AFA Authorisation Guide January 2015

Transcription

1 AFA Authorisation Guide January 2015

2 Document history This version was issued in January 2015 and is based on legislation and regulations as at the date of issue. AUCKLAND OFFICE Level 5, Ernst & Young Building 2 Takutai Square, Britomart PO Box Auckland 1143 WELLINGTON OFFICE Level 2 1 Grey Street PO Box 1179 Wellington 6140 FMA document reference code

3 Contents Contents 3 Section 1. About this guide 5 Section 2. Summary check list to becoming an AFA 6 Section 3. Authorisation requirements 8 Joining a dispute resolution scheme 8 Selecting the scope of Financial Adviser Services (FAS scope) 8 Section 4. Proof of good character 9 Providing evidence of good character 9 Adverse impact statement 9 Disclosing criminal or other convictions 10 Declaring criminal convictions punishable by imprisonment 10 Testimonials 11 Supplementary AFA Application Form 12 Section 5. Proof of competence 14 Alternative qualifications and designations 15 TSO registration identification number 15 Section 6. Personalised DIMS eligibility 15 Section 7. Adviser Business Statement 16 Section 8. Qualifying Financial Entity FSP registration number 16 Section 9. FSP registration number 16 Section 10. Submitting your application for authorisation 17 Registration 17 AFA Authorisation Guide Page 3

4 Becoming authorised 17 Uploading documents 17 Confirming your application 17 Submitting your application and paying fees 18 Supplementary AFA Application Form 18 Section 11: Granting authorisation 18 Authorisation approval 18 Period of authorisation 18 Submissions 19 Application declined 19 Termination of authorisation 19 Cancelling your authorisation 19 Renewing your authorisation 19 Changing your FAS scope 20 Australian financial advisers 20 Where to go for help 22 Appendix One: FA Act (personalised DIMS) Minimum standards 23 Glossary 50 AFA Authorisation Guide Page 4

5 Section 1. About this guide This guide explains how to apply to become an Authorised Financial Adviser (AFA). It also explains how changes to an AFA s authorisation status are managed. You should read this guide before you apply for authorisation. You can use it as a reference during the online application process, in conjunction with the on-screen help text. You should also familiarise yourself with the Financial Advisers Act 2008, the Code of Professional Conduct (the Code) and the Standard Conditions for Authorised Financial Advisers. AFA Authorisation Guide Page 5

6 Section 2. Summary check list to becoming an AFA We recommend you tick off each step in this checklist before you go online to apply for authorisation. Further detail about each step is contained in this guide. Register with The Skills Organisation (TSO) for your TSO registration identification number and to book your competence assessments and examinations. Sit and complete all of the competence assessments and examinations you are required to do. If applicable, obtain evidence from your educational institution or industry body of accepted alternative qualifications and designations (see Schedule G of the Code). Have copies of these original documents certified as correct by a Solicitor of the High Court of New Zealand, a Justice of the Peace or an Officer of the Court. Join and register with a dispute resolution scheme (DRS) or obtain details of your employer s DRS scheme. Select the scope of Financial Adviser Services (FAS scope) you wish to be authorised for. You will only be able to give advice on the financial adviser services which you have attained the relevant unit standard sets (or alternatives) and which you apply to be authorised for. Determine which testimonials you will need to submit and download and print the relevant testimonial templates. Complete the testimonial forms you require with your name and TSO number, then send them to your referees to complete, date, sign and return to you. If applicable prepare a statement declaring any matters that could have an adverse impact on the FMA s view of your good character, taking into account your rights under the Criminal Records (Clean Slate) Act If applicable obtain details of any criminal convictions you have, either in NZ or overseas, which carried a potential penalty of six months imprisonment or more as well as any other criminal convictions which could have an adverse impact on the FMA s assessment of your character. Prepare a statement of your convictions including the offence, the penalty and when and where you were convicted. Provide any additional information about your role relevant to the circumstances of the offence and financial adviser services you are seeking authorisation for. AFA Authorisation Guide Page 6

7 Prepare an Adviser Business Statement (ABS). If you have applied to be authorised to provide personalised DIMS your ABS will need to provide information to evidence that you meet the minimum standards for personalised DIMS. The ABS will be assessed in conjunction with the additional information required by the FMA. Prepare your CV outlining your employment history for the preceding 15 years, including any period of overseas domicile and the relevant dates. You will be asked for this by the FMA in the Supplementary Application Information Form which will be forwarded to you for completion after you have submitted your online application. If you work for or plan to work for a Qualifying Financial Entity (QFE), obtain the FSP registration number of your QFE. This applies if you are an employee or a nominated representative of a QFE or an associated entity of a QFE. Save all the required documents electronically so they are on hand to upload during the online application process. Set up your own logon (username and password) in RealMe (formerly known as i-govt) and FSPR user account at the FSP Register ( You can use your existing RealMe logon if you have one. Apply for both registration and authorisation online at the FSP Register. Enter your RealMe login details on the FSPR website and follow the registration instructions. You will be asked if you wish to apply to be authorised by the FMA. Answer Yes and then complete the authorisation application The system will allow you up to 30 days to complete the authorisation application process provided you start it at the same time as you register. AFA Authorisation Guide Page 7

8 Section 3. Authorisation requirements The following is an explanation of the requirements you must meet to become an AFA. It is important that you understand these requirements before you start the application process. This information should be read in conjunction with the help text provided on screen during the online authorisation application process and in this guide under the section headed Submitting your application and paying fees. Joining a dispute resolution scheme Before providing financial services to retail clients you must be a member of an approved dispute resolution scheme (DRS). You will need to record which scheme you (or your employer or QFE) belongs to during the online registration application process. For more information about dispute resolution schemes click here. Registering on the Financial Service Providers Register The Financial Service Providers (Registration and Dispute Resolution) Act requires all financial service providers operating in New Zealand, including financial advisers, to be registered. Registration is a prerequisite to authorisation. The FSP Register is public so anyone can search it to check if you are registered and authorised. As part of the registration application process the Registrar will carry out a criminal history check on you and determine whether or not you are disqualified from being a registered financial service provider. Detailed information on registration is provided on the FSP Register. Selecting the scope of Financial Adviser Services (FAS scope) Before you apply for authorisation you need to decide which service(s) you wish to be authorised for. During the online application process you will be asked to select from a list of financial adviser services or combination of financial adviser services see below. Select the option in the drop down box appearing in the online application that matches the services you wish to provide. Definitions of the financial adviser services can be found at Schedule H of the Code. Financial advice Financial advice and investment planning services Personalised discretionary investment management services Financial advice and personalised discretionary investment management services Financial advice, personalised discretionary investment management services and investment planning services Financial adviser services in relation to category 2 products only Financial adviser services to wholesale clients and provision of class services AFA Authorisation Guide Page 8

9 Section 4. Proof of good character Providing evidence of good character We must be satisfied you are of good character before we grant your authorisation. The FMA s assessment of an applicant s character is an important tool for preserving public confidence in the professionalism and integrity of financial advisers. To enable us to make an assessment about your character, you are required to declare any matters that may have an adverse impact on the FMA's view of your character, including details of criminal convictions. You will also need to provide written testimonials. The information below outlines what you should provide to help us assess your good character. In addition, you should review our Guidance Note: Good Character and Criminal Convictions: Financial Advisers Act Adverse impact statement During the online application process you will be asked: Are you aware of any matters that may have an adverse impact on the FMA's view of your character? You should respond to this question by providing information we might wish to know before granting authorisation. Any information supplied should be set out in a separate word document then scanned as a PDF and uploaded as part of the application process. When responding you should consider the following non-exhaustive list of information on conduct about yourself that we would expect to be disclosed: having been dismissed from employment or asked to resign from a position of trust, fiduciary responsibility or similar having been investigated, charged, disciplined, censured, suspended or criticised by a regulatory or professional body, court or tribunal having been or currently the subject of a complaint to a professional body any current or pending disciplinary or criminal charges, dispute resolution matters or civil proceedings against you in New Zealand or overseas holding certain positions in a business which has gone into liquidation or receivership while you were connected with that business or within one year of that connection involvement in civil proceedings against you information on conduct suggesting: a lack of willingness to comply with legal obligations, regulatory requirements or professional standards obstructive, misleading or untruthful dealings with others a breach of fiduciary obligation or other obligation involving trust a failure to deal appropriately with conflicts of interest involvement in negligent, deceitful or otherwise discreditable business or professional practices including being involved in the management or being a major shareholder of a company employing discreditable practices AFA Authorisation Guide Page 9

10 failure to manage business or personal debts or financial affairs satisfactorily. If you have information of this or a similar nature to disclose, please provide us with all relevant details. If you are unsure whether a matter should be disclosed, you should either disclose the information or take legal advice on whether or not to disclose the information. We will not be satisfied that full disclosure has been made unless you disclose all relevant information yourself even if you know we might obtain the information from another source. If you do not disclose matters which the FMA subsequently becomes aware of, your non-disclosure will be viewed unfavourably by us when we making our good character assessment of you. Disclosing criminal or other convictions You must disclose any convictions that could affect our assessment of your character including criminal convictions: involving dishonesty, deceit, theft or fraud suggesting a lack of competence, diligence, judgement, honesty or integrity that relate to the types of information listed above. You will be asked to answer questions in relation to each of these circumstances in the Supplementary AFA Application Form that will be forwarded to you after you have submitted your online application. We will also check records held by the Ministry of Business, Innovation and Employment about any history of bankruptcy or company insolvency you may have been involved with. Note, as a guide, we would not expect you to disclose offences such as parking infringements, unless the overall history or pattern of offending suggests a lack of willingness to comply with or disregard for the law. The FMA s assessment If you have conduct matters to disclose to the FMA, it will not automatically result in us taking an adverse view of your character or disqualify you from being eligible to be authorised as an AFA. FMA has discretion to take into account the circumstances of the matters you disclose and decide whether they reflect adversely on your fitness to act as an AFA. You may also wish to talk to us direct to explain the circumstances disclosed in your application. Please contact us via at AFAapplications@fma.govt.nz once you have lodged your application, should you wish to do this. Nothing in this section affects your rights under the Criminal Records (Clean Slate) Act Declaring criminal convictions punishable by imprisonment You must disclose any criminal convictions in New Zealand or overseas for which you could have been sentenced to six or more months in prison as a specific eligibility criteria required by statute. It makes no difference whether or not you were actually sentenced to a term of imprisonment or not, or that you didn t serve an entire six month term of imprisonment if you were sentenced. Any conviction carrying a potential penalty of six or more month s imprisonment must be disclosed. If you have any such convictions then you must disclose the details of your convictions including the offence, the penalty and when and where you were convicted. This information should be set out in a separate word document then scanned as a PDF and uploaded as part of the online application process. If you have been convicted of such an offence, the FMA must satisfy itself that the offence does not reflect adversely on your fitness to act as an AFA. The fact that you have been convicted of such an offence will not automatically disqualify you from being eligible to be authorised. FMA has discretion to take into account the AFA Authorisation Guide Page 10

11 circumstances of the conviction and decide whether the offence reflects adversely on your fitness to act as an AFA. Failure to disclose criminal or other convictions It is in your interest to disclose any convictions you have. You can also provide relevant information about your financial adviser services or your role relevant to the circumstances of the offence as part of that submission. We will check records held by the Ministry of Justice and may check with overseas government agencies to verify the information you provide. However you will still need to disclose all of this information yourself for the FMA to be satisfied that you have made full disclosure. Testimonials To help with our assessment of good character, you must provide testimonials. Signed testimonials need to be scanned and uploaded as part of your online application. Each testimonial must be signed by the referee with their contact telephone and address, and be dated no more than two months before the application date. We may contact your referees in person to discuss the content of their testimonial. Testimonials must provide substantive information about you from your referee. Testimonials submitted with YES/NO responses to the questions in the template will not be accepted. The FMA has the discretion to reject a testimonial and require you to submit a replacement testimonial. Please ensure your referees understand the purpose and importance of the testimonials and are in a position to provide full and correct information. Providing standard testimonials You are required to provide a minimum of three standard testimonials from the following sources: 1. Your current manager. a. If you provide a testimonial from your current manager who has known you for less than 12 months, we may request you to provide an additional testimonial from your immediate past manager. b. If you are unable to provide a testimonial from your current manager then you must provide one from your immediate past manager. 2. A peer or colleague who has known you for a minimum period of 24 months. 3. A client on whose behalf you have acted for a minimum period of 24 months. If you are unable to provide a client testimonial then a second peer testimonial should be submitted. Providing non standard testimonials In some circumstances, for example, if you have not been in a financial advisory or a professional services role for the 24 months preceding your application, you may be unable to provide the three standard testimonials required. In these circumstances the FMA will accept a minimum of three non standard testimonials. The non standard testimonials must be accompanied by a brief explanation in a separate word document explaining why you cannot supply the standard testimonials required by the FMA. We may require additional testimonials to these to satisfy us as to your good character. In general we expect testimonials to be provided by referees who have known you for a minimum period of 24 months but preferably longer. They must have had the opportunity to observe your conduct first hand during that period. Testimonials must provide substantive information about you from your referee. The FMA has the discretion to reject a testimonial and require you to submit a replacement testimonial. A non standard testimonial template has been provided by the FMA for referees to use. AFA Authorisation Guide Page 11

12 We recommend that prior to submitting your application, you a copy of your CV and a brief explanation about your circumstances to AFAapplications@fma.govt.nz. We will contact you to discuss your circumstances and advise you what testimonials or other information you should submit with your online application in lieu of the standard testimonials. Testimonial templates and guidelines The FMA has produced testimonial guidelines and templates for applicants and their referees to explain what you and your referees need to do. Please ensure you use the correct template for each testimonial. Supplementary AFA Application Form As part of our assessment of your application, we will ask you supply additional information. Once you have submitted your online application on the FSPR website, the FMA will forward you a Supplementary AFA Application Form. We will ask you to complete this and return it directly to us. The form will ask you to provide the following information: A. Good character Responses to a set of questions regarding good character. If you disclose any good character matters, you will need to provide details in a separate word document. B. CV outlining employment history Your CV outlining your employment history for the preceding 15 years, including any period of overseas domicile and the relevant dates of the overseas domicile. C. Overseas Criminal Record Check Where your CV discloses any employment by you in an overseas jurisdiction for a period of three months or more, you must submit a Criminal Record Check from the overseas jurisdiction for the relevant period of employment. This must be dated within three months of the date that you submit your application. D. Overseas regulator disciplinary record Where your CV discloses any employment by you in an overseas jurisdiction for a period of three months or more, you must submit a disciplinary record from the relevant financial Regulator in the relevant jurisdiction for the period of employment. This must be dated within three months of the date that you submit your application. E. Dispute resolution scheme membership Advise the name(s) of all dispute resolution schemes which you have belonged to or your employer has belonged to when you were employed by it. Include the period and relevant dates of each membership. F. Dispute resolution scheme complaints Provide details of any complaint lodged against you to your DRS or to your employer s DRS and the particulars of the complaint and outcome. The FMA will contact your DRS to verify your complaints history. G. Professional body membership Provide a list of any professional bodies that you currently are a member of or have previously been a member, and provide the relevant dates of your membership. H. Professional body complaints or disciplinary action Provide full details of any complaints made against you to the professional body or any disciplinary action which you have been subject to by the professional body during the period of your membership. A template is provided AFA Authorisation Guide Page 12

13 on the FMA website for professional bodies to complete particulars of your disciplinary record. Please note: This is not a testimonial. The FMA may contact the professional body to verify your complaints and disciplinary action history. I. Adviser Business Statement Provide a completed Adviser Business Statement (ABS). Once you are authorised a Standard Condition of authorisation is that you have an up-to-date ABS. We require all applicants to have a completed ABS prior to authorisation to comply with the Standard Condition of authorisation. J. Personalised DIMS If you have applied to be authorised to provide personalised DIMS, you will need to complete the personalised DIMS section of the Supplementary AFA Application Form. You can choose to request a special limit on your licence, for example if you only want to do DIMS for a small number of clients or limit your service to particular asset classes or products. Make sure you re able to meet any conditions you propose as these will be conditions of your licence. If you wish to provide personalised DIMS your ABS will need to contain information that evidences you meet the minimum standards for providing personalised DIMS. Appendix One provides guidance on the information to include in your ABS that will demonstrate you meet these standards. AFA Authorisation Guide Page 13

14 Section 5. Proof of competence To be authorised you must meet the minimum standards of competence, knowledge and skills specified in the Code of Professional Conduct for Authorised Financial Advisers (the Code). The Code establishes the National Certificate in Financial Services (Financial Advice) Level 5 ( National Certificate ) as the minimum standard of competence for AFAs and sets out the educational requirements and alternative paths available to advisers to meet this minimum standard. To assist you to understand the competence requirements please read Code Standards and Schedule G of the Code. The table below sets out the Unit Standard Sets you need to complete to meet the competence requirements for authorisation in each FAS scope. Financial adviser service or services Financial advice Financial advice and investment planning services Personalised discretionary investment management services Financial advice and personalised discretionary investment management services Financial advice, personalised discretionary investment management services and investment planning services Financial adviser services in relation to Category 2 products only Financial adviser services to wholesale clients and provision of class services Competence requirements (Unit Standard Sets) A, B, C, D A, B, C, D A, B, D A, B, C, D A, B, C, D A, B, C, E A, B You can review the National Certificate unit standards on The Skills Organisation s website. Reviewing these will help you check whether you have any gaps in your knowledge or skills, and help you decide whether you need to undertake further training in order to meet the Code s competence requirements. You will need to arrange any training you need to address gaps in your knowledge and skills through an accredited training provider. The Skills Organisation (TSO) will advise us of your Unit Standard Set results once you have completed them. All of the competence requirements have to be met before your application can be approved. AFA Authorisation Guide Page 14

15 Alternative qualifications and designations The Code lists the qualifications and designations which are acceptable alternatives to certain Unit Standard Sets that make up the National Certificate. These are listed in Schedule G of the Code and defined in Schedule H. If you wish to rely on any of these alternative qualifications or designations you will need to scan and upload evidence of them during the authorisation application process. Alternative qualifications You will need to provide a certified copy of your qualification or a certified copy of your official academic record which states you have met the requirements to attain the qualification. Qualifications can be certified as correct when compared to the original by a Solicitor of the High Court, a Justice of the Peace or an Officer of the Court. Alternately you can provide a letter on letterhead paper from the relevant educational body or institution confirming that you hold the qualification, and the date on which the qualification was conferred. If you upload a copy of the letter with your application, you will also need to post the original hard copy of the letter to our office (marked for the attention of the licensing team, Financial Markets Authority, PO Box 1179, Wellington 6140). The original will be returned to you once it has been sighted. Alternative designations You will need to provide a copy of your designation certificate or a letter from the professional body or institution verifying your membership, the date the designation was awarded, and that the designation is up-to-date. Please note that if you provide a copy of your designation, we will also a require confirmation from the professional body that your designation is current. TSO registration identification number When you apply for authorisation you will be asked for your TSO registration identification number. This number is also required when you book competence assessments and exams through TSO. The number may sometimes be referred to as the ETITO registration identification number in the online application form. To obtain this number register with TSO s centrally administered assessment system. You will then receive access to The Skills Organisation s Candidate Handbook which explains the competence assessment process. Section 6. Personalised DIMS eligibility To be authorised to provide personalised DIMS you must satisfy us that you are capable of effectively performing the personalised DIMS service. The FMA has set minimum standards which an applicant must satisfy to show capability. These can be found at Appendix One. Your ABS, in conjunction with the personalised DIMS section of the Supplementary AFA Application Form, will provide us with the evidence that you satisfy the minimum standards and are therefore eligible to be authorised to provide personalised DIMS. Please see Appendix One for the minimum standards for personalised DIMS providers. Appendix One also provides guidance on including the evidentiary information in your ABS. AFA Authorisation Guide Page 15

16 Section 7. Adviser Business Statement Every AFA is required to have an ABS. Your ABS describes your business and explains the systems and procedures you have to ensure that you conduct your business in a professional way. It will also help the FMA determine the level of regulatory monitoring appropriate to you. The FMA has produced an AFA Adviser Business Statement Guide that explains how to write your ABS. During the online application process you will be asked to confirm whether you have an ABS. If you have not prepared an ABS at the time you submit your application, you can answer No to that question. However you will need to have completed your ABS by the time you send us your Supplementary AFA Application Form (as you need to send the ABS with that form). Section 8. Qualifying Financial Entity FSP registration number If you are either an employee or a nominated representative of a QFE or a member of a QFE Group you will need to provide your QFE s FSP registration number when you apply for authorisation. Your QFE will be able to give this to you. Section 9. FSP registration number You must apply for registration as a financial services provider and apply for authorisation as an AFA on the Financial Service Providers Register. Registration and authorisation are different but can be applied for at the same time (and there are advantages to doing this see Section 10). Help text is provided in the online application screen to make the process easy to follow. Before logging on to the FSPR website, we recommend you refer to the check list on page six of this guide to ensure that you have prepared everything you will need during the application process. AFA Authorisation Guide Page 16

17 Section 10. Submitting your application for authorisation Registration When registering you will be asked to provide some basic personal and business information, as well as selecting financial adviser services you provide and the dispute resolution scheme that you or your employer have joined. Becoming authorised Once you have applied for registration online, you will be asked if you wish to apply to be authorised as an AFA. If you do and continue with your application for authorisation, you will be asked to provide additional information to satisfy the FMA that you meet the requirements for authorisation. If you start your authorisation application and find that you don t have all of the relevant information available or need to interrupt the process, you can save and exit the application and return to complete it within 30 days. In this case, it will appear as My Unfinished Business when you log on again. You can choose to submit your registration application and then apply for authorisation at a later date. In this case, you will need to supply all of the authorisation information during the online session you cannot save and exit this part of the process as you can at the time of registration. Uploading documents At various steps in the application process you will need to upload the documents you have prepared, such as testimonials and evidence of alternative qualifications. These documents should be in word or PDF format. Word documents will be converted to PDF files automatically when they are scanned and uploaded. Confirming your application AFA applications must be completed by the person applying to become an AFA. Another person or colleague in your business such as your Compliance Manager or a Personal Assistant cannot apply or submit an application on your behalf. When you have completed your application you will be asked: to confirm that you are the person named in the application and that, if authorised as an AFA, you will act with professionalism and integrity. In some circumstances the FMA may require an applicant to provide a certified copy of their passport or drivers licence to prove their identity to authorise the Registrar to disclose personal information to the FMA and to authorise the FMA and other parties to collect, use or disclose personal information for the purpose of authorisation to confirm that you understand that it is a criminal offence under Section 136 of the Financial Advisers Act to knowingly make a false or misleading representation or omission in seeking authorisation status or to use a document, knowing it to be false. AFA Authorisation Guide Page 17

18 Submitting your application and paying fees Once you have completed and submitted your application and paid the required fees, the FSP Registrar will you within five working days to advise if you are registered. If registration is confirmed then your application for authorisation will be forwarded automatically to the FMA to process. Supplementary AFA Application Form After you have submitted your online application and it has been forwarded to the FMA, we will contact you and ask you to complete, sign and return a Supplementary AFA Application Form. This provides the additional information the FMA needs in order to assess your eligibility for authorisation. If you have applied to be authorised to provide personalised DIMS, you will need to complete the personalised DIMS section of the Supplementary AFA Application Form. Your ABS will need to include the information outlined in Appendix One. Section 11: Granting authorisation Authorisation approval Authorisation will only be granted by the FMA when we are satisfied you have met all of the eligibility requirements for authorisation. The time it takes to process your application will depend on a number of factors, including whether there are any gaps or omissions in the information you provide. If we have any questions regarding your application we will contact you directly. We will formally notify you when you have been granted authorisation. You will receive a letter from us by confirming your AFA status. The letter will include a copy of the Standard Conditions for AFAs, any individual conditions attached to your authorisation and a Certificate of Authorisation which includes the term and expiry date of your authorisation. The FMA will advise the FSP Registrar of your authorisation, and your status as an Authorised Financial Adviser will be published on the Financial Service Providers Register. Your status as an AFA will also be published on the FMA website along with the location of your business. Period of authorisation In most cases the FMA authorises financial advisers for an initial term of five years from the date of authorisation, unless there are reasons why a shorter or longer term may be appropriate. We will communicate with you if a term other than five years may be appropriate. AFA Authorisation Guide Page 18

19 Submissions If, based on the information available to the FMA from the application, there is likelihood that we may decline your application for authorisation, you will be notified and given the opportunity to make submissions in support of your application. You may be given the opportunity to meet with us to discuss your submissions. You may have your solicitor or another support person attend the meeting with you. Application declined If your authorisation application is declined, the FMA will formally notify you of its decision and the reasons for it. You may appeal against our decision to the District Court within 20 days of being notified of the decision. Your appeal rights are set out in section 138 of the Financial Advisers Act. Termination of authorisation Your authorisation can be terminated for the following reasons: 1. the period of your authorisation expires 2. you ask the FMA to cancel your authorisation 3. you cease to be registered as an FSP 4. the FMA cancels or suspends your authorisation if you are no longer eligible to be authorised, or you have breached your obligations under the Act, regulations, the Code or your terms or conditions. If we decide to cancel, suspend or amend the terms and conditions of your authorisation, you will be notified first and given the opportunity to make submissions on the matter. We will notify your change of status to the Registrar. If your authorisation is cancelled or suspended because you are no longer eligible or you have breached your obligations under the Act, we may also make this information public. Cancelling your authorisation If you decide to cancel your authorisation please the FMA at Renewing your authorisation We will send you a renewal reminder before the expiry of your period of authorisation. Your renewal application should be made before the expiry of your authorisation. Your renewal application must be completed online and accompanied by the application fee. If your application for renewal has been submitted but not granted by the FMA before the date on which your authorisation expires, the authorisation will continue in force until the application is determined. Your application will be subject to the FMA s eligibility criteria at the time of your application. We will also take into account your compliance history including whether you have complied with the Act, the terms and conditions of authorisation, any special conditions of authorisation and the Code. AFA Authorisation Guide Page 19

20 Changing your FAS scope Adding to your existing FAS scope If you wish to add to your FAS scope after you have been authorised, you will need to submit an application for a variation to your authorisation directly to the FMA. You can request a variation application form by ing AFAapplications@fma.govt.nz. Complete the form and submit it to the FMA with the required supporting documentation. If you are wishing to add personalised DIMS to your FAS scope, you can request a personalised DIMS variation application form by ing AFAapplications@fma.govt.nz. Complete the form and submit it with the required supporting documentation. Please note the supporting documentation includes an updated ABS which provides evidence that you meet the eligibility criteria for personalised DIMS (see Appendix One). FAS scope variation applications cost $115.00, plus an hourly rate of $ for every hour, or part-hour pro rata, of work carried out by the FMA staff in considering your application. We will invoice you for this. The invoice must be paid before we will issue you with your new Certificate of Authorisation. If the variation is approved, we will issue you a new Certificate of Authorisation including the additional FAS scope and will also notify the Registrar to add the FAS scope to your record on the FSP Register. A variation to your FAS scope does not affect, and in particular does not extend, your period of authorisation. Reducing your existing FAS scope If you wish to reduce your FAS scope after you have been authorised, you will need to make a request to the FMA to cancel the FAS scope you wish to remove. AFAapplications@fma.govt.nz clearly outlining the FAS scope you wish us to cancel. We will terminate the FAS scope, update our records and notify the Registrar of Financial Service Providers to remove the FAS scope from the Register. We will then issue you a replacement Certificate of Authorisation with the updated FAS scope(s). There is no cost to reduce your existing FAS scope. Australian financial advisers There are three avenues for recognition of licences or qualifications of Australian financial advisers who wish to provide financial adviser services to New Zealand retail clients. To understand your eligibility under any of these avenues, contact the FMA in writing or by to AFAapplications@fma.govt.nz to discuss your circumstances and eligibility. More information can be found on our website under Australian Financial Advisers. Australian financial advisers operating from Australia The Financial Advisers (Australian Licensees) Exemption Notice is applicable to Australian Financial Services Licence holders who provide certain financial adviser services from a place of business in Australia to New Zealand clients. This can also be found on our website under Australian Licensees Exemption. How to apply under this Exemption If you are eligible to apply under this Exemption, refer to the check list on page 6 of this guide. Logon to the FSPR website ( to apply for registration as a financial services provider and apply for authorisation as an AFA. We will send you an Australian Qualified Advisers Supplementary Information Form that all Australian applicants using the Exemption are required to complete. The usual fees for AFA applications will apply. AFA Authorisation Guide Page 20

21 Australian qualifications recognition The Financial Advisers (Australian Qualified Advisers) Exemption Notice provides an exemption from the qualifications requirements in Code Standard 16 for Australian-qualified advisers applying to be authorised financial advisers. Certain conditions must be met. This procedure is part of a mutual recognition arrangement with ASIC. Trans-Tasman Mutual Recognition Recognition under the Trans-Tasman Mutual Recognition Act 1997 (TTMRA) can be given to current individual holders of Australian Financial Services Licences and/or Australian Credit Licences who provide certain services and who apply to become authorised financial advisers and registered financial advisers. TTMRA recognition has limited application as it does not apply to entities or representatives. AFA Authorisation Guide Page 21

22 Where to go for help To find out more about licensing information for AFAs, their obligations, Code of Professional Conduct, Trans- Tasman Mutual Recognition and Standard Conditions. You can also call the financial adviser helpline Monday to Friday, 8:30am to 5:00 pm on ( for overseas callers) The Skills Organisation for information on Competence Standards and Assessment and the list of training providers. Financial Service Providers Register for information on registration. For more information about dispute resolution schemes. AFA Authorisation Guide Page 22

23 Appendix One: FA Act (personalised DIMS) Minimum standards To be eligible to provide personalised DIMS under the Financial Advisers Act 2008 (FA Act), you must be capable of effectively performing personalised DIMS. The FMA must be satisfied you meet the criteria set out in section 54 of the FA Act. Some criteria set specific requirements you must meet, such as being registered on the Financial Service Providers Register. Others are more general and apply to all aspects of your business. For example you must be capable of effectively performing the service. To help you understand these criteria, we have described the minimum standards we expect you to meet and shown the related Code Standard from the Code. Please note that these minimum standards do not change or limit the eligibility criteria set out in the FA Act or Regulations. The way to demonstrate your capability to provide personalised DIMS will be through your Adviser Business Statement (ABS). For some assessment categories, meeting a minimum standard may be simply showing how you adhere to the relevant Code Standard. In other areas, to show you are fully capable, it will be necessary to tell us not only how you meet the conduct requirement of a Code Standard but also explain the business processes, systems and procedures you rely on to perform personalised DIMS effectively. The following table sets out the minimum standards, related Code Standards and explanatory comments to help you update your Adviser Business Statement for personalised DIMS. AFA Authorisation Guide Page 23

24 Capability You and anyone you are relying on to provide personalised DIMS must have the capability to manage the service properly and effectively. 1. You have an appropriate breadth and depth of relevant financial services knowhow, whether gained here or overseas, to effectively provide personalised DIMS. 2. You have the capability relating to any aspect of the provision of personalised DIMS that you will personally perform. 3. You have access to any necessary expert professional advice (for example, legal or tax advice). Your capability to provide personalised DIMS We need to assess whether you have the right skills and experience to provide personalised DIMS. As it is you who is authorised to perform the service, we will consider your personal capability. If you are using other people in your business to assist with certain aspects of the performance of your personalised DIMS service, we must also be satisfied as to their skills and competence. We need to assess that you personally have the capability required to provide personalised DIMS. In order to have entered the AFA profession you will be meeting the competency Code Standards We also need to assess whether you have the right level of experience, additional skills, specialist knowledge and know-how to successfully deliver the personalised DIMS you are proposing to offer. In our view, there is a high threshold to meet in order to be able to provide personalised DIMS, as developing a bespoke investment strategy requires a high degree of specialist investment knowledge and experience. It would be unusual for a person providing such services not to have a specialist qualification and significant experience in investment. In order for the FMA to assess your capability to provide personalised DIMS, we ask that you provide the following information: Qualifications details of any qualifications you hold relevant to providing personalised DIMS Experience relevant experience, particularly in managing investments and developing investment strategies Professional development other information regarding your professional development, such as professional training courses or study that highlight your expertise or competency relevant to providing personalised DIMS Other knowledge and experience necessary to successfully run a personalised DIMS business (if relevant). Competence AFA Authorisation Guide Page 24

25 Related Code Standard/s Code Standard 14 Professional advice Please comment on whether and how you ensure you have ready access to key expert advice when you need it (such as legal, accounting, tax, financial, business or IT advice). We do not require that you keep advisors on a retainer, just that you can access advice as and when required. If you outsource part of your work and have a formal agreement, you don t need to discuss that arrangement here. Please note you cannot outsource the portfolio composition. It is you who is authorised to perform this service so you must demonstrate your capability to do this. Before providing a financial adviser service, an Authorised Financial Adviser must have the competence, knowledge and skills to provide that service. AFA Authorisation Guide Page 25

26 New clients Your procedures for bringing new clients on board must ensure they get sufficient information to make informed decisions about the financial services offered and you must ensure these services are not inappropriately marketed. 1. You maintain adequate and effective systems to bring clients on board, with processes and controls to ensure the requirements of the FA Act (including conduct requirements) are met. 2. You have effective procedures to identify whether a client is a retail or wholesale client (sections 5B and 5C of the FA Act) and they are informed about their status. 3. Any staff involved in bringing clients on board are aware of their obligations under the FA Act, and are adequately trained in the systems and processes for bringing clients on board. Related Code Standard/s Code Standard 7 Please describe how your procedures for bringing clients on board will work, including how you intend to attract clients to your service, such as using advertising or referrals and how you ll ensure you meet your legal obligations. The FA Act (section 41) requires you to ensure there is a client agreement governing the personalised DIMS provided to the client. This client agreement must be entered into at the same time as, or before, the investment authority is granted by the client. You must provide personalised DIMS to the client in accordance with the client agreement and an investment authority from the client. Please describe what procedures you have in place to identify whether a client is a retail client or a wholesale client. There are restrictions on providing financial adviser services under the FA Act. Even if you have staff who help you bring personalised DIMS clients on board, you must comply with the restrictions on providing financial adviser services under the FA Act. Please describe how you ensure that you comply with these restrictions if other staff are involved in bringing clients on board. If no other staff are involved, please state this. Please advise how you ensure that only you as the authorised party will exercise the discretion granted under the investment authority. An AFA must ensure each retail client has sufficient information to enable the client to make an informed decision about whether to use the Authorised Financial Adviser s financial adviser services. Clients AFA Authorisation Guide Page 26

27 Client objectives and investment authority A client should be given sufficient information to enable them to fully understand the scope of any investment authority they grant. 1. You have effective procedures to record the client s objectives and investment authority. 2. You keep a written copy of your client s investment authority, and that authority meets the requirements of Section 43 of the FA Act. 3. You ensure the proposed investment authority is appropriate for the client s investment objectives. Related Code Standard/s Code Standard 1 Explain how you record your client s investment objectives for personalised DIMS. For example, do you have a standard form; where did your form originate; and how often do you review the form? Appropriate investment authority You must ensure the client s investment authority is appropriate for the investment objectives (see section 43 of the FA Act). You will only be required to show you have satisfied this standard based on information provided by the client and information otherwise known to you. You must have a process to make reasonable enquiries to ensure that you have an up-to-date understanding of the client's financial situation, financial needs, financial goals, and risk profile, having regard to the personalised DIMS being provided. An Authorised Financial Adviser must place the interests of the client first, and must act with integrity. These obligations are paramount. Code Standard 12 An Authorised Financial Adviser must record in writing adequate information about any personalised services provided to a retail client. Clients AFA Authorisation Guide Page 27

28 Selecting investments You must exercise a professional standard of skill and care when selecting investments. 1. You have effective procedures to collect relevant investment information about forms of proposed investments. This includes information about any proposed investments that are exempt from the disclosure obligations in Part 3 of the FMC Act, to fulfil your obligations under Code Standard You have adequate and effective processes to select assets/instruments to comply with the investment authority including an investment strategy, supported by upto-date research and analysis. 3. You stress test your investment strategies as appropriate to the particular strategy. 4. You maintain efficient procedures to identify transactions involving related party benefits and deal with them appropriately. 5. You maintain efficient procedures to identify conflicts (or potential conflicts) of interest and deal with them appropriately. Please explain how you ll meet the minimum standards for selecting investments, including how you research and analyse information to evaluate and form your decisions when providing personalised DIMS. Under Code Standard 6, you must only: Provide services that you have the competence, skills and knowledge to provide Provide services and perform your obligations in a timely way Make recommendations in relation to financial products that have been assessed or reviewed by you to a level that provides you with a reasonable basis for any such recommendation, or by another person if it is reasonable in the circumstances for you to rely on that other person's assessment or review. Stress testing The purpose of stress-testing your investment strategies is to understand what would happen in specific, uncommon but possible circumstances, and to learn from those results. We don t expect to see fully documented stress-testing, but we would expect to see that you ve thought about the issues that might arise in adverse market conditions, and whether any further action might be appropriate. For example, if your investment authority only allows a maximum percentage of your clients portfolios to be invested in a particular asset class, a sudden market movement might unexpectedly cause you to breach this condition in your investment authority. To minimise this risk you might: regularly check that your investment authorities match the scope of your investment strategy (so there s less likely to be a breach of the investment authorities), and make sure the risks of market movements have been adequately explained to your clients. Advice or service and business relationships AFA Authorisation Guide Page 28

29 Related Code Standard/s Code Standard 14 Related party benefits and conflicts of interest You are required to place the interests of your clients first. Under Code Standard 5, you must identify, and clearly and effectively communicate to the client, all interests you or a related person to you may have that might influence the services you provide to the client. Where a conflict of interest arises when providing your services, and you are unable to manage the conflict of interest so as to place the interests of your client ahead of your interests, you must decline to act. Please describe how you identify, and communicate to your clients, all interests that you have where those interests might influence the provision of personalised DIMS. For example, do you regularly update a list of material interests and check proposed trades against it? Before providing a financial adviser service, an Authorised Financial Adviser must have the competence, knowledge and skills to provide that service. Code Standard 5 An Authorised Financial Adviser must effectively manage any conflicts of interest that may arise when providing a financial adviser service. Code Standard 6 An Authorised Financial Adviser must behave professionally in all dealings with a client, and communicate clearly, concisely and effectively. AFA Authorisation Guide Page 29

30 Investment monitoring and client reports Your systems and processes must enable you to monitor investment portfolios and take appropriate action when necessary. 1. Your portfolio monitoring systems and processes enable you to measure and report performance against the client s investment objectives and the client agreement sets out the frequency and methodology for reporting to them. 2. You regularly require your clients to get updated financial advice or reconsider their investment objectives (as appropriate). You review your client s circumstances and the portfolio allocations at least every six months. 3. Your systems, controls and procedures ensure: a. your investment strategy is developed and amended when appropriate b. corporate actions relating to investments (such as rights entitlements, dividend payments or stock splits) are appropriately dealt with by placing the interest of your clients first c. no-one can conduct unauthorised trading in relation to your client s property. 4. You have adequate and effective systems and procedures to: a. identify and report to your client (and the FMA if required) breaches of the Please describe how you manage investments, monitor performance against personalised DIMS client objectives, and report to clients. You must comply with Code Standard 8, which outlines (among other obligations) that you have an up-to-date understanding of your client's financial situation, financial needs, financial goals and risk profile, having regard to the personalised DIMS that you are providing to them. The level of monitoring performance against client objectives needs to be appropriate for the nature of your business. Given that personalised DIMS involve the creation of a bespoke investment strategy based on your client s needs, we would expect that regular monitoring is performed to ensure it remains appropriate. Include details of how often you conduct portfolio performance reviews and what factors would lead you to update a client s investment strategy. Breaches of investment authorities Please describe what steps you will take if an investment authority is breached, and your procedure for reviewing and amending processes to minimise the risk of reoccurrence. Advice or service AFA Authorisation Guide Page 30

31 investment authority b. analyse and follow up any breaches c. identify any trends in breaches, and introduce measures to prevent reoccurrence. Related Code Standard/s Code Standard 1 An Authorised Financial Adviser must place the interests of the client first, and must act with integrity. These obligations are paramount. Code Standard 8 When providing a personalised service to a retail client, an Authorised Financial Adviser must take reasonable steps to ensure that the personalised service is suitable for the client. AFA Authorisation Guide Page 31

32 Material issues and complaints You have effective processes and procedures to identify and deal with material issues in your business. 1. You maintain effective methods for identifying and reporting to the FMA changes to your financial service which may impact your authorisation or any serious breach of the FA Act, regulations, Code or authorisation. 2. You monitor complaints to ensure they are dealt with fairly and, in doing so, you place the interests of your clients first. 3. You have systems and procedures to identify trends in complaints, and you investigate and address any issues identified. Related Code Standard/s Code Standard 11 Material issues You need to be able to monitor for material breaches of authorisation conditions. If you have a staff member who will assist with this you should focus on who has responsibility for this monitoring and how they will keep their knowledge of the requirements up-to-date. You should also indicate who will be responsible for reporting matters to the FMA when necessary. Complaints Code Standard 11 requires that: the client, as soon as reasonably practical after making the complaint, is provided with an acknowledgement of the complaint, information about your internal complaints-handling process, and how to complain to the FMA and to any applicable external dispute resolution scheme a register is kept recording all complaints and action taken towards resolving those complaints. Please describe how you comply with the requirements of Code Standard 11, as outlined above. We expect you to have a complaints process which covers how you handle complaints and identify and monitor any trends. Dealing with complaints which place the interests of the client first does not mean that all complaints must be resolved in the client s favour but it does mean the solution must be fair and reasonable for them. An Authorised Financial Adviser must ensure there is an appropriate internal process in place for resolving client complaints in relation to the Authorised Financial Adviser s financial adviser services. Complaints AFA Authorisation Guide Page 32

33 Custody Client money and property must be held by an appropriate independent party. 1. You do not hold any client money or client property yourself. 2. Any custodian you use is independent. 3. Any custodian used is an appropriate entity to hold and safeguard money and property. 4. You keep your due diligence on any custodian up-to-date. Client money must be held either by the client themselves, or by an independent custodian. Please confirm that all client money is held either by the client, or by an independent custodian (specifying who the custodian is). Section 44 of the FA Act requires that a custodian of the client money and/or client property must be a separate body corporate that you believe, on reasonable grounds, to be appropriate to hold, and safeguard, the money and/or property. Your due diligence process Please explain your due diligence process for selecting a custodian. The following are suggestions for considerations you should factor into selecting your custodian: the custodian s previous experience the amount of assets under the custodian's control public reports and information about their service reported complaints about them, and their complaint-handling procedures operating jurisdiction, and any protections/controls imposed in that jurisdiction appropriate registration on the Financial Service Providers Register (or equivalent overseas registration) whether they have a programme that complies with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (or equivalent overseas legislation) the good character of directors and controllers (particularly in the case of small or new custodians the nature and extent of any sub-custodian relationships. We re also interested in knowing how you actually go about doing the due diligence and making your decision, and how you keep the information updated once you ve selected a custodian. How often you update your due diligence should be appropriate to the level of risk involved. Client money, property and information AFA Authorisation Guide Page 33

34 Related Code Standard/s Code Standard 1 If the independent custodian is a well-established company, you will need to provide less detail to justify why you ve chosen them and why you think they are an appropriate entity to hold and safeguard money and/or property. Please include details about your custodial agreement. For example, how you monitor the custodian and handle any breaches, and will the FMA have access to records as required? An Authorised Financial Adviser must place the interests of the client first, and must act with integrity. These obligations are paramount. Code Standard 5 An Authorised Financial Adviser must effectively manage any conflicts of interest that may arise when providing a financial adviser service. AFA Authorisation Guide Page 34

35 Outsourcing (excluding custody) You must ensure outsourced functions are adequate, effective and comply with your authorisation obligations. 1. You have appropriate processes to ensure, before you outsource a function, that the provider is an appropriate entity and capable of effectively performing the outsourced function to an acceptable service level. 2. You have a proper legal arrangement with the provider, including provisions that enable you to effectively monitor their performance and take appropriate action for non-performance. 3. Records and information the provider holds will be available for inspection by the FMA on request. 4. You regularly review the outsource arrangement (at a frequency appropriate to the risk involved). 5. Your performance monitoring programme includes: a. checks that the provider s performance meets required standards b. triggers for identifying nonperformance c. a plan for steps you will take in the event of non-performance. Who are the standards for? These standards apply to any functions outsourced by you. You cannot outsource the portfolio construction. This must be something you perform and the FMA must be satisfied that the person who performs this has the skills and competence to do so. Please describe and explain any core outsource arrangements. These relate to where you rely on the outsource provider to help you meet the minimum standards or authorisation obligations for personalised DIMS. Where you use third parties to provide core parts of personalised DIMS (for example, if you use a third party to execute transactions for you) then we want to know who these third parties are, how you have confidence they can perform the service they re proposing to perform, and what you ll do if they fail to perform to the required standards. The level of detail we need on outsource providers will depend on whether they are already providing the service and how well-established they are. We need enough information to get comfort that the service will be properly performed. The level and nature of records the outsourced provider must keep should be at least equivalent to what you would keep if you performed the function yourself (refer also to Records ). We also expect to be able to view these records within a few days of our request, depending on the nature and volume of the records. You don t need to arrange for direct access, providing we can obtain the records through you. Please describe the level of oversight that you maintain over the outsourced provider. You will need to maintain some level of oversight over the outsourced provider so you will be aware if they fail to perform their part of the service properly. The level of oversight needed depends on whatever is reasonable for the nature of the service outsourced. For example, you might monitor the performance of someone that executes your trades for you by reconciling the portfolios your clients should be holding with those they actually hold. Business relationships AFA Authorisation Guide Page 35

36 Related Code Standard/s Code Standard 6 An Authorised Financial Adviser must behave professionally in all dealings with a client, and communicate clearly, concisely and effectively. Code Standard 12 An Authorised Financial Adviser must record in writing adequate information about any personalised services provided to a retail client. AFA Authorisation Guide Page 36

37 Staffing and supervision You must have adequate and effective arrangements to manage and supervise any staff you are relying on to help you provide personalised DIMS. Staff need to be suitable for their roles and act professionally. 1. Any staff have the right skills and experience for their roles, and a clear job description that sets out their responsibilities (including authorisation/delegation levels). 2. Roles are designed to support key controls (for example, by segregating duties between roles). 3. Enough time is allowed for key processes, including compliance activities. 4. Staff are appropriately trained, managed and supervised you address poor performance and recognise professional conduct. 5. You have appropriate supervisory arrangements, including: a. Sufficient resources are allocated to supervision b. Supervisory staff have the right knowledge and experience (including understanding the functions of the roles they supervise) c. Supervisory staff have the support and authority they need to do the role effectively. 6. Any issues identified by supervisory staff are acted on appropriately. What do we need to know? Please describe any arrangements you have for the management and supervision of staff you may be relying on to help you provide personalised DIMS. Only an authorised person can exercise discretion under personalised DIMS. If your personalised DIMS business doesn t have any staff other than you as the AFA managing it, and you don t intend to recruit any other staff, then you can answer this question by confirming you ll ensure that you will be the only AFA. If your only non-afa staff are administrative assistants, you don t need to provide any details about how you ensure they have the right skills and experience. For any staff who are involved in aspects of the provision of personalised DIMS, you need to demonstrate that you have appropriate staffing and an adequate staff supervision structure to ensure you can maintain minimum standards for the course of your authorisation. How you structure your business and decide what skills and people you need to meet the minimum standards is up to you. We don t need to know about the character or capability of individual staff or particular teams. Business relationships AFA Authorisation Guide Page 37

38 Related Code Standard/s Code Standard 14 Before providing a financial adviser service, an Authorised Financial Adviser must have the competence, knowledge and skills to provide that service. AFA Authorisation Guide Page 38

39 IT systems and business continuity Your IT systems used to deliver personalised DIMS must be secure and reliable. Your arrangements ensure they perform efficiently and the associated risks are managed. 1. Your IT systems include necessary functionality to provide the service, and perform the intended processes effectively. 2. You have effective safeguards and controls over the IT systems (and the underlying processes) whether they are built into, or external to, the system. These include processes: a. to ensure data and system security, and prevent errors or system failure b. that take into account risk from human error, technical failure and malicious conduct. 3. You maintain an appropriate (and tested) business continuity plan, including procedures for data back-up and disaster recovery. 4. You have proper legal arrangements with any third-party software providers, including licences for software and contracts for any required maintenance and support. Your IT systems Please describe the IT systems that you use to provide personalised DIMS. You are free to choose how you implement IT solutions in your business. Where you integrate processes into IT systems, the processes performed by that system must be effective. For example, your IT systems may have built-in parameters consistent with the terms of your service, and controls to ensure the integrity of external data feeds and their accurate use in calculations. You only need to provide detail about IT systems to the extent that they are essential to delivery of your service. We only need sufficient information to give us confidence that they are fit-for-purpose. You don t need to provide details on every aspect of your systems, but please tell us about: the functionality of your systems what function/s they perform for the licensed business (an overall architecture design map might be useful) key risks and the controls/safeguards in place (internal and external) any third-party verification you obtain for your IT systems how you manage the risks associated with the use of your IT systems, including: data security and integrity (such as a security audit) disruptions from IT system failures and outages. Business continuity plan Your business continuity plan should include the documented procedures that guide you to respond, recover, resume and restore to a pre-defined level of operation following disruption. This plan should provide for the continuity of your business operations generally, not just the recovery of your IT systems. It should cover all aspects of your business (not just IT systems) that are necessary to Advice or service AFA Authorisation Guide Page 39

40 meet the minimum standards or your authorisation obligations. Please provide details of when you completed a business impact analysis and what support, and resources, you have or will implement and maintain according to that business continuity plan. Provide information relating to when you last did an impact analysis and last tested your business continuity plan. Legal agreements Please explain your legal rights to use the software you use to provide any aspect of personalised DIMS and whether it is currently under support. AFA Authorisation Guide Page 40

41 Records You must maintain adequate records and provide information to the FMA in a timely manner. 1. You have systems and procedures to maintain proper records. 2. You retain these records for at least seven years and they are available for inspection by the FMA on request. Related Code Standard/s Code Standard 13 Your record keeping Please describe how you comply with the requirements under Code Standard 13 (outlined below) and the requirement more generally (also outlined below) to maintain proper records for seven years. You will also need to be able to produce appropriate records, including: records of key decisions and activities, so we can confirm your compliance; and files for each client (and past clients) with all relevant documents, such as client agreements and disclosure documents. You must ensure your client agreements or other arrangements include client consent for us to view their records. You may keep paper files of client records. Alternatively you may use a simple computerised filing system. You don t need to go into extensive detail on your filing procedures just enough so that we can be confident you ll be able to promptly give us your business and client records if we ask for them. Your arrangements Under Code Standard 13, you may satisfy the requirement to keep records by arranging for records or information required to be held by a third party (for example, a platform provider, or a purchaser of your business) by taking reasonable steps to ensure that the third party keeps the records for at least as long as you would be required to keep them. Under Code Standard 13, this seven-year requirement commences on the last date that you provide a financial adviser service to the client. Record keeping An Authorised Financial Adviser must ensure that records of all information and documents required under this Code are kept for a minimum of seven years. Code Standard 12 An Authorised Financial Adviser must record in writing adequate information about any personalised services provided to a retail client. AFA Authorisation Guide Page 41

42 Termination of service You must act in the best interests of your client when their client agreement ends. 1. Your client agreement allows the client to terminate the service without penalty and take control of the assets, or realise their value, within a reasonable period. 2. Your client agreement explains clearly: a. how assets will be dealt with when the service is terminated b. any risks associated with the assets that could arise when the service is terminated. 3. You have effective procedures to deal with any assets that can t be transferred directly to the client or transferred to another service when the service is terminated. 4. You have effective procedures to ensure the orderly termination or transfer of client services if your business ceases. Related Code Standard/s Code Standard 6 Termination without penalty Your personalised DIMS clients must be able to terminate their personalised DIMS client agreement with you without penalty. However, you may still pass on the reasonable costs you actually incur to terminate the service providing you disclosed to the client in the client agreement at the start of personalised DIMS the type of costs and approximate amount they would incur. Termination procedures Please tell us about your termination procedures, and how you deal with the client s assets especially if the assets are non-liquid and/or can t be held directly by the client, for example wholesale assets. How you cover termination (and dealing with assets) in your personalised DIMS client agreement. If you ve invested in wholesale products, or products that can t be easily liquidated, tell us how you deal with these investments and how you communicate the risks to your clients. An Authorised Financial Adviser must behave professionally in all dealings with a client, and communicate clearly, concisely and effectively. Clients AFA Authorisation Guide Page 42

43 Financial resources You must, at all times, have adequate financial resources to effectively perform the service. 1. You have a sufficiently strong balance sheet. 2. You are able to pay your debts as they become due in the normal course of business. 3. You maintain an appropriate level of liquid assets at all times to cover reasonably expected contingencies in your business. 4. You have adequate and effective systems, policies, procedures and controls to: a. monitor your financial resource levels b. consistently calculate an appropriate level of liquid assets to hold for your business c. assess the risk of your financial resources not being adequate to continue to provide the service, or a serious financial problem occurring. Your balance sheet It is likely to be easier to demonstrate that you are NTA positive if you are using a corporate structure. Advisers operating under a personal financial capacity should consider instead operating through an entity. Are your net tangible assets positive? Generally, we require DIMS providers to have positive net tangible assets (NTA). This is because we expect you to have sufficient capital to be financially stable and to be able to run your business operations. If your NTA is negative we may still consider you to be eligible to provide DIMS. You will need to explain the reasons behind your negative NTA and why you think it shouldn t prevent you from providing effective DIMS. For example you may have a high level of intangible assets that provide a significant income stream, or related party transactions that cause an issue. We will assess your reasons and take into account your cashflow forecasts and steps you re taking to return to a positive NTA. We won t allow you to provide DIMS if your balance sheet indicates your business is at risk of failure, or your NTA is negative because you haven t committed the investment needed for the business. What are your net tangible assets? These are your total tangible assets, less your total liabilities, as they appear on your balance sheet at the time of calculation. The calculation must not include any: receivables from a related party or associate unless permitted for the avoidance of doubt, intangible assets, any client funds you hold, or any investments you have in the portfolios you manage. This is only a summary of the test you must apply the full test is set out in the standard licence conditions for AFAs providing personalised DIMS. What is a permitted related-party receivable? Permitted related-party receivables are those resulting from a transaction done in the ordinary course of business, on standard commercial terms, and at arm s length. Your total Financial resources AFA Authorisation Guide Page 43

44 permitted related-party receivables can t exceed 20% of your net assets (total assets less total liabilities). Shareholder loans can be excluded from your total liabilities for the NTA calculation, if you have a written agreement with the relevant shareholder to subordinate the debt. This agreement must: Provide that repayment of the debt will be subordinate to all the claims, demands, rights and causes of action of all unsubordinated creditors Provide that the debt is not repayable within one year Be available to your auditor and the FMA on request You must calculate your NTA at least monthly, and report to us if your NTA becomes negative. Cashflow forecasting You must be able to pay your debts as they fall due, plus have a buffer for reasonably foreseeable contingencies. There are no set levels for liquid assets. To satisfy yourself that you meet the minimum standards, we expect you to use a suitable forecasting mechanism. Your forecasts should show that you have access to sufficient financial resources over the projected term to meet your liabilities as they fall due in the normal course of business. Your policies, systems and controls Please tell us how you will manage your financial resources more generally. If you have an existing business that has a history of financial stability, this will give us significant comfort. You will still need to provide the following information: The balance date for your financial statements If you have an auditor, who they are and whether there were any issues raised on your last audit opinion Your NTA calculation, and if your NTA is negative please explain why this doesn t affect your financial stability Your cashflow forecast for the next 12 months, showing your forecasted monthly cash balance together with the calculations and assumptions used in the forecast, AFA Authorisation Guide Page 44

45 and an explanation of why they are appropriate A brief description of how you manage your cashflow to ensure you ll have liquid assets to pay any outgoings as they become due. AFA Authorisation Guide Page 45

46 Professional indemnity insurance You must maintain an appropriate level of professional indemnity insurance cover for your business. 1. You maintain an appropriate level of professional indemnity insurance to cover risks related to your service (if cover is available). 2. Your level of professional indemnity insurance cover is adequate and appropriate for the nature, scale and complexity of your business. 3. You have sufficient resources to meet any policy excess. Related Code Standard/s Code Standard 1 You only need a level of professional indemnity cover that is appropriate for the nature of your business. You need to consider what level of professional indemnity insurance is appropriate for your business and provide us with enough information to justify your decision. There is no set minimum cover it depends on your business. Please tell us the level and scope of cover you think is necessary for your personalised DIMS, and explain how you assessed this and why you think that level and scope is adequate. We expect you to have cover at or above that level and scope. If you don t think you need cover please explain why. If you can t get suitable cover please explain the steps you took to try and get cover. Exclusions Please describe any material exclusions or conditions in your policy/s, including the policy excess. We only require information on exclusions or conditions that could affect cover for your personalised DIMS. For example, there could be other parts of your business, not within the scope of your DIMS, that are covered by the same policy. We don t need to know about exclusions that would have no impact on the cover for the personalised DIMS. Please also tell us whether there are any claims currently notified under your policy. An Authorised Financial Adviser must place the interests of the client first, and must act with integrity. These obligations are paramount. Professional indemnity AFA Authorisation Guide Page 46

47 Governance You must have a framework for ensuring compliance with your personalised DIMS obligations and ensuring you have in place appropriate risk management processes. 1. You have a clear governance framework covering all key aspects of your personalised DIMS compliance obligations and key risks of providing personalised DIMS. Your governance framework We ask that you describe your framework for ensuring compliance with relevant obligations and managing the key risks. This may consist of documenting the things you do in governing the provision of DIMS. We need you to tell us how often you will consider governance issues and what matters you will consider in doing so. To satisfy this, we only require that you provide us with enough information to give us comfort that you have proper oversight of the provision of DIMS. Governance AFA Authorisation Guide Page 47

48 Culture You have governance and compliance arrangements that promote a culture of compliance, and ensure appropriate risk management and fair treatment of investors. 1. You have a good compliance culture, supported by systems, policies, procedures and controls. 2. We expect a good compliance culture to include the following: a. you clearly communicate your conduct expectations to any staff involved in providing your personalised DIMS, for example through the Code b. you allocate adequate time and resources for training, supervision and compliance activities c. you willingly engage with relevant regulators in an open and honest manner, and are responsive to any regulatory concerns they may raise. Related Code Standard/s Code Standard 1 Your compliance culture Where you don t have staff other than AFAs (including yourself) involved in the delivery of personalised DIMS then you can answer this question by confirming you ll ensure the business continues to be managed only by AFAs (as they already adhere to standards of professional conduct). Where you have staff other than AFAs, you need to give us enough information to tell us about the specific steps you have taken (or will take) to promote the right attitudes and behaviour in relation to compliance for the provision of personalised DIMS. An Authorised Financial Adviser must place the interests of the client first, and must act with integrity. These obligations are paramount. Culture AFA Authorisation Guide Page 48

49 Compliance assurance You must have adequate and effective arrangements for challenging and testing your own compliance, the compliance framework and the outcomes. 1. Compliance assurance you have adequate and effective arrangements to challenge and test the design and operation of your processes and controls, and the adequacy of your governance and management information. This is your compliance assurance programme. 2. Your compliance assurance programme goes beyond day-to-day controls for key processes, by including more in-depth testing of processes and controls including: a. the testing (and the design) is done independently of those involved in dayto-day processes and oversight for example, testing is done by a separate compliance or internal audit function, or by an external organisation b. you allocate sufficient, appropriate resources to planning and carrying out the programme, and ensure those involved have the skill and experience to carry out the work. Testing your compliance Please describe how you test and ensure that your compliance processes and controls are adequate for the provision of personalised DIMS. You do not need to include information about the compliance controls themselves. You need to have processes to test your compliance over and above the checks built into your operational systems and oversight of staff. The extent and type of testing you do depends on things such as: The nature and size of your business How your systems and processes are designed The types and levels of risk in your business How involved your directors/oversight body are in overseeing day-to-day functions (if there are directors/an oversight body) Is your testing independent? Where practical, your compliance testing should be done independently of those responsible for undertaking, or directly managing, those functions. For an AFA, it may not always be practical for this testing to be done by someone who is completely independent of the function. However, there will need to be some level of testing of your compliance controls. The level of testing depends on what is reasonable for the nature of the business and for your key risks. You may outsource this task if you don't have the scale or structure to employ someone independent for the role. Compliance testing could also be achieved by AFAs peer-reviewing each other s work. Compliance assurance AFA Authorisation Guide Page 49

50 Glossary ABS AFA ASIC Code CPD DAO DRS ETITO FAS FSP Register FSP Registrar FMA Adviser Business Statement Authorised Financial Adviser Australian Securities and Investments Commission Code of Professional Conduct for Authorised Financial Advisers Continuing Professional Development Delegated Assessment Organisation - being an entity registered by The Skills Organisation accredited for the provision of training for and assessment of Unit Standard Set C Dispute Resolution Scheme Electro-Technology Industry Training Organisation - the national standards setting body for the financial services industry, now called The Skills Organisation Financial Adviser Services Financial Service Providers Register Registrar of financial service providers Financial Markets Authority FSPA Financial Service Providers (Registration and Dispute Resolution) Act 2008 National Certificate National Certificate in Financial Services (Financial Advice) Level 5 QFE TSO Qualifying Financial Entity The Skills Organisation - being the national standards setting body for the financial services industry, formerly known as ETITO TTMRA Trans-Tasman Mutual Recognition Act 1997 AFA Authorisation Guide Page 50

51 AUCKLAND OFFICE Level 5, Ernst & Young Building 2 Takutai Square, Britomart PO Box Auckland 1143 WELLINGTON OFFICE Level 2 1 Grey Street PO Box 1179 Wellington January 2015