Update on QFEs
17/12/2009
On October 13 2009, Commerce Minister Simon Power announced that the Government was proposing some changes to the Financial Advisers Ace ("FA Act"), with a particular focus on the qualifying financial entity ("QFE") regime.
The Financial Service Providers (Pre-Implementation Adjustments) Bill (“Bill”), which if passed will effect the proposed changes, was introduced to Parliament on 8 December 2009. The proposed changes are expected to take effect in the first half of 2010. You can access the Bill here.
Under the QFE regime the QFE takes on responsibility for its employees and certain non-employee advisers, and such employees and advisers are not required to be individually registered nor authorised in certain circumstances (see below for more information). The Securities Commission has noted that QFEs will be central to the effective implementation of the new financial adviser regime due to the proposed frontline compliance and supervisory role they will take on.
The FA Act currently provides that a QFE will be responsible for ensuring all of their employees and agents advisers comply with their legal obligations. However, the Bill permits a QFE to appoint “nominated representatives” and references in the FA Act to “agents” of a QFE will be replaced by references to nominated representatives. Employees and nominated representatives of a QFE will generally not be liable for any contravention of a financial adviser obligation under the FA Act, and the QFE will be held accountable instead. However, authorised financial advisers (“AFAs”) will remain personally liable for conduct and disclosure obligations even if they are an employee or nominated representative of a QFE.
If the Bill is passed in its current form, employees of a QFE and the QFE’s nominated representatives will be able to provide financial advice or make an investment transaction in relation to the following products without being individually registered or authorised:
However, advisers who provide a financial planning service, or who provide financial advice in relation to category 1 products of which the QFE is not the issuer or promoter, will still need to be AFAs.
Although employees and nominated representatives of QFEs will not need to be individually registered or authorised in certain circumstances (see above), the Securities Commission has stated that the terms and conditions that will attach to the grant of QFE status will ensure that advisers operating under a QFE will have similar conduct obligations to those that would apply if they were operating outside of a QFE. Therefore, it will not be possible to avoid conduct or competency requirements simply by joining a QFE. The Securities Commission refers to this as “regulatory neutrality” and notes that this concept is at the core of how it is implementing the financial advisers regime.
Disclaimer: The information contained in this article is based on Sovereign's understanding of the legislative provisions and is deliberately of a general nature only. In preparing this information, Sovereign has not considered any Advisors' particular circumstances or other needs. Neither Sovereign, its directors, officers or employees, or any of its related companies (as defined in s2(3) of the Companies Act 1993) nor their respective directors, officers or employees makes any representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the Information. Advisors should seek independent legal advice before acting on any of the information contained in this article. No right of action shall arise against Sovereign, its related companies or any of their respective directors, officers or employees either directly or indirectly as a result of this information.