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25 Aug 11
Additional requirements for responsible entities offering investment to NZ residents

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Recent changes made to financial services legislation in New Zealand will have an impact on Australian responsible entities operating across the Tasman, according to McCullough Robertson lawyers Tim Wiedman, Sean Robertson and Brendan Leighton.

The Financial Advisers Act 2008 (NZ) (FAA) came into full effect on 1 July 2011. The FAA is similar to Australia’s Financial Services Reform Act 2001 in that, amongst other items, it requires persons or entities who provide financial services (including financial product advice) to be registered and to make certain disclosure to clients. The FAA also draws distinctions between personal and general advice, and retail and wholesale clients.

In addition to the FAA, the Financial Servicer Providers (Registration and Dispute Resolution) Act 2008 (NZ) (FSPA) was also enacted. The FSPA requires financial service providers to register with the Registrar of Financial Service Providers and also to be a member of a New Zealand based dispute resolution scheme if they provide financial services to retail clients in New Zealand.

Many responsible entities of registered managed investment schemes currently rely on the mutual recognition regime to offer interests in their scheme to clients in New Zealand. The commencement of the FAA and FSPA may have implications for Australian responsible entities offering their schemes in New Zealand pursuant to the mutual recognition regime, depending on the extent of the responsible entity’s activities.

No advice - Product Disclosure Statement distribution only

A responsible entity who makes their Product Disclosure Statement (PDS) available in New Zealand and advertises in accordance with the mutual recognition regime will not need to be registered under the FAA or FSPA, or be a member of a New Zealand based dispute resolution scheme.

General advice only

A responsible entity providing general advice, such as a recommendation or opinion intended to influence a person acquiring an interest in the scheme (for example, investment seminars), in addition to the circulation of its PDS and undertaking of advertising pursuant to the mutual recognition regime, will need to be registered under both the FAA and FSPA, and be a member of a New Zealand based dispute resolution scheme.

The responsible entity will also need to comply with the requirements of the FAA relating to general advice, which, for example, include an obligation to provide a general advice warning. However, they will not be subject to the obligation to provide prescribed disclosure (essentially the equivalent of the statement of advice used in Australia) to retail clients.

Personal advice

New Zealand’s Financial Markets Authority (FMA), as the regulator of the FAA, has issued an exemption notice enabling Australian responsible entities to provide personal advice to New Zealand retail clients, in limited circumstances, without the need to be registered under the FAA and subject to various conditions. The Exemption is a temporary exemption and expires on 30 June 2013.

Restrictions on NZ clients

Under the exemption, a responsible entity can only provide personal advice to New Zealand resident retail clients who meet one of the following requirements:

  • they are an existing client of the responsible entity and have a residential address in New Zealand
  • they became a client of the responsible entity when the person was physically located in Australia, or
  • they became a client of the responsible entity while they were physically located in New Zealand, other than a result of solicitation by the responsible entity or its representative (i.e. this circumstance covers the case where the responsible entity is approached by the client on an unsolicited basis).

These conditions make the application of the exemption quite narrow. A responsible entity looking to grow its business in New Zealand by providing personal advice to potential retail clients will need to be registered under the FAA and will be unable to rely on the exemption.

Other conditions

Other conditions of the exemption include that the responsible entity must:

  • hold an AFSL authorising it to provide financial product advice to retail clients
  • have no place of business in New Zealand
  • have notified the FMA that it wishes to rely on the exemption
  • be registered as a financial service provider under the FSPA and become a member of an approved New Zealand based dispute resolution scheme
  • provide a statement of advice to New Zealand retail clients, which complies with the requirements of the Corporations Act, as well as certain warning statements to the client, such as that the responsible entity is regulated by ASIC under Australian laws which differ from New Zealand laws
  • ensure that its representatives are adequately trained and competent to provide personal advice to a retail client in accordance with the requirements of the Corporations Act
  • appoint an agent for receiving notices in New Zealand
  • give the FMA the names and contact information of its representatives who will provide advice to retail clients as well as a list of its current New Zealand retail clients
  • notify the FMA if it makes changes to its representatives and, if requested by the FMA, provide an updated New Zealand client list
  • identify and record the names and addresses of its New Zealand clients at the time that they become clients and also record when clients advise the responsible entity that they have moved to New Zealand, and
  • not engage in soliciting retail clients in New Zealand.

Wholesale clients

A responsible entity can provide personal or general advice to wholesale clients without the need to be registered under either the FAA or to be a member of the New Zealand based dispute resolution scheme, provided the responsible entity does not have a place of business in New Zealand.

However, the responsible entity will need to be registered under the FSPA. In providing advice to wholesale clients, a responsible entity should note that the requirements for qualification as a wholesale client in New Zealand are different in some respects to the test under the Corporations Act.

Focus covers legal and technical issues in a general way, it is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice.This Focus deals with New Zealand legislation and you should contact a New Zealand registered legal practitioner for advice on the application of New Zealand legislation to your circumstances. Further advice should be obtained before taking action on any issue dealt with in this publication.

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