New Zealand’s Commerce Minister Simon Power has announced changes to be considered for the country’s financial regulation regime, focusing primarily on the Qualifying Financial Entity (QFE) model. However, Chapman Tripp Partner Tim Williams said that some concerns still remain. “The changes to the new financial regulation regime announced this week … address some of our concerns, but not all of them,” Williams said.

Chapman Tripp will push for changes to the current wording of the law which prohibits corporate custodians, corporate trustees of family and other trusts, and wrap account operators continuing in business. Employees of large adviser companies and brokers may also baulk at personal liability for advice given on behalf of their firms.

The firm has also identified other flaws in the legislation that it will seek to change, including:

• reversing the decision to deny financial advisers the protection of operating through a limited liability company,
• amending the prohibition against listed companies giving guidance, as this is inconsistent with their statutory and NZAX Listing Rule continuous disclosure obligations; and
• excluding persons giving advice solely to institutions from all or parts of the Acts.

Under the technical amendments, eligible entities will need to weigh the efficiencies of obtaining QFE status against the costs of becoming a QFE. These costs include additional obligations, fees, levies and potential liability associated with this model. QFEs assume a key frontline compliance role under the Financial Advisers Act 2008, including liability for the financial adviser services of their employees and agents. This Act is expected to come into force from 1 December 2010.

One of the proposed changes will enable a QFE to name the agents for whom it will take responsibility, instead of automatically being responsible for all of its agents. Other changes will allow a QFE's named agents to provide financial adviser services, in respect of the QFE's ‘Category 1’ products without being individually authorised. This is currently permitted only for the QFE's employees.

Employees and named agents will also be able to provide financial adviser services for products for which the QFE is a promoter under the Securities Act 1978, without being individually authorised. Currently, the Financial Advisers Act allows this only if the QFE is the issuer of the product.

The Commerce Minister also indicated that certain products would be moved from ‘Category 1’ to ‘Category 2’, to ensure the public has easy access to simple, well understood financial products. However, New Zealand’s voluntary long-term savings retirement scheme, KiwiSaver, was not among the listed products.

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