New Zealand: DIMS and other devices - licence details becoming clearer

Last Updated: 28 July 2013
Article by Bradley Kidd, Roger Wallis, Ross Pennington, Tim Williams, Mike Woodbury, Penny Sheerin and Emma Harding
Most Read Contributor in New Zealand, September 2016

Download: 2013 PUB BC DIMS and other devices - licence details becoming clearer - 17 July.pdf

The licensing regime for Discretionary Investment Management Services (DIMS) to be established by the Financial Markets Conduct Bill (FMCB) has come a long way since inception.

Regulation of DIMS under the Financial Advisers Act (FAA) has been aligned more closely to the FMCB via a Supplementary Order Paper (SOP) - in part to address the possibility of arbitrage between the two regimes. And the release last month of the licensing cabinet paper means that DIMS providers and other potential licensees now have a much clearer picture of the requirements that will be expected of them.

There is also an opportunity for input into the regulations under the FAA for DIMS, custodians and other brokers through a discussion paper put out yesterday by MBIE. Submissions close on Friday, 23 August 2013.

DIMS licence categories – FMCB or FAA?

The proposed boundary between who will be permitted to provide DIMS under the FAA and FMCB, discussed in our earlier commentary, has been further developed during the legislative process and in the SOP.

Service type Provide under FAA? Provide as DIMS licensee? Key changes in SOP
Non-personalised (class) DIMS provided to a retail clients (e.g. a portfolio programme offered to all-comers but not tailored to individual circumstances) No longer permitted Must be DIMS licensee A DIMS licence is compulsory for any type of class DIMS (prior to the SOP it was possible for an AFA, QFE adviser, registered individual, registered entity and exempt provider (except an overseas financial adviser) to provide class DIMS on category 2 products under the FAA).
Personalised DIMS provided to retail clients Yes – but can only be provided by AFAs and must be within scope of their authorisation. Yes Only AFAs can provide personalised DIMS to retail clients under the FAA. QFEs must be licensed under the FMCB (as must registered individuals who provide personalised retail DIMS on category 2 products).
DIMS provided to wholesale clients (i.e. not a "retail service" under FMCB) Yes – but if FMCB exemption applies then also exempt from FAA. Yes – but not compulsory as exemption applies Same as version of the Bill reported back from the Select Committee – no licence required if DIMS provided is not a retail service under FMCB (and also exempt from FAA).

Reducing regulatory arbitrage for DIMS providers

The risk of regulatory arbitrage between DIMS provided under the FAA and a DIMS licence under the FMCB has been reduced in the SOP by:

  • requiring that any provider of class DIMS to retail clients must be licensed under the FMCB (meaning that QFEs must be licensed under the FMCB for that service, rather than relying on any residual FAA ability)
  • providing that FMA may only authorise AFAs to provide personalised DIMS under the FAA if it is satisfied that the AFA meets prescribed requirements which match the FMCB, and requiring independent custody (already a feature of the FMCB)
  • clarifying that DIMS licensees will be acting as brokers under the FAA if they receive investor money.

These refinements provide a more logical outcome in terms of the "boundary" between the two pieces of legislation, as well as reducing the possibility of providers electing what they perceive to be a more "friendly" regime.

Helpfully, the SOP also makes it clearer that a DIMS which is not provided as a retail service will be exempt from the requirement for a licence (and fall outside the coverage of the FAA).

Licence conditions for DIMS licensees

The cabinet paper provides some helpful signals on what to expect in the regulations in relation to certain key areas for DIMS licensees.

  • Incidental advice – While advice on whether to join a DIMS will be financial advice covered by the FAA, any advice incidental to the operation of the DIMS (for example, changes to investment options) could give rise to similar regulatory issues. The solution is a sensible compromise – FMA will be able to impose licence conditions regulating incidental advice, rather than that incidental advice being automatically subject to the FAA.
  • DIMS client agreements – DIMS client agreements must provide adequately for custody and how rights relating to investor assets will be exercised. An investor will have the right to terminate a DIMS client agreement without penalty and take control of the assets within a reasonable period (the latter proposal is, again, sensible in our view as it recognises that an immediate liquidation of all client assets may be detrimental to the client's interest).
  • Record keeping – Records will need to be kept for at least seven years, covering all acquisitions and disposals of financial products during that time and the documents required to be produced by the licensee under the FMCB and regulations.
  • Wholesale DIMS – DIMs licensees who provide services to both retail and wholesale clients will need to inform wholesale clients that they are not subject to the same protections as the retail clients. Presumably, this will only apply to "hybrid" providers – as providers to solely wholesale investors will be exempt from the licensing requirements altogether.

Restricted scheme trustees

Trustees of restricted schemes (broadly industry, employer sponsored and other restricted offer superannuation and KiwiSaver schemes) are not required to have a licensed fund manager and supervisor. Instead, one of their trustees must be an independent trustee licensed by FMA.

Recognising that this model presents some risks in terms of trustee oversight (especially as trustees must generally act unanimously), the cabinet paper signals that there will be a whistle blowing obligation on independent trustees to report to FMA serious matters in relation to the scheme.

Administration managers, investment managers and auditors (and, for defined benefit schemes, actuaries) have had whistle blowing obligations for some years under the Superannuation Schemes Act 1989 and the KiwiSaver Act 2006, so this is not novel.

However, a key conceptual difference (which might make this a reasonably controversial regulation) is that requiring licensed independent trustees to report serious matters will effectively require them to tell on themselves.


The cabinet paper provides some useful indicators about the manner in which the derivatives issuers will be regulated.

  • Capital adequacy - FMA will continue to have a discretion, on a case by case basis, to impose capital adequacy and liquidity requirements on derivative issuers (although sensibly these requirements will not apply to entities which are already subject to prudential regulation by the Reserve Bank, including registered banks).
  • Client money - The basic approach to the handling of client money in the Futures Industry (Client Funds) Regulations 1990 will be continued (including keeping client money separate from the issuer's own funds). Also, the regulations will be designed to provide protection to clients when client money is used for hedging activities.
  • Reporting / record keeping - Standard licence conditions will govern ongoing client reporting by derivatives issuers to clients and record keeping. These are largely uncontroversial.
  • Product appropriateness - Interestingly, the cabinet paper indicates that FMA will continue to have discretion over product appropriateness requirements. While many issuers do currently consider appropriateness of derivatives products for their clients (a prudent course given recent Australian cases), giving FMA the flexibility to respond to activities of particular concern, without imposing general requirements, has some merit so long as there are sufficient guidelines for derivatives issuers to understand the circumstances justifying intervention. A similar approach is suggested in relation to leverage limits for clients.

General licensing criteria

The cabinet paper also gives some helpful signals in relation to the general principles to apply across all licensees, in terms of eligibility, criteria and licensing conditions.

  • Insurance requirements - FMA will be able to impose a condition that a licensee hold adequate insurance (as long as FMA is satisfied that it is necessary or desirable, having regard to the purposes of the FMCB).
  • Standard reporting - A standard licence condition will be that a licensee must report to FMA on certain prescribed matters such as insolvency and liquidation (but also more routine matters such as appointments of directors or senior managers and major transactions).
  • Outsourced functions - Interestingly, the cabinet paper signals that, in relation to outsourcing, the licence regime will be aligned with the governance requirements for managed investment schemes. In particular, terms will be implied in client agreements for retail services that the licensee must exercise care, diligence and skill, and will be liable for the performance of outsourced functions (including for a contractor's negligence).
  • Fit and proper persons - Unsurprisingly, directors and senior managers of licensees will be required to be "fit and proper" persons.

FMA to consult with Reserve Bank

FMA will be required to consult with the Reserve Bank when licensing banks, non-bank deposit takers and licensed insurers. We believe that the licensing regime could go further in this context and recognise that, for these entities with high levels of prudential supervision already in place, matters such as the fit and proper standards and insurance requirements should be deemed to be satisfied, rather than being subject to a residual consultation obligation.

Other licensed categories

The cabinet paper also signals that person to person lending services and equity based crowd funding services will be brought within the licensing regime, through regulations. This will be a welcome development for many participants in the start-up and venture capital sectors, where these types of funding sources are an attractive alternative to retail offerings which inevitably will carry higher compliance costs. These two types of licence will be dealt with in a separate brief counsel.

Next steps

Financial institutions gearing up for multiple licence categories may still be able to influence the finer workings of the licensing regime – both through the MBIE discussion paper and through the exposure draft of the regulations due to be released later this year.

The evidence from the response so far, as demonstrated in the SOP and in the cabinet papers, is that engagement in the process can be beneficial.

Chapman Tripp's earlier commentaries on the Bill are available here.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Bradley Kidd
Roger Wallis
Penny Sheerin
Emma Harding
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.