Broker Services (formally Investment transactions)
The Supplementary Order Paper amends the Financial Service Providers (pre-implementation adjustments) Bill to change the provisions regulating broking services from those currently contained in the Financial Advisers Act 2008 (the FAA) so as to enable the FAA to be effectively implemented in relation to entities operating broking services.
In the FAA at present "investment transactions" are regulated as part of the "financial adviser services" provided by financial advisers. As a consequence, only appropriately registered or authorised individuals may perform these transactions, and not entities.
The changes set out in this Supplementary Order Paper will enable entities to carry out these transactions under the FAA.
Investment transactions are renamed broking services.
Key points are:
Ø Any individual or entity can provide broking services. Those in the business of providing broking services must be registered (unless exempted)
Ø Employees will not need to be separately registered as brokers themselves
Ø None of the duties imposed are borne by product providers
Ø The conduct obligations for brokers are essentially the same as the general conduct requirements (for example, due care, diligence and skill, not engage in misleading or deceptive conduct)
Ø Dispute resolution schemes are required to share information with the Securities Commission relating to disputes about brokers
Ø Other obligations are imposed, for example a broker must pay client money into separate trust account and keep records of client money and client property
Ø The Commission is entitled to include terms and conditions relating to broking services in the authorisation of authorised financial advisers.
Disclosure
The disclosure obligations applied to brokers are similar to those applying to financial advisers. However, these obligations are generally applied to the entity or employer that is the broker rather than to the individual employee.
A broker must make disclosure to a client, in accordance before (or if not practicable before, as soon as practicable after) receiving client money or client property from the client.
A broker must disclose the information prescribed by regulations. For example:
Ø criminal convictions
Ø disciplinary proceedings
Ø adverse findings by a court or the Commission:
Ø bankruptcy or other insolvency proceedings:
Ø procedures for handling client money or client property:
Ø fees:
Ø indemnity insurance:
Ø dispute resolution arrangements:
Ø location of business premises:
Ø Telephone, email, and fax details
Definition
A broking service is the receipt, holding, or payment of client money or client property by a person acting on behalf of a client.
The mere transmission of a non-negotiable instrument payable to another person is not a broking service.
The broker services definition has been narrowed / clarified to exclude the following types of (low risk) actions:
- Employees handling money on behalf of their employer;
- Handling items such as non-transferrable cheques and automatic payment forms;
- Intermediaries handling money as agents of providers of financial products.