Commerce Minister Simon Power announced on April 20 that the new Financial Markets Authority would have an initial budget of $24 million, rising to $28 million next year. The Financial Markets Authority (FMA) will be a new consolidated market conduct regulator for New Zealand's financial markets.
The FMA is being set up to consolidate the powers and functions of the Securities Commission, some of the functions of the Registrar of Companies and the Government Actuary, as well as some of regulatory roles of sharemarket operator NZX. The FMA starts business on May 1.
The funding will be a combination of Crown funding, to reflect broader public good and third-party funding, where services are provided to specific market participants for their individual or group benefit.
Third-party funding will be sourced from fees and levies paid under the new legislation. From institutions and advisers who have to pay annual fees to keep their registration.
Mr Power said he intends to publish a discussion document shortly, seeking public comment on the proposed fees and levies.
The discussion document will also contain fees and levy proposals for the Companies Office, the Insolvency and Trustee Service, and the External Reporting Board. This will provide a clearer picture of government fee and levy changes in the financial sector.
Mr Power has tasked the FMA with leading a drive to restore investor confidence after the demise of 63 finance companies and other entities over the past that has put $8.59 billion of investors' money, held in more than 205,000 deposits, on the line.
The FMA will have considerable teeth and from the start it will regulate all persons and institutions providing financial advice. Advisers are required to be regulated and will be audited at random by the FMA. From July 1, only authorised financial advisers will be able to provide advice on Category 1 products. These are securities such as shares and bonds, managed funds, futures contracts, savings-linked life insurance policies and land investment products. Those advisers who are registered but not authorised will be able to offer advice on all other products such as bank deposits, bonus bonds, life insurance (with no investment link) and cash PIE.
Only AFA can give advice on both Category 1 and 2 products.
It is important that from July 1 investors recognise the distinction in the qualifications of the professional advisers they are dealing with. The Securities Commission website has a register that investors can search to find advisers (and their qualifications) in their region (www.sec-com.govt.nz). As at April 14, there were 17 AFAs registered in Dunedin and seven in Central Otago. Only 410 advisers have made the grade so far in New Zealand but the Securities commission expects up to 3000 to make the grade eventually.
To become an AFA has required attaining an education level of NZQA Level 5. Most of us who have been in business for 10 years or more did not have to do much more than sit one exam concerning the new regulations.
This is because we already had the necessary qualifications as financial advisers and belonged to a professional body such as the Institute of Financial Advisers (IFA) which required us to comply with standards and ethics.
It is hoped that potential investors will get to understand the regulations and qualifications such that they will deal only with qualified advisers.
The information given by advisers must be sufficient for a potential investor to understand and make an informed decision.
The penalties for poor advice are quite steep, up to $100,000 for an individual and $300,000 for an institution. All advisers must belong to an independent dispute organisation and anyone can complain about an adviser. The Government hopes for self-regulation, in that qualified advisers will be able to report any advisers they consider errant.
- Peter Smith is an authorised financial adviser and the principal of Kepler Group Otago Limited. Email: pete@keplergroup.co.nz. A disclosure statement is available on request and free of charge.
