Amendments to FAA
Disclosure under FAA for discretionary investment
management service – inconsistent with DIMS
124 Section 576 amends section 22 of the FAA by providing that, in the case of a financial adviser provisioning a personalised discretionary investment management service to a retail client, disclosure under the FAA must be made both:
124.1 before the investment authority is granted, and
124.2 before any exercise of that authority (unless there has been previous disclosure it is not "out of date" under section 29).
125 By contrast, for a DIMS licensee under the Bill, disclosure is only required:
125.1 before the investment authority is granted (section 432(1)(a)), and
125.2 if prescribed under section 426.
Importantly, there is no default requiring further disclosure before the investment authority is exercised, which would be introduced into the FAA by section 576.
126 We submit that:
126.1 the disclosure regimes under each piece of legislation should be aligned, and
126.2 the preferable approach is to prescribe circumstances in which updated disclosure must be made, rather than having a default position of requiring disclosure before any exercise of the investment authority
126.3 the new section 29A of the FAA (also introduced by the Bill), which allows further information to be prescribed for disclosure to recipients of a discretionary investment management service under the FAA, is sufficient to align it with the DIMS licensee disclosure provisions
126.4 the new section 22(1A)(a)(ii) of the FAA (introduced by the Bill), which sets the default position of requiring disclosure before any exercise of the investment authority, should be removed.
Duties of discretionary investment management
service provider under FAA
127 The new section 36C of the FAA, introduced by the Bill, will require a provider of a discretionary investment management service to provide that service with care, diligence and skill. This is sensible.
128 However, one key point arises from this new statutory standard: it overlaps with the existing care, diligence and skill requirement of section 33 of the FAA, applying to all financial adviser services. Section 36C is, therefore, redundant. If retained, it should clarify that a person cannot have liability under both section 36C and section 33 in respect of the provision of a discretionary investment management service.
Amendments to KiwiSaver Act
129 We submit (see section 607) that in view of provisions such as section 133, the provider concept should extend to lawful delegates (unless the context otherwise requires) in the case of retail as well as restricted schemes. For both types of scheme, there will be numerous situations where particular administrative functions are performed by a delegate of the issuer.
Conversion of governing documents to separate governing
130 KiwiSaver Amendment Act 2011 equivalent of section 69(3)(b) is proving inappropriately restrictive in practice. We submit that given its enabling purpose, section 69(3)(b) should be amended so as not to restrict the inclusion in replacement governing documents of amendments that, while not connected to the purpose of the section, are otherwise permitted by law.
- Financial Market Conduct Bill - Part 1 – Preliminary Provisions
- Financial Markets Conduct Bill - Part 2 - Misleading or deceptive conduct or false or misleading representations
- Financial Markets Conduct Bill - Part 3 – Disclosure of offers of financial products
- Financial Markets Conduct Bill - Part 4 – Governance of financial products
- Financial Markets Conduct Bill - Part 5 – Dealing in financial products on markets
- Financial Markets Conduct Bill - Part 6 – Licensing and other regulation of market services
- Financial Markets Conduct Bill - Part 7 – Enforcement, liability and appeals
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.