AFA Authorisation Guide February How to apply to become an Authorised Financial Adviser (AFA)

Transcription

1 AFA Authorisation Guide February 2017 How to apply to become an Authorised Financial Adviser (AFA)

2 Document history This version was issued in February 2017 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: Steps to becoming an AFA 6 Section 3: Important first steps 8 Join a Dispute Resolution Scheme 8 Register with the Financial Service Providers Register 8 Select the scope of Financial Adviser Services (FAS scope) you will provide 8 If you want to change your FAS scope before authorisation 8 Section 4: Proof of good character 9 Providing evidence of good character 9 Adverse impact statement 9 Declaring criminal convictions punishable by imprisonment 10 Disclosing criminal or other convictions 10 Testimonials 11 Section 5: Proof of competence 12 Alternative qualifications and designations 14 FSC registration identification number 14 Australian financial advisers 15 Section 6: Personalised DIMS eligibility 15 Section 7: Adviser Business Statement 16 Section 8: Qualifying Financial Entity (QFE) FSP Registration Number 16 Section 9: FSP Registration Number 16 AFA Authorisation Guide Page 3

4 Section 10: Submitting your application for authorisation 17 Registration 17 Becoming authorised 17 Uploading documents 17 Confirming your application 17 Submitting your application and paying fees 18 Applicant declaration 18 Section 11: Authorisation approvals 18 Authorisation approval 18 Period of authorisation 19 Submissions 19 Application declined 19 Section 12: Making changes to your authorisation 19 Section 13: Termination of authorisation 20 Cancellation of your authorisation 20 Section 14: Renewal of your authorisation 20 Where to go for help 21 Appendix 1: 22 FA Act () 22 Glossary 49 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 to apply to make changes to your authorisation status and lists the reasons we may have to terminate authorisation. You should read this guide thoroughly 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. Before beginning your application you should make sure you have read and understood 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: Steps to becoming an AFA This is a check list of the steps to becoming an AFA. We recommend that you tick off each step before you go online to apply for authorisation. The steps are fully explained in this guide under Authorisation Requirements. Register with The Skills Organisation (Skills) for your Financial Services Candidate (FSC) registration identification number and to book your competence assessments and examinations. Sit and complete all of the required competence assessments and examinations. If applicable, get 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. Determine the scope of Financial Adviser Services (FAS scope) you wish to be authorised for. You will only be able to give advice on those services you are qualified and authorised to provide. Determine which testimonials you will need to submit and download and print the relevant testimonial templates. Complete the testimonial forms with your name and 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 a negative impact on the FMA s view of your good character, taking into account your rights under the Criminal Records (Clean Slate) Act If applicable, get details of any criminal convictions you have, either in NZ or overseas, which carried a potential penalty of six months imprisonment or more. Drink drive convictions and serious driving convictions are criminal convictions and must be included. You will also need details of any other criminal convictions which could have a negative impact on our 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 that is relevant to the circumstances of the offence, and the financial adviser services you are seeking authorisation for. Prepare an Adviser Business Statement (ABS) so it is available when you are granted AFA authorisation status. Prepare your CV outlining your employment history for the previous 15 years, including any period of time when you were living overseas, and the relevant month(s) and year(s). If you work for, or plan to work for a Qualifying Financial Entity (QFE), you will need to know 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. When you have successfully completed all of the required competence assessments and examinations and have all the required documents saved electronically and on hand to upload, you can apply for both registration and authorisation online at the FSP Register. AFA Authorisation Guide Page 6

7 Set up your own logon (username and password) in RealMe (formerly known as i-govt) and Financial Service Providers Register (FSPR) user account at the FSP Register ( You can use your existing RealMe logon if you have one. Enter your RealMe logon 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: Important first steps This section explains the important first steps you must take before you start your AFA authorisation application. Join 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) belong to during the online registration application process. For more information about dispute resolution schemes click here. Register with 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. You will need to register before applying to be 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 fit to become a registered financial service provider. Detailed information on registration is provided on the FSP Register. Select the scope of Financial Adviser Services (FAS scope) you will provide Before you apply for authorisation you need to decide which service(s) you wish to be authorised to provide. 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 these financial adviser services can be found in 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 If you want to change your FAS scope before authorisation If you wish to amend the FAS scope you have applied for before your authorisation has been granted, us at AFAapplications@fma.govt.nz to request a change of scope. You will have to AFA Authorisation Guide Page 8

9 satisfy us that you have met the competence requirements (or alternatives) for your new FAS scope. You cannot apply to amend your FAS scope through the FSP website. Section 4: Proof of good character Providing evidence of good character The FMA must be satisfied that you are of good character before we grant your authorisation. Our assessment of good character is an important tool for preserving public confidence in the professionalism and integrity of financial advisers. To enable us to assess your character, you will need to declare anything that may have a negative impact on our view of your character, including details of any criminal convictions. This includes any drink drive or other serious driving convictions. You will also need to provide written testimonials and complete a good character declaration form provided by the FMA. 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 any information we might wish to know before granting authorisation. Any information supplied should be set out in a separate MS Word document, then scanned as a PDF and uploaded as part of the online application process. When responding you should consider the following examples of the types of conduct we would expect you to disclose: 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 AFA Authorisation Guide Page 9

10 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. For example being involved in the management or being a major shareholder of a company employing discreditable practices failure to manage business or personal debts or financial affairs satisfactorily. Please provide us with all relevant details of any conduct of this nature (or similar). If you are unsure about whether a matter needs to be disclosed, you should either disclose it or seek legal advice on whether or not it requires disclosure. 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 we subsequently become aware of, your non-disclosure will be viewed unfavourably by us when assessing your good character. Declaring criminal convictions punishable by imprisonment During the online application process you will be asked: Have you been convicted by a court in New Zealand or overseas of an offence punishable by imprisonment for a term of six months or more? You must disclose if you have any criminal convictions in New Zealand or overseas for which you could have been sentenced to six or more months in prison. This is 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 in New Zealand or overseas carrying a potential penalty of six or more month s imprisonment must be disclosed. You must disclose to us the details of any convictions including the offence, the penalty and when and where you were convicted. This information should be set out in a separate MS Word document, then scanned as a PDF and uploaded as part of the application process. Disclosing criminal or other convictions In addition to the criminal convictions you must disclose in the Declaring criminal convictions punishable by imprisonment section above, you also need to disclose any other convictions that could affect our assessment of your character. For example, 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. Drink drive convictions and serious driving convictions are criminal convictions and must be disclosed. As part of our assessment of your application, we will ask you questions about each of these circumstances in the declaration we will send you after you have submitted your online application. We will check records held by the Ministry of Business, Innovation and Employment for any history of bankruptcy or company insolvency you may have been involved with. AFA Authorisation Guide Page 10

11 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. How we assess good character If you have conduct or conviction matters to disclose, we will not automatically take an adverse view of your character or disqualify you from being eligible to be authorised as an AFA. We have the discretion to take into account the circumstances of the matters you disclose and decide whether they reflect negatively on your fitness to act as an AFA. If you would like to talk to us directly, to explain the circumstances disclosed in your application, please contact us via at AFAapplications@fma.govt.nz after lodging your application. Nothing in this section affects your rights under the Criminal Records (Clean Slate) Act Failure to disclose criminal or other convictions It is in your interest to disclose any convictions you have, and anything else we might need to consider before reaching our decision. You can also provide relevant information about your financial adviser services or your role relevant to the circumstances of the offence as part of your 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. For further information on the process and policies for the assessment of good character see our Guidance Note: Good character and criminal convictions, Financial Advisers Act 2008 Testimonials As part of our assessment of your good character, you must provide testimonials in support of your application. Signed testimonials need to be scanned and uploaded as part of your online application. Each testimonial must be signed by the referee, include 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. We can 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. Standard testimonials You are required to provide two standard testimonials in the template (available on the FMA s website) from the following sources: 1. Your current manager 2. Your immediate past manager. Non standard testimonials Where your employment circumstances preclude you from providing the two standard testimonials from your current manager and immediate past manager, you may seek our prior consent to provide three non-standard testimonials instead. We recommend you us at AFAapplications@fma.govt.nz to tell us why you cannot provide the two standard testimonials. An AFA Authorisation Guide Page 11

12 FMA adviser will contact you to discuss your circumstances and the alternative information you should submit. The FMA has sole discretion to grant or withhold written consent to your request. In general we expect non standard testimonials to be provided by referees who have: known you for a minimum period of 24 months but preferably longer, and have had the opportunity to observe your conduct first hand during that period. Testimonials must provide substantive information about you from your referee. We have the discretion to reject a testimonial and require you to submit a replacement. Testimonial templates and guidelines We have produced testimonial guidelines and templates for applicants and their referees to explain what you and your referees need to do. These are available on the AFA testimonial templates and guidelines our website. Please ensure you use the correct template for each testimonial. Curriculum Vitae You will be required to provide a curriculum vitae (CV) in support of your application. You will need to upload your CV together with the testimonials under the testimonials section of the online application form on the FSPR. Your CV should describe your employment history for the previous 15 years with details of your employers, the specific month and year of employment, the country where you were employed and the nature of your position at each place of employment. Section 5: Proof of competence To be authorised you must meet the minimum standards of competence, knowledge and skills specified in the Code. The Code establishes the components of the New Zealand Certificate in Financial Services Level 5 (NZ Certificate) as the minimum standard of competence for AFAs. It sets out the educational requirements and alternative paths available to advisers that are relevant to the financial adviser services (FAS scope) to meet this minimum standard. To help you understand the competence requirements please read Code Standards and Schedule G of the Code. The FAS scope you wish to be authorised in will dictate which components of the NZ Certificate you need to complete. The table below sets out the competence requirements from the NZ Certificate for authorisation in each FAS scope. AFA Authorisation Guide Page 12

13 Please note that until 1 January 2019, the National Certificate in Financial Advice (Level 5) will continue to be recognised for AFAs seeking authorisation for the first time. Please see Code Standard 16 and the Competence Alternatives Schedule for more detail about this transition. Financial adviser service or services Competence requirements (Components of the NZ Certificate) Financial advice Core component Financial advice strand Investment strand Financial advice and investment planning services Core component Financial advice strand Investment strand Personalised discretionary investment management services Core component Financial advice and personalised discretionary investment management services Financial advice, personalised discretionary investment management services and investment planning services Financial advice strand Investment strand Core component Financial advice strand Investment strand Core component Financial advice strand Investment strand Financial adviser services in relation to Category 2 products only Core component Financial adviser services to wholesale clients and provision of class services Financial advice strand One specialist strand * advice strand Core component Unit of the financial AFA Authorisation Guide Page 13

14 * Specialist strands cover: life and health insurance strand general insurance residential property lending personal lending banking trustee services. You can find the components of the NZ Certificate on The Skills Organisation s (Skills) website. To arrange any training you need to address gaps in your knowledge and skills, please contact an accredited training provider. Skills will advise us of your competence results once you have completed them. All of the competence requirements have to be met before your application can be approved. Alternative qualifications and designations The Code lists the qualifications and designations which are acceptable alternatives to certain components of the New Zealand Certificate. These are listed in Schedule G of the Code and defined in Schedule H or see Appendix. 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 by a solicitor of the High Court, a justice of the peace or an officer of the court when compared to the original and a true copy. Alternatively 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, FMA, 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 require confirmation from the professional body that your designation is current. FSC registration identification number When you apply for authorisation you will be asked for your FSC registration identification number. This number is also required when you book competence assessments and exams through Skills. AFA Authorisation Guide Page 14

15 To obtain this number register with Skills centrally administered assessment system. You will then receive access to Skills Candidate Handbook which explains the competence assessment process. 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 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 the Financial Advisers (Australian Licensees) exemption notice. 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. Log on 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 must complete. The usual fees for AFA applications will apply. 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. Section 6: Personalised DIMS eligibility To be authorised to provide you must satisfy us that you are capable of effectively performing the service. The FMA has set minimum standards which an applicant must satisfy to show capability. These can be found in Appendix 1. Your Adviser Business Statement (ABS) is used by us as evidence that you satisfy the minimum standards and are therefore eligible to be authorised to provide. Please see Appendix 1 for guidance on including the evidentiary information in your ABS. On receipt of your application selecting the FAS scope of to be authorised, the FMA will contact you to provide your ABS with the information referred to above. AFA Authorisation Guide Page 15

16 Section 7: Adviser Business Statement Every AFA is required to have an Adviser Business Statement (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 us determine the level of regulatory monitoring appropriate to you. We have 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. An up-to-date ABS is a Standard Condition of an AFA s authorisation so you will require an ABS once you are authorised. Section 8: Qualifying Financial Entity (QFE) 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 FSP Register. Registration and authorisation are different but can be applied for at the same time. Before logging on to the FSPR website, we recommend you refer to the check list in Section 2 on page six of this guide to ensure that you have prepared everything you will need during the application process. The online application process has been designed to allow you to apply for registration and then apply for authorisation at the same time. Help text is provided in the online application screen to make the process easy to follow and also provides additional information. 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 to select the financial adviser services you will 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. You can then return to complete it, but you must do so 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. To do this simply return to the FSPR website and enter your RealMe logon. This will allow you to make changes to complete your application and you can fill out the unfinished authorisation application section. 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 MS 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 we may require you to provide a certified copy of your passport or drivers licence to prove your 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 AFA Authorisation Guide Page 17

18 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. Submitting your application and paying fees Once you have completed and submitted your application and paid the required fees, the FSP registrar will advise you within five working days by if you are registered. If registration is confirmed then your application for authorisation will be forwarded automatically to the FMA to process. Applicant declaration After you have submitted your online application via the FSPR, we will contact you to collect further information on eligibility criteria to help us assess your application. We will send you a declaration in a template format with the additional information we need, to complete, sign and return to us. You will be asked to declare that you have: no record of adverse professional conduct by reference to the list of specified conduct matters (the list repeats the matters outlined in Section 4 of this guide) no criminal conviction by a court in NZ of an offence punishable by imprisonment for a term of six months or more no criminal conviction by a court overseas of an offence punishable by imprisonment for a term of six months or more. You will also be asked to disclose: details of any current and prior membership (if any) of a DRS details of any complaints made against you to your current and prior DRS. Section 11: Authorisation approvals Authorisation approval We will only grant authorisation when we are satisfied you have met all of the eligibility requirements. We will process your application as speedily as possible. 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. We will also notify you of the Standard Conditions and any individual conditions that will apply to your 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. AFA Authorisation Guide Page 18

19 We 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. Period of authorisation In most cases we authorise financial advisers for an initial term of five years from the date of authorisation, unless there are reasons for an alternative term. We will let you know if we think you should be authorised for a term other than five years. Submissions If, based on the information available to us, we are considering declining your application, you will be notified and given the opportunity to make submissions in support of your application. You may also be given the opportunity to meet with us to discuss your submissions, and may have your solicitor or another support person attend that meeting. Application declined If your authorisation application is declined, we will formally notify you of our 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. Section 12: Making changes to your authorisation After you have been authorised, you may apply to change the period of your authorisation, the terms and conditions of your authorisation, or the FAS scopes you have been authorised for. i. If you wish to add to your FAS scope you will need to submit a scope variation application form. The application form (AFAVAR 1.1) is available on the FMA website or by ing AFAapplications@fma.govt.nz. Complete form AFAVAR 1.1 and submit it to the FMA with the required supporting documentation and the relevant application fee. ii. If you wish to wish to change the period or the terms and conditions of your authorisation you will need to submit a variation application form. The application form (AFAVAR 1.2) is available on the FMA website or by ing AFAapplications@fma.govt.nz iii. Complete form AFAVAR 1.1 and submit it to the FMA with the required supporting documentation and the relevant application fee. iv. If you wish to add to your FAS scope you will need to submit a DIMS variation application form. The application form (AFADIMS 1.1) is available by ing AFAapplications@fma.govt.nz Complete form AFADIMS1.1 and submit it to the FMA with the required supporting documentation and the relevant application fee. AFA Authorisation Guide Page 19

20 v. If you wish to reduce your FAS scope then you can request this by ing us at We will change your FAS scope, update our records and notify the registrar of financial service providers to remove the relevant services from your FAS scope on the register. We will also issue you with a replacement Certificate of Authorisation with the updated FAS scope(s). Section 13: Termination of authorisation Your authorisation can be terminated for the following reasons: i. the period of your authorisation expires ii. iii. iv. you ask the FMA to cancel your authorisation you cease to be registered as an FSP the FMA cancels or suspends your authorisation if you are no longer eligible to be authorised, or you have breached your obligations under the FAA, 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. 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. Cancellation of your authorisation If you decide to cancel your authorisation please the FMA at AFAapplications@fma.govt.nz. Section 14: Renewal of your authorisation We will send you a renewal reminder before your authorisation expires. You must apply for renewal before the expiry of your authorisation. Your renewal application must be completed using the FMA s AFA licence renewal application form and accompanied by the application fee. You will remain authorised while we process your application for renewal, even if your expiry date passes. Your application for renewal 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 20

21 Where to go for help For more information about AFA licencing, obligations, Code of Professional Conduct, Trans-Tasman Mutual Recognition, and Standard Conditions. You can also call our financial adviser helpline on 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 21

22 Appendix 1: FA Act () To be eligible to provide under the Financial Advisers Act 2008 (FA Act), you must be capable of effectively performing. The FMA will assess your capability against the minimum standards for and relevant Code Standards from the Code of Professional Conduct for Authorised Financial Advisers ( the Code ). The way to demonstrate your capability to provide 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 effectively. The following tables set out the minimum standards, related Code Standards and explanatory comments to help you update your Adviser Business Statement for. Minimum standards for Capability You and anyone you are relying on to provide must have the capability to manage the service properly and effectively. 1. You have an appropriate breadth and depth of relevant financial services know-how, whether gained here or overseas, to effectively provide personalised DIMS. 2. You have the capability relating to any aspect of the provision of that you will personally perform. 3. You have access to any necessary expert professional advice (for example, legal or tax Your capability to provide a. We need to assess whether you have the right skills and experience to provide. 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. b. We need to assess that you personally have the capability required to provide. 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 you are proposing to offer. c. In our view, there is a high threshold to meet in order Competence

23 advice). to be able to provide, 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. d. In order for the FMA to assess your capability to provide, we ask that you provide the following information: - Qualifications details of any qualifications you hold relevant to providing - 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 - Other knowledge and experience necessary to successfully run a business (if relevant). 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. Related Code Standard/s Code Standard 14: Before providing a financial adviser service, an AFA must have the competence, knowledge and skills to provide that service.

24 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. a. 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. b. 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 to the client in accordance with the client agreement and an investment authority from the client. c. Please describe what procedures you have in place to identify whether a client is a retail client or a wholesale client. d. There are restrictions on providing financial adviser services under the FA Act. Even if you have staff who help you bring 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. Clients Related Code Standard/s Code Standard 7: An AFA must ensure each retail client has sufficient information to enable the client to make an informed decision about whether to use the AFA s financial adviser services.

25 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. Explain how you record your client s investment objectives for. For example, do you have a standard form; where did your form originate; and how often do you review the form? Appropriate investment authority a. You must ensure the client s investment authority is appropriate for the investment objectives (see section 43 of the FA Act). b. 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 being provided. Clients 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 12: An Authorised Financial Adviser must record in writing adequate information about any personalised services provided to a retail client.

26 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 up-to-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. - 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 a. 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. a. We don t expect to see fully documented stresstesting, 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. b. 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. Related party benefits and conflicts of interest a. You are required to place the interests of your clients first. Under Code Standard 5, you must identify, and Advice or service and Business Relationships

27 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. c. Please describe how you identify, and communicate to your clients, all interests that you have where those interests might influence the provision of. For example, do you regularly update a list of material interests and check proposed trades against it? Related Code Standard/s Code Standard 14: Before providing a financial adviser service, an AFA must have the competence, knowledge and skills to provide that service. Code Standard 5: An AFA 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.

28 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 a. Please describe how you manage investments, monitor performance against client objectives, and report to clients. b. 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 that you are providing to them. c. The level of monitoring performance against client objectives needs to be appropriate for the nature of your business. Given that 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. d. 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

29 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 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.

30 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. 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 a. 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. b. Please describe how you comply with the requirements of Code Standard 11, as outlined above. c. We expect you to have a complaints process which covers how you handle complaints and identify and monitor any trends. d. 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. Complaints Related Code Standard/s Code Standard 11: 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.

31 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 a. Please explain your due diligence process for selecting a custodian. b. 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. c. 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. d. If the independent custodian is a well-established Client money, property and information

32 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. e. 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? 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 5: An Authorised Financial Adviser must effectively manage any conflicts of interest that may arise when providing a financial adviser service.

33 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: b. checks that the provider s performance meets required standards f. triggers for identifying non- Who are the standards for? a. 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. b. 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. c. Where you use third parties to provide core parts of (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. d. 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. e. 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 ). f. 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. g. Please describe the level of oversight that you maintain over the outsourced provider. h. 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 Business relationships

34 performance g. a plan for steps you will take in the event of non-performance. 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. Related Code Standard/s Code Standard 6: An AFA 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.

35 Staffing and supervision You must have adequate and effective arrangements to manage and supervise any staff you are relying on to help you provide. 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 What do we need to know? a. Please describe any arrangements you have for the management and supervision of staff you may be relying on to help you provide. Only an authorised person can exercise discretion under. b. If your 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. c. For any staff who are involved in aspects of the provision of, 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. d. 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

36 to do the role effectively. 6. Any issues identified by supervisory staff are acted on appropriately. Related Code Standard/s Code Standard 14: Before providing a financial adviser service, an AFA must have the competence, knowledge and skills to provide that service.

37 IT systems and business continuity Your IT systems used to deliver 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 a. Please describe the IT systems that you use to provide. b. 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. c. 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. d. 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. e. 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 a. 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. b. It should cover all aspects of your business (not just IT Advice or service

38 systems) that are necessary to meet the minimum standards or your authorisation obligations. c. 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 and whether it is currently under support.

39 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. Your record keeping a. 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. b. 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. c. You must ensure your client agreements or other arrangements include client consent for us to view their records. d. 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 a. 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. b. 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 Related Code Standard/s Code Standard 13: An AFA 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.

40 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. Termination without penalty Your clients must be able to terminate their 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 the type of costs and approximate amount they would incur. Termination procedures a. 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. b. How you cover termination (and dealing with assets) in your client agreement. c. 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. Clients Related Code Standard/s Code Standard 6: An AFA must behave professionally in all dealings with a client, and communicate clearly, concisely and effectively.

41 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 We note that it is likely to be easier to demonstrate that you are NTA positive if you are using a corporate structure. Are your net tangible assets positive? a. Generally, we require licensees to have positive net tangible assets (NTA). b. This is because we expect you to have sufficient capital to be financially stable and to be able to run your business operations. c. 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. d. 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. What is a permitted related-party receivable? Permitted related-party receivables are those resulting Financial Resources

42 from a transaction done in the ordinary course of business, on standard commercial terms, and at arm s length. Your total 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 a. 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. b. 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 a. Please tell us how you will manage your financial resources more generally. b. 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

43 - Your cashflow forecast for the next 12 months, showing your forecasted monthly cash balance together with the calculations and assumptions used in the forecast, 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.

44 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. 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, 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. a. If you don t think you need cover please explain why. b. 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. 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. Please also tell us whether there are any claims currently notified under your policy. Professional Indemnity 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.

45 Governance You must have a framework for ensuring compliance with your 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. Your governance framework a. 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. b. 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

46 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, 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. Your compliance culture a. Where you don t have staff other than AFAs (including yourself) involved in the delivery of 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). b. 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. Culture 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.

47 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 day-to-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 Testing your compliance a. Please describe how you test and ensure that your compliance processes and controls are adequate for the provision of. b. You do not need to include information about the compliance controls themselves. c. 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? a. Where practical, your compliance testing should be done independently of those responsible for undertaking, or directly managing, those functions. b. For an AFA, it may not always be practical for this testing to be done by someone who is completely independent of the function. c. 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

48 involved have the skill and experience to carry out the work.

49 Glossary ABS AFA ASIC Code CPD DRS 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 Dispute Resolution Scheme 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 NZ Certificate New Zealand Certificate in Financial Services Level 5 QFE Skills Qualifying Financial Entity The Skills Organisation - being the national standards setting body for the financial services industry TTMRA Trans-Tasman Mutual Recognition Act 1997 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