as trustee of that trust; but

      • “(b) does not include an individual

      “private offer of securities means an offer of securities that—

      • “(a) does not constitute an offer of securities to the public under section 3 of the Securities Act 1978; or

      • “(b) is exempt from Part 2 (other than sections 38B and 58) of that Act under section 5(2CB) or 5(2CBA) of that Act.

    “49A Who is eligible investor

    • “(1) A client is an eligible investor if—

      • “(a) the client certifies in writing that the client understands that, as a consequence of certifying himself, herself, or itself to be an eligible investor, the financial service provider may not be a member of an approved dispute resolution scheme; and

      • “(b) the client states the reasons for this certification; and

      • “(c) a financial service provider signs a written acceptance of the certification in accordance with section 49B.

      “(2) A certification may be specific to a particular service or class of services or may be general (but is not effective in relation to services provided before all the requirements of subsection (1)(a) to (b) are met).

    “49B Acceptance of certification

    • “(1) A financial service provider must not accept a certification unless he, she, or it, having considered the client's reasons for the certification,—

      • “(a) is satisfied that the client has been sufficiently advised of the consequences of the certification; and

      • “(b) has no reason to believe that the certification is incorrect; and

      • “(c) is satisfied that nothing indicates, or would indicate to a reasonable person, that further information or investigation is required as to the client's reasons for the certification.

      “(2) The person who accepts the certification of a client may be the person providing the financial services to the client (but does not need to be).

      “(3) A financial service provider who accepts a certification without having complied with subsection (1) contravenes a wholesale certification requirement.

      “(4) Contravention of this section may give rise to a pecuniary penalty order or compensatory order (see sections 79A and 79B).

    “49C How to opt out of being wholesale client

    • “(1) A person may opt out of being a wholesale client, in relation to a financial service provider, by giving the financial service provider a signed notification to that effect.

      “(2) A notification may be specific to a particular service, or class of services, or may be general for all services provided by the financial service provider to whom it is given.

      “(3) A person may vary or revoke a notification in the same way as the notification may be given.

      “(4) A notification (or variation or revocation of a notification) under this section is effective only in relation to services provided after it is given.

    “49D Members of dispute resolution scheme must comply with rules and binding resolutions

    • “(1) A member of an approved dispute resolution scheme or the reserve scheme must comply with the rules of the scheme.

      “(2) On the application of the person responsible for the scheme or a complainant, a District Court may make an order requiring a member of the scheme to do either or both of the following:

      • “(a) comply with the rules of the scheme:

      • “(b) comply with a resolution of a complaint that constitutes a binding resolution under those rules (a binding settlement).

      “(3) If a District Court is satisfied that the terms of a binding settlement of a complaint are manifestly unreasonable, the court's order under subsection (2) may modify the terms of the binding settlement.

      “(4) If an order requiring a member to comply with a binding settlement includes a requirement that the member pay an amount of money to a person, that order (or part of the order) may be enforced as if it were a judgment by a District Court for the payment of a sum of money.

    “49E Offence to fail to comply with District Court order

    • “(1) A member of an approved dispute resolution scheme or the reserve scheme who, knowing that the member is subject to an order made under section 49A, fails to comply with the order, or fails to comply with the order within the time or in the manner required by the order, commits an offence and is liable on summary conviction to a fine not exceeding $200,000.

      “(2) Nothing in this section applies to an order or part of an order of a District Court referred to in section 49A(4).”

38C Rules about approved dispute resolution scheme

  • Section 63 is amended by repealing paragraph (g) and substituting the following paragraph:

    • “(g) that the scheme has jurisdiction in respect of a breach of contract, statutory obligation, or industry code, or any other matter provided for in the rules:”.

38D Duty to co-operate and communicate information in certain circumstances

  • Section 67 is amended by adding the following paragraph:

    • “(d) if there is a series of material complaints about a particular broker or class of broker, communicate that fact to the Securities Commission.”

38E Appointment of reserve scheme

  • Section 72(1) is amended by adding “; and” and also by adding the following paragraph:

    • “(c) prescribe rules about the funding of the reserve scheme (see section 72A).”

38F New section 72A inserted

  • The following section is inserted after section 72:

    “72A Reserve scheme: rules about fees and charges

    • “(1) Rules made under section 72(1)(c) may—

      • “(a) provide for an applicant for membership, or for renewal of membership, to pay a fee in respect of the application:

      • “(b) require members to pay a membership fee:

      • “(c) if a complaint is made about a member, require the member to pay a charge in respect of the complaint in circumstances provided in the rules:

      • “(d) exempt a person or class of persons from liability to pay a fee or charge in whole or in part:

      • “(e) provide for the refund or waiver of a fee or charge, in whole or in part, for a person or class of persons:

      • “(f) provide for the termination of the membership of a member who fails to pay a fee or charge within the period provided in the rules.

      “(2) The charge under subsection (1)(c) may be—

      • “(a) a fixed amount; or

      • “(b) an amount calculated by reference to the costs of investigating and determining the complaint; or

      • “(c) a combination of the amounts referred to in paragraphs (a) and (b).

      “(3) Rules for the purposes of this section may make different provision for different classes of financial service provider.”

38G Duty to co-operate and communicate information in certain circumstances

  • Section 76 is amended by adding the following paragraph:

    • “(d) if there is a series of material complaints about a particular broker or class of broker, communicate that fact to the Securities Commission.”

38H Section 77 and the heading above section 77 repealed

  • Section 77 and the heading above section 77 are repealed.

38I New heading and new section 78A inserted

  • The following heading and section are inserted after section 78:

    “Levy

    “78A Levy

    • “(1) The Governor-General may, by Order in Council made on the recommendation of the Minister, make regulations requiring registered financial service providers (or a prescribed class of financial service providers) to pay a levy to the Minister.

      “(2) The purpose of the levy is to meet, in whole or in part, the costs of—

      • “(a) the Ministry's functions under this Part (including the costs of collecting the levy); and

      • “(b) the reserve scheme (to the extent that these are not met by fees and charges imposed in rules made under section 72(1)(c)).

      “(3) Regulations under this section may—

      • “(a) specify an amount payable as the levy or a method of calculating or ascertaining the levy (which may be based on the estimated costs):

      • “(b) include or provide for including in the levy any shortfall in recovering the actual costs:

      • “(c) refund or provide for refunds of any over-recovery of those actual costs:

      • “(d) specify the financial year or part financial year to which the levy applies, and apply the levy to that financial year and each subsequent financial year until the levy is revoked or repealed:

      • “(e) for the first financial year to which the levy applies, include in the levy costs from 1 January 2009:

      • “(f) require payment of a levy for a financial year or part financial year irrespective of the fact that the regulations may be made after that financial year has commenced:

      • “(g) provide for the collection and payment of the levy, including the time by which the levy must be paid:

      • “(h) exempt a person or class of persons from liability to pay the levy, in whole or in part:

      • “(i) provide for a waiver or refund of the levy, in whole or in part, for a person or class of persons:

      • “(j) provide for interest to be paid if a person fails to pay the levy by the due date.

      “(4) Regulations under this section may make different provision for different classes of registered financial service providers including, without limitation, for—

      • “(a) members of the reserve scheme:

      • “(b) members of approved dispute resolution schemes:

      • “(c) those who provide different types of financial service.

      “(5) The levy is recoverable as a debt due to the Crown.

      “(6) Before making a recommendation under subsection (1), the Minister must consult with persons or representatives of persons that the Minister considers are likely to be substantially affected by the proposed regulations.

      “(7) A failure to comply with subsection (6) does not affect the validity of the regulations.”

38J Regulations under this Part

  • (1) Section 79(1) is amended by inserting “made on the recommendation of the Minister” after “by Order in Council”.

    (2) Section 79(1) is amended by repealing paragraph (a) and substituting the following paragraph:

    • “(a) exempting any person or class of persons from the obligation to be a member of either an approved dispute resolution scheme or the reserve scheme, and prescribing the terms and conditions (if any) of the exemption:”.

    (3) Section 79 is amended by inserting the following subsection after subsection (1):

    • “(1A) The Minister must not recommend the making of regulations under subsection (1)(a), unless the Minister is satisfied that—

      • “(a) the exemption is consistent with the purposes of this Act; and

      • “(b) the costs of compliance with the obligation would be unreasonable or not justified by the benefits of compliance.”

38K New sections 79A and 79B and heading inserted

  • The following sections and heading are inserted after section 79:

    “Pecuniary and compensatory orders for contravening wholesale certification requirement

    “79A Pecuniary order for contravening wholesale certification requirement

    • “(1) The High Court may, on application by the Commission, order a person to pay a pecuniary penalty to the Crown if the Court is satisfied that the person has, without reasonable excuse, contravened a wholesale certification requirement under section 49B.

      “(2) The amount of the pecuniary penalty must not, in respect of each act or omission, exceed $100,000 in the case of an individual or $300,000 in the case of an entity.

      “(3) In setting the amount of the pecuniary penalty, the Court must take into account all of the following matters:

      • “(a) the nature and extent of the contravention:

      • “(b) the nature and extent of any loss or damage suffered by a person as a result of the contravention, including the effect on a person of the loss of the opportunity to make a complaint to an approved dispute resolution scheme or the reserve scheme:

      • “(c) the circumstances in which the contravention took place (including whether the contravention was intentional, inadvertent, or caused by negligence):

      • “(d) whether the person has previously been found by the court in proceedings under this Act to have engaged in similar conduct.

      “(4) A financial service adviser may not be liable to more than 1 pecuniary penalty in respect of the same conduct.

      “(5) Proceedings under this section may be commenced at any time within 3 years after the contravention occurred.

    “79B Compensation for contravention of wholesale certification requirement

    • “(1) If the Court orders a person to pay a pecuniary penalty under section 79A in respect of the contravention of a wholesale certification requirement, the Court may, in addition, order a person to pay compensation to any person who has suffered, or is likely to suffer, loss or damage as a result of the contravention (the aggrieved person).

      “(2) An application for orders under this section may be made by the Commission or any aggrieved person.

      “(3) The application must be made within 1 year of the date of the pecuniary penalty order.

      “(4) The Court may make an order under this section whether or not any aggrieved person is a party to the proceedings.

      “(5) In proceedings under this section, the Court may make such orders as it thinks fit.”

39 Schedule 2 amended

  • Schedule 2 is amended by omitting the items relating to the Superannuation Schemes Act 1989 and the KiwiSaver Act 2006.

Schedule 
Enactments consequentially amended

s 30

Securities Act 1978 (1978 No 103)

Schedule 1: insert in its appropriate alphabetical order “Financial Advisers Act 2008”.

Securities Markets Act 1988 (1988 No 234)

Section 17: repeal.

Summary Proceedings Act 1957 (1957 No 87)

Part 2 of Schedule 1: insert in its appropriate alphabetical order:

Financial Advisers Act 2008137EContravening banning order
 137JBreaching orders
Takeovers Act 1993 (1993 No 107)

Section 44D: repeal.

Takeovers Code Approval Order 2000 (SR 2000/210)

Rule 65 of the Schedule: revoke.

Legislative history

8 December 2009Introduction (Bill 109–1)
16 February 2010First reading and referral to Commerce Committee