FMA's Licensing Overview Report 2017

Finance Update

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As signalled, FMA has issued its Licensing Overview Report 2017 (Report), in which it describes the common issues it experienced from considering over 250 licence applications under the Financial Markets Conduct Act 2013 (FMCA) during the transition period from April 2014 to December 2016. You can get a copy of the report here

In the Report FMA:

  • outlines its flexible approach to applications;
  • explains how the minimum standards in its licensing guides and the FMCA eligibility criteria fit together;
  • demonstrates the linkages between its view on good conduct and the minimum standards;
  • signals its key focus for monitoring licensees; and
  • clarifies licensees' ongoing legal obligations.

Some of the key takeaways from the Report include:

  • Early engagement: FMA emphasises the benefits of applicants engaging with it 'face to face' early in the application process. 
  • Conduct focus: A repeated focus on good conduct, including the need for a framework around culture, governance, and operations to ensure good and fair outcomes for the applicant's customers.
  • Flexible approach: Governance frameworks and compliance systems should fit the applicant's size and business model. FMA considered that, given the variety of the applicants, this was an area where it had exhibited a flexible approach to the licensing process.
  • Checks, balances and controls: Applicants should have solid checks and balances at the board and senior management level, as well as robust testing and controls at the operational level.
  • Documentation: Policies and procedures should be documented, have a specific owner, and have rigorous version control processes.
  • Skills and training: Directors, senior managers, and staff should have the skills necessary to support the licensee's compliance with its obligations, and to achieve good conduct outcomes.  Both directors and staff at all levels must also undergo regular training.
  • Financial resources: Formal documentation of financial management policies is important, as well as a thorough understanding of the financial requirements of the FMCA, particularly the net tangible asset calculations.
  • Monitoring: FMA will be primarily focused on how, and to what extent, licensees can demonstrate the integration of a customer-centred approach into all aspects of their businesses.

Finally, the Report sets out four steps to give your application a better chance of success:

  • Know the legal requirements - show clearly how you meet the legal eligibility criteria in the FMCA for your licence class.
  • Identify the gaps - work out how you will address gaps in your business processes to be able to meet the legal eligibility criteria.
  • Apply online.
  • Meet with FMA early - ideally before you submit your application.

We expect these observations by FMA will also become relevant to the licensing of financial advice providers as part of the reforms of the financial adviser regime.

We assisted a number of clients with their licence applications and played a prominent advocacy role in the market during the transition period. If you have any questions, or if you need any more information about the Report, please contact one of our experts.