While the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP Act), which provides a regulatory framework for registration of all financial service providers, received Royal Assent on 29 September 2008, much of the detail is to follow in Regulations yet to be promulgated.

The FSP Act prohibits any person from being in the business of providing financial services or holding out that they are in the business of providing financial services unless they are registered under the Act.

The business of providing a financial service does not have to be the only, or even the principal, business of that person.

Certain persons such as lawyers, chartered accountants, tax agents, and real estate agents will not be covered by the FSP Act if the financial services they provide are a necessary incident of their professional practice. A specific exemption is also provided for non-profit organisations that provide free financial services.

A wide range of entities are affected by the FSP Act, with the definition of 'financial service' being very broad. Those caught will include, amongst others, banks, building societies, credit unions, participants in the offering of securities to the public such as trustees, promoters and managers of security issues, money transfer services, finance companies, credit providers, foreign currency exchanges, and insurers. The Act also applies to credit, not just to investment services.

Aimed at providing a simple and low cost avenue for consumers to seek redress, the FSP Act also requires all persons who provide financial services to the public to belong to a dispute resolution scheme.

The FSP Act is to be implemented in stages. The part of the Act relating to applications for approval of dispute resolution schemes came into force on 30 September 2008. No date has been set for Part 2 of the Act (registration of financial service providers) or section 44 (the obligation of financial service providers to be members of a dispute resolution scheme).

The current indication is that the FSP Act will come fully into force by the end of 2010, alongside the Advisers Act, to enable financial service providers time to comply with the new requirements. Despite this transition period, financial institutions and individual financial service providers should begin the initial compliance preparation, as the changes brought by the Act are considerable.

Questions still remain as to how some provisions of the FSP Act will work in practice.

In respect of the requirement that financial advisers belong to a dispute resolution scheme, the FSP Act envisages that there will be more than one scheme. Issues have been raised by industry regarding the desirability of having more than one scheme. The Institute of Financial Advisers (IFA) has highlighted the cost and a single entry point for consumers as incentives for a single scheme to be pursued.

The fact that only 'consumers' and small to mediumsized businesses and organisations will be able to make complaints to a scheme is also at odds with the requirement that all financial service providers must belong to a scheme. In what appears to be a drafting oversight, a financial service provider who provides no services to consumers at all must still maintain membership of a scheme, even though none of its customers may access that scheme.

In addition, the FSP Act does not apply to persons providing financial services from offshore to a person in New Zealand and therefore offers no protection to the public in New Zealand dealing with offshore financial service providers.

We expect substantial developments in 2009 around the implementation of the FSP Act, which we expect will follow extensive consultations with the financial services industry.

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