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STAFF PAPER ON REGULATING AND SUPERVISING FINANCIAL ADVISERS

Complaintsand Enforcement

Complaintsabout financial advisers

42. Anyone may complain to the Commission about the conduct of a financial adviser. The Act also expressly provides that the Commissioner for Financial Advisers may initiate a complaint. A complaint may lead to increased supervisory attention or enforcement action.

General enforcement powers

43. If the Commission has reason to believe that a financial adviser is in breach of a disclosure or conduct obligation it may give the adviser a direction in relation to remedying that breach. Failure to comply with a direction is an offence.
44. The Commission may also exercise its powers under the Securities Act in performing its functions under the Financial Advisers Act. Those powers include:
    1. requiring documents to be provided for inspection;
    2. summonsing witnesses and receiving evidence in relation to any matter before the Commission; and
    3. accepting an enforceable undertaking.²
45. The Financial Advisers Act also includes offences relating to the failure to comply with conduct and disclosure obligations and the registration and authorisation requirements.

Enforcement powers specific to AFAs

46. The Commission has the following enforcement powers in relation to AFAs:
    1. If it is satisfied that an AFA is no longer eligible to be authorised, has breached the Act or regulations (other than in relation to breaches of the code which are dealt with by the disciplinary committee), breached a term or condition of authorisation, is subject to a recommendation by the disciplinary committee to cancel or suspend authorisation or to cancel authorisation and debar the adviser from reapplying for a specified period, or has failed to pay a fee or levy as required by the Act or regulations, the Commission may:
       1. cancel the AFA's authorisation;
       2. cancel the AFA's authorisation and debar him or her from reapplying for a specified time;
       3. suspend the AFA's authorisation for a specified time or until he or she does any thing that the Commission may specify; or
       4. amend the AFA's terms and conditions.
    2. If the Commission has reason to believe an AFA is in breach of the terms and conditions of the AFA's authorisation, it may give the AFA a direction in relation to remedying that breach. Failure to comply with a direction is an offence under the Act.
    3. The Commissioner for Financial Advisers may initiate a complaint about an AFA for the Commission to investigate and, as appropriate, take enforcement action or refer the matter to the code disciplinary committee.

Breaches of the code of professional conduct

47. The disciplinary committee to be set up under the Financial Advisers Act will be responsible for disciplining AFAs for breaches of the code of professional conduct. If the Commission receives a complaint about the conduct of an AFA, which in its opinion amounts to a breach of the code of professional conduct, it must refer the complaint to the disciplinary committee. If the disciplinary committee is satisfied that an AFA has breached the code it may:
    1. recommend the Commission cancel the AFA's authorisation;
    2. recommend the Commission-
       1. cancel the AFA's authorisation; and
       2. debar the AFA for a specified time from applying to be re-authorised;
    3. recommend that the Commission suspend the AFA's authorisation for no more than 12 months or until he or she meets specified conditions relating to the authorisation (but, in any case, not for more than 12 months);
    4. censure the AFA;
    5. order that the AFA, for up to 3 years, may only perform a financial adviser service subject to conditions relating to employment, supervision, or as otherwise specified in the order;
    6. order the AFA undertake training specified in the order;
    7. order the AFA must pay a fine not exceeding $10,000.

Enforcement powers specific to QFEs

48. The Commission has the following enforcement powers in relation to QFEs:
    1. If it is satisfied that a QFE is no longer eligible for QFE status, or has breached the Act or regulations, breached a QFE term or condition, failed to comply with a direction given to it by the Commission under the Act, or failed to pay a fee or levy as required by the Act or regulations, it may:
       1. cancel the QFE's status as a QFE;
       2. cancel the QFE's status as a QFE and debar it from reapplying for a specified time;
       3. suspend the QFE's status as a QFE for a specified time or until the entity does any thing that the Commission may specify;
       4. amend the QFE's terms and conditions;
       5. impose a fine of up to $50,000; or
       6. censure the QFE.
    2. If the Commission has reason to believe that a QFE is in breach of a disclosure or conduct obligation it may give the QFE a direction in relation to remedying that breach. Failure to comply with a direction is an offence under the Act.

Authorised Financial Advisers

AFAs - general comments

49. An individual who gives financial advice or makes investment transactions in relation to category 1 products (except for category 1 products issued by a QFE which is that person's employer ) or who provides a financial planning service must be authorised by the Commission. An AFA may also be an employee or agent of a QFE and we discuss the possible implication of that in the section below on QFEs.
50. As noted above, AFAs are subject to a more extensive range of obligations than those who are merely registered. In particular, they are subject to the code of professional conduct to be established under the Act. The disciplinary committee to be set up under the Act will be responsible for disciplining AFAs for breaches of the code.

Becoming an authorised financial adviser

51. A person is eligible to be authorised if:
    1. the Commission is satisfied that:
       1. the applicant is registered or is entitled to be registered as an authorised financial adviser once authorised by the Commission;³
       2. the applicant is of good character;
       3. the applicant meets the levels of competency, knowledge, and skills specified in the code for an authorised financial adviser; and
       4. the applicant is not debarred from applying for authorisation; and
    2. the Commission is not aware, after due enquiry, that the applicant has been convicted by a court in New Zealand or elsewhere of an offence punishable by imprisonment for a term of 6 months or more, or if the Commission is aware that the applicant has been convicted of such an offence, it is satisfied that the offence does not reflect adversely on the applicant's fitness to act as an authorised financial adviser.
52. We will be developing specific guidelines detailing the application process and setting out what will be needed to support an application.
53. Applicants whose applications are declined have a right of appeal to the District Court.
54. An AFA will be authorised for a specified time in relation to one or more of: performing a financial adviser service in relation to a category 1 product; making an investment transaction in relation to a category 1 product; or providing a financial planning service. An authorisation may also be subject to terms and conditions.

Footnotes

2. In cases where aspects of the law have not been fully complied with, the Commission is sometimes willing to accept a written undertaking from the party concerned. Generally, a party that offers the Commission an enforceable undertaking has acknowledged non-compliance with the law or other matters of concern, and agreed to take specific steps to address the breach. The Commission will accept an enforceable undertaking when it considers it to be the most appropriate outcome. Accepting an undertaking does not prevent the Commission from exercising any of its other enforcement powers. Enforceable undertakings are made public through the Commission's website. If the Commission considers that a term of an undertaking has been breached it may apply to the Court for an order directing: compliance with the undertaking; the payment to the Crown of an amount equal any financial benefit that is reasonably attributable to the breach; compensation for any other person who has suffered loss injury or damage as a result of the breach; or other consequential relief.
3. Note, however, that to be an AFA a person needs to be registered and have been authorised by the Commission.