Key regulatory changes for insurers
Financial institutions and insurers are still facing heavy setbacks and delays thanks to the Covid-19 pandemic. The regulatory changes that have resulted from the pandemic are progressing, let’s take a look at them here and explore how a selection of them will result in higher protections for clients and the changes to disclosure requirements.
Early in 2020, regulators indicated that the proposed law changes would be delayed due to Covid-19 but that they were optimistic that progress could still be made – this occurred at the end of the first lockdown in May. Thanks to the second lockdown for Auckland in August, significant delays and a knock-on effect caused the discussion to be interrupted longer than expected. Financial institutions are still expected to support their customers during the crisis, and these changes affect that support and the way financial advisors interact with their clients.
Financial Advice Regime begins March 15th, 2021
The MBIE (Ministry of Business, Innovation, and Employment) announced the commencement date for the new financial advice regime was the 15th of March 2021, given six months insurers needed to start actively preparing for the new regime.
Breaking down the proposed regime
The FSLAA (Financial Services Legislation Amendment Act 2019) will officially repeal the Financial Advisers Act. The new financial advice regime will be added to the FMCA (Financial Markets Conduct Act 2013).
From March 15th 2021, anyone who provides financial advice to retail clients will need to comply with the requirements stated in the new provisions as well as holding a transactional license.
This licencing requirement is imposed upon all people providing financial advice to retail clients. In addition, several new duties are imposed on the people who provide regulated financial advice such as the financial advice provider, financial advisers and nominated representatives.
Most of these obligations only apply to those who are advising retail clients, but in some cases, obligations will apply to clients in both retail and wholesale.
The new duties for financial advisors include:
- Ensuring the clients’ interests are prioritised if and when a conflict of interest arises by taking all reasonably expected steps to make sure that financial advice is not influenced.
- Show the care, diligence, and skill that a prudent advisor would be expected to show when advising.
- Take all reasonably expected steps to make sure that the clients understand the scope and limitations of the advice.
- Achieve all competence, knowledge and skill requirements as detailed in the Code of Professional Conduct for Financial Advice Services.
- Comply with new requirements regarding discloser as defined in the regulations, this includes ensuring that disclosures are not misleading, deceptive, or incomplete.
The MBIE released the new disclosure regulations in June. These describe the information that is required to be made available by financial advisors and providers.
These sets of information must be provided in a number of ways:
- Publicly on a website, or on request if the provider does not have a website
- To the client, when the type – i.e scope and nature - of advice to be given becomes known
- To the client at the point of advising
- And when a complaint is received
Streamlining Disclosure Requirements
Streamlining disclosure regulations means two main things for financial advisors.
First, that advisors are not required to provide the nature and scope of advice disclosure information in specific situations where the client has already been given the information and since being given that advice, no major changes relevant to the information have occurred.
Second, that the nature and scope disclosure, and the advice disclosure, so long as the timing requirements of both sets of obligations when delivered together is met, can be combined.
Overall, higher protections for clients are now required
By stipulating the duties and disclosure obligations for financial advisors, the client is further protected than before. The impact of these changes will be felt throughout the industry, but most of all, by clients whom these regulations seek to protect.