Australia: New Registration And Dispute Resolution Procedures Required For Financial Service Providers

Last Updated: 29 September 2008
Article by Sue Brown

The Financial Service Providers (Registration and Dispute Resolution) Act 2008 (Act), was passed on 25 September 2008. It forms part of the wider legislative reform of New Zealand's financial services industry - representing the umbrella legislation for the measures introduced by the Reserve Bank of New Zealand Amendment Act 2008 and the Financial Advisers Act 2008. The Act aims to provide a basic regulatory framework for registration for all financial service providers.

The main provisions

The Act establishes a system of registration for all financial service providers and requires that they all belong to a dispute resolution scheme.

The Act applies to those in the business of providing a financial service (although this does not have to be the only, or even the principal, business of that person). Lawyers, chartered accountants, tax agents, and real estate agents will not be covered by the Act if the financial services they provide are a necessary incident of their professional practice. A specific exemption is also provided for non-profit organisations that provide free financial services.

A wide range of entities are affected by the Act, including among others, banks, building societies, credit unions, participants in the offering of securities to the public such as trustees, promoters and managers of security issues, money transfer services, finance companies, credit providers, foreign currency exchanges, and insurers. Unlike the requirements to be imposed on individual financial advisers under the Financial Advisers Bill, employees of organisations registered under the Act will not be directly subject to its provisions. Of particular mention is the fact that the Act also applies to credit, not just to investment services.

'Financial service' has a very broad definition and includes:

  • A financial adviser service.
  • Acting as a deposit taker.
  • Being a registered bank.
  • Managing money, securities, or investment portfolios on behalf of other persons.
  • Providing credit under a credit contract.
  • Operating a money or value transfer service.
  • Issuing and managing means of payment.
  • Giving financial guarantees.
  • Participating in the offer of a security to the public as an issuer, contributory mortgage broker, trustee, statutory supervisor, promoter, or manager.
  • Changing foreign currency.
  • Entering into derivative transactions, or trading in money market instruments, foreign exchange, interest rate and index instruments transferable securities (including shares), and futures contracts on behalf of another person.
  • Providing forward foreign exchange contracts.
  • Underwriting and placing insurance.
  • Providing any other financial service that is prescribed for the purposes of New Zealand complying with the Financial Action Task Force Recommendations or other similar international obligations that are consistent with the purpose of the Act.

The registration requirement

The Act prohibits any person from being in the business of providing financial services or holding out that they are in the business of providing financial services unless they are registered under the Act.

An entity that has affiliated entities who would each qualify to be registered as a financial service provider may apply to the Minister to be declared a 'responsible financial service provider' in respect of all such affiliated entities.

The register of the financial service providers will be operated by the Registrar of Financial Service Providers which is to be appointed under the State Sector Act 1988. The person holding office as Registrar of Companies under the Companies Act 1993, immediately before the commencement of the Act, has been appointed as the first Registrar of Financial Service Providers under the Act. The register will be kept electronically and will be available to the public.

Dispute resolution

Aimed at providing a simple and low cost avenue for consumers to seek redress, the Act requires all persons who provide financial services to the public to belong to a dispute resolution scheme (Scheme).

However, only 'consumers' and small to medium-sized businesses and organisations will be able to make complaints to an approved Scheme. Access to the Schemes will be free to the consumers. 'Consumer' is not defined in the Act but it will be a person who acquires from a supplier financial services for personal use.

In what appears to be a drafting oversight, a financial service provider who provides no services to consumers at all must still maintain membership of an approved Scheme, even though none of its customers may access that Scheme.

Financial service providers are free to choose their preferred Scheme. Alternatively they can choose to belong to the reserve scheme which will be appointed by Order in Council from amongst the established Schemes.

It is envisaged that there will be more than one Scheme. The Schemes will need to be approved by the Minister of Consumer Affairs. However, the approving Minister will have to be mindful to reduce the risk of proliferation of small Schemes. In order to be approved, a Scheme will need to meet, among other requirements, the criteria of accessibility, independence, fairness, accountability, efficiency, and effectiveness.

Schemes' managers will be required to issue rules with prescribed content and to make these available for inspection by the public free of charge. They will also be required to publish a list of all the Scheme's members on the Scheme's website.

Territorial scope

The Act applies to the provision of a financial service in New Zealand by a person who is in New Zealand. Unlike equivalent legislation in other jurisdictions, the Act does not apply to persons providing financial services from offshore to a person in New Zealand. Therefore the Act offers no protection to the public in New Zealand dealing with offshore financial service providers, who increasingly make themselves available, for example, online.

Commencement date

Part 2 of the Act (registration of the financial service providers) and section 44 (obligation on financial service providers to be members of a dispute resolution scheme) will come into force on a date to be appointed by the Governor-General by Order in Council. One or more Orders in Councils may appoint different dates in respect of different types of financial service providers. The rest of the Act, including applications for approval for the Schemes and appointment of the Reserve Scheme, comes into force on the day after the date on which it receives the Royal Assent.

The Finance and Expenditure Committee has suggested a two year transition period to allow the Schemes to be established and approved, and to give providers time to comply with the new requirements. However, the transition period was not stipulated in the Act.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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