Minter Ellison Alert | Trans-Tasman mutual recognition of financial advisers

4 July 2012

The Australian Securities & Investments Commission (ASIC) and the New Zealand Financial Markets Authority (FMA) has released mutual recognition arrangements for the financial adviser industry. These will come into effect on 6 July 2012.

Links to the relevant documents:

Who needs to read it? Why?

The regime will facilitate both Australian and New Zealand financial advisers to provide services in each other's countries based on the qualifications and experience they have gained in their home jurisdictions.

What does it mean for Australian advisers?

Similarly, Australian financial advisers and/or credit service providers wanting to practise in New Zealand can apply to be AFAs based on their existing Australian qualifications (and they will be exempt from meeting the educational requirements otherwise set out in the Code of Professional Conduct for AFAs).

The exemption will apply in relation to certain AFA licence categories (e.g. financial advice, discretionary investment management services or investment planning services) and to certain classes of financial products, depending on the specific training of the applicant consistent with their requirements under RG146 for financial product advisers and RG206 for credit service providers.

The Australian adviser will still be required to meet the other eligibility requirements for authorisation under the Financial Advisers Act 2008 (FAA), including meeting good character requirements and criminal record checks. All other regulatory requirements (including the requirements to register under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 and to pay levies) will also still apply.

What does it mean for New Zealand advisers?

For New Zealand advisers wanting to practise in Australia, the amended RG146 and RG206 will treat:

  • current and former authorised financial advisers (AFAs), and
  • current and former advisers belonging to qualifying financial entities (QFEs) who meet the competency requirements to be an AFA,

who have practised for at least six consecutive months in each case, as fully meeting the Australian training standards currently required for the relevant products or subject areas covered by their New Zealand qualifications. It does not extend, however, to advising on superannuation and margin lending due to the lack of corresponding training requirements in New Zealand for these products.

A 'former adviser' is an adviser not currently practising but who has done so within the three years before the adviser started practising in Australia.

It is important to note that ASIC has not provided a licensing exemption for New Zealand advisers. They will still need to apply for or act under an appropriate Australian Financial Services (AFS) licence. The relief simply means that advisers do not need to meet two sets of training requirements – Australian advisers only need to meet Australian training requirements (ie RG146) and New Zealand advisers only need to meet New Zealand training requirements.

ASIC is currently reviewing training requirements for Australian advisers and has proposed amending the current framework by requiring:

  • all new and existing financial advisers who provide Tier 1 financial advice to pass an exam
  • all new financial advisers to be supervised by a supervisor with at least 5 years experience for the first year (or equivalent if part time), and
  • all financial advisers to undertake a Knowledge Update Review (which includes testing proficiency) every three years.

Details of ASIC's proposals can be found in CP153. The release does not indicate how these proposals will affect the recognition of New Zealand training requirements, except to note that the exemption will be reviewed every 3 years at which time ASIC will presumably reconsider whether New Zealand requirements are equivalent to any new Australian requirements which are not due to commence until 2014 (with a two year transition period) in any case (see ASIC Release 12-146 available here).

Don’t we already have mutual recognition?

Technically, the Trans-Tasman Mutual Recognition legislation has always applied to AFS licence holders. However, as most of these are firms or companies, they do not fit within the individual authorisation focus of the FAA. Likewise, certain New Zealand advisers (such as those engaged by a QFE) do not have the individual authorisation needed to invoke the existing legislation into Australia. This new regime provides a mechanism for individual advisers in each jurisdiction to qualify in the other country.

What about the existing Financial Advisers (Australian Licensees) Exemption Notice 2011?

This existing exemption notice allows certain Australian advisers with a limited number of retail clients in New Zealand to continue to provide personalised advice, by supplying certain details and information to FMA. This exemption notice continues in force until 30 June 2013. Australian advisers relying on this exemption may need to consider whether they should re-qualify as AFAs in New Zealand under the new regime before the expiry of the notice.

Our view

We welcome the approach taken by FMA and ASIC to allow qualified advisers from both sides of the Tasman to rely on their qualifications in one jurisdiction to support their authorisation or licensing in the other. However, in the long run, we trust that FMA and ASIC will work together to further harmonise training and qualification requirements in both jurisdictions to ensure that a consistent approach to is taken on both sides of the Tasman.

The new regime will allow advisers to advise a wider pool of potential clients and to use their home jurisdiction expertise to the advantage of their new clients (particularly where, for example, products are offered cross-border under trans-Tasman mutual recognition of securities offers).

It remains to be seen to what extent advisers will be prepared actually to seek authorisation as AFAs (in the case of Australian advisers) or to operate under an AFS licence (in the case of New Zealand advisers) which will still mean complying with two sets of obligations, such as becoming subject to levies, and compliance with the New Zealand Code of Professional Conduct for New Zealand AFAs.

What next?

Advisers in New Zealand and Australia will be able to apply to ASIC and FMA respectively for an AFS licence or authorisation as an AFA from 6 July 2012.

When deciding to seek a licence or authorisation, advisers will need to confirm that they will be able to comply with the regulatory regime of both countries and they should therefore make sure that they are aware of the scope of their obligations before applying.

The new regime will be reviewed every three years to consider any changes to the training regimes in either Australia or New Zealand during that time.

If you have any questions in relation to the process for seeking authorisation as an AFA or an AFS licence, please contact one of our experts below.

Author(s) Richard Batten, Lloyd Kavanagh, Jeremy Muir