Legislative Framework For AFA's > Module Two > Flashcards

Module Two Flashcards

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1
Q

Under the FAA 2008, when must a disclosure statement be provided?

A

When providing a personalised service to a Retail client.

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2
Q

What is the primary piece of legislation applying to AFA disclosure obligations?

A

Financial Advisors (Disclosure) Regulations 2010

Secondary: FAA 2008

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3
Q

When should you provide your disclosure statement?

A

Before providing the service, or as soon as practicable after providing the service.

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4
Q

Any advertisement for AFA services must declare…

A

That a disclosure statement is available on request and free of charge.

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5
Q

When should you provide your disclosure statement for personalised retail DIMS?

A

Before the investment authority is granted and before exercise of that authority. If not before then as soon as practicable after.

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6
Q

Where can you find the prescribed form for the primary disclosure statement?

Where can you find the prescribed form for the secondary disclosure statement?

A

Schedule 1 of the FADR.

Schedule 2 of the FADR.

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7
Q

Summarise the QFE Disclosure document/s.

A

Only one simplified document is required, prepared by the QFE.

It must include complaints procedure, DRS details, licensed services provided and other matters req.d to be disclosed.

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8
Q

Summarise RFE Disclosure document/s.

A

Found in Schedule 3 of the FADR, this is a simplified document including summary of service provided and complaints resolution process.

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9
Q

5 points - Accepted AFA disclosure documents must:

A
  • follow the prescribed format in FADR
  • be customised
  • printed in easily readable font type and size
  • must not include extra information not required under regulation.
  • must not be misleading
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10
Q

Exemptions from providing a written disclosure statement apply where:

A

An RFE, AFA, or QFE adviser is giving advice on a category two product by telephone or video conference.

They must state their designation, DRS, any other disclosure required, and that full disclosure can be provided on request.

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11
Q

3 points, What additional conduct obligations apply to DIMS providers?

A
  • there must be a written client agreement for each retail client, at the same time or before an investment authority is granted.
  • Each retail client must sign a written investment authority which must cover client objectives and scope of authority eg type of investment, limits.
  • An independent custodian must hold client money or property unless the client holds it.
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12
Q

Conditions/conduct for brokers holding client money, 6 points:

A
  • held in trust.
  • paid to trust account at NZ bank or approved overseas bank.
  • client money held separately from other funds.
  • account to the client for money held.
  • keep clear records.
  • only use funds as directed by client.

(Applies to retail and wholesale investors under retail DIMS).

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13
Q

Conditions/conduct for custodians holding client money, 4 points:

A

As for brokers, plus:

  • 6 monthly reports including transactions
  • reconcile records of client funds/property
  • promptly rectify discrepancies in records
  • obtain assurance from qualified auditor within 4 mths of close of custodians accounting period.
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14
Q

Personalised DIMS: customised investment strategy.

Regulated by?

A

Authorised by FMA, and subject to FAA

OR

Licensed and subject to FMCA

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15
Q

Class DIMS: model portfolios and model asset allocation.

Regulated by?

A

Licensed and subject to the FMCA.

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16
Q

The holder of an FMCA DIMS license or their employee can provide which services?

A

Class and Personalised DIMS.

Employees don’t have to be AFA’s but if they are AFA’s then it is the licence holder (not AFA) providing the service.

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17
Q

When is there an exemption from holding a DIMS license?

A
  • the service is not provided to retail clients
  • you’re authorised by FMA to provide personalised DIMS
  • the service is in a contingency basis.
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18
Q

In the ‘Standard Conditions for Discretionary Investment Management Services (DIMS) Licenses’ what are the 8 Standard conditions?

A

Skills/Expertise - notify key staff changes
Incidental Fin. Advice - maintain procedures/protections for retail clients
Outsourcing - Legally binding agreements, providers meet requirements of licensing agreement
Records - kept and readily available.
Reg.ty Returns - updated info on size, nature, and complexity of business
Compliance - systems, policies, procedures
Governance - the same or better than at time of licence issue
Fin. Resources - calculate Net Tangible Assets at least monthly, report any Neg. result, qualified audit each year at balance date.

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19
Q

In the ‘Standard Conditions for Discretionary Investment Management Services (DIMS) Licenses’ what are the two specific conditions?

A

Limits - to license may be set on request or based on demonstrated capacity.

Custody - the FMA will specify who is approved/may be used.

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20
Q

In the ‘Standard Conditions for Discretionary Investment Management Services (DIMS) Licenses’ what 3 conditions are imposed by the Financial Markets Conduct Regulations 2014?

A

191 General Reporting Condition
193 Keep Documents and provide on request
194 Disclosure/warning of Wholesale service

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21
Q

In the ‘Standard Conditions for Discretionary Investment Management Services (DIMS) Licenses’, condition 191 General Reporting Condition - Summarise:

A

Notify FMA of insolvency/bankruptcy of key personnel, appointment/resignation of key personnel, change of name or legal structure, major transactions causing loss of control.

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22
Q

In the ‘Standard Conditions for Discretionary Investment Management Services (DIMS) Licenses’, condition 193 Document Availability - Summarise:

A

Keep required documents for seven years.

Make available to investor on request, within ten days.

Reasonable admin fees may apply.

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23
Q

In the ‘Standard Conditions for Discretionary Investment Management Services (DIMS) Licenses’, condition 194 Wholesale Services Disclosure - Summarise:

A

If providing a wholesale service you must give a warning statement that the service is not a retail service and is not covered by your license.

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24
Q

When should a Service Disclosure Statement (SDS) be provided?

A

Before the Investment Authority is granted.

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25
What is the purpose of the Service Disclosure Statement?
To help the investor decide whether to use the service or change any instructions relating to the service.
26
How should/can the Service Disclosure Statement be delivered?
In writing. Given directly, or sent/emailed to last known address. It can be combined with your AFA Disclosure Statement.
27
Points on accuracy of the Service Disclosure Statement, 2.
- no misleading statements | - must not omit and required information under FMC Regulations.
28
Content of the Service Disclosure Statement, 3+ points:
- preparation date - Name and contact details - information set out in schedule 21 of the FMC Regulations. Includes; description of service, who, how, risks, conflicts, tax, complaints, sources of info, how to enter client agreement.
29
When is the Investment Proposal provided?
At the same time or before Investment Authority is granted.
30
What content should the Investment Proposal contain? | 4 points.
- Investment Authority and Strategy - historic performance of the investment strategy - fees and costs - risks
31
Duties and Obligations of a DIMS provider (5):
- written client agreement - written Investment Authority - money held by independent custodian - comply with conduct and disclosure - monitor compliance and reporting
32
Key steps for setting up new retail DIMS client, 5 points:
- Disclosure statements - Investment Proposal - Client Agreement - Investment Authority - arrange independent custodian if required.
33
The following events must be Reported to the FMA, 4:
- material change in circumstances (s412 FMCA) - breach or likely breach of license obligations (s412 FMCA) - certificates provided to clients re. Third party benefits (s236 FMCR) - Limit Breaks* * material breaches of limits under investment authority (s167 FMCA and s230-231 FMCA regulations)
34
DIMS Reporting: You are required to provide the client with?
Ongoing Reporting of transactions made by you on behalf of the investor (s210 FMC regulations). A yearly report on the investment strategy, the portfolio, and its performance. (s211 FMC regulations).
35
Enforcement of the Financial Markets Conduct Act Part 6: In the case of a material contravention of licensing Obligations or material change of circumstances the FMA may (4)?
- censure you - require an action plan - give direction on actions to undertake - suspend or cancel license
36
Enforcement of the Financial Markets Conduct Act Part 6: For other (non license related) market contraventions (s449) the FMA may apply to the High Court (s484) for a civil liability order including (4):
- declaration of contravention - a pecuniary penalty order - a compensatory order - other civil liability orders (s497)
37
Client agreement Under s 430 and s 431 of the FMCA the client agreement must:
- be entered into at the same time as, or before the investment authority is granted by the investor - be in writing.
38
s 226 of the FMC Regulations requires you to provide details about custodial arrangements, including:
- state how the investment authority may be changed. | - allow the investor to terminate the agreement, without penalty, by giving reasonable notice.
39
Investment authority Under s 437 of the FMCA, the investment authority must:
- be in writing - adequately provide for the client’s investment objectives and scope of the authority; for example: - the nature and type of investments, and their limits - how the investment strategy is developed, and how its performance is measured.
40
Custodian You’re jointly and severally liable with the custodian. Under s 445 of the FMCA, the custodian: 3 points
- must be a body corporate that you believe appropriate to hold and safeguard the money or property - may be an associated person, if that is a condition of your licence - must comply with broker obligations under the FAA.
41
Conduct obligations FMCA conduct obligations require DIMS licensees to: 6 points
- provide the service in accordance with a client agreement and an investment authority - use care, diligence and skill - act honestly and in the best interests of the investors - not use information to gain improper advantage or cause negative outcomes - not enter a transaction that provides a third party benefit, unless in the best interests of investors - comply with broker obligations in the FAA (see earlier section).
42
For the purposes of the AML-CFT 2009, FSP's and AFA's are referred to as...
Reporting entities.
43
Summarise: when do AFA's have obligations under AML-CFT?
When money is changing hands, I.e. Advising a client to buy certain products, acting as the intermediary for purchases, providing a broking service or DIMS.
44
Under AML-CFT, what are 5 key obligations?
- risk assessment - establish and maintain policies and procedures - Due diligence with client ID & verification - report suspicious transactions - keep good records
45
AML- CFT Risk assessment: Summarise
A written risk assessment that is audited every 2 years. Identifies risk, enables preparation of programme to mitigate those risks, and describes how it will be kept updated.
46
Your AML-CFT programme should include policies/procedures/controls for...?
Managing risks identified in assessment, vetting and training staff, CDD, suspicious transaction reporting, record keeping, preventing anonymous transactions or products, adherence and review/audit of programme.
47
Under AML-CFT your business must have a designated __________ __________ and prepare and submit an ________ ________ on your risk assessment and programme to the ___ .
- Compliance Officer - Annual Report - FMA
48
AML-CFT, CDD applies to the customer, any PAOB, and any Beneficial owner. A beneficial owner refers to...
Any person who owns 25% or more of the customer, or who has effective control.
49
AML- CFT - The 3 levels of CDD?
Standard - s14, most customers Enhanced - s22, high risk, certain customer types such as Trusts, and complex or unusually large transactions. Simplified - s18, Rare, includes listed issuers and govt. dept.s
50
AML-CFT, Verification Requirements Which document prescribes best practice for meeting the verification requirements?
Amended Identity Code of Practice 2013 (FMA).
51
AML-CFT Suspicious Activity Two key suspicious activities:
- People placing large amounts of money into the financial system, especially cash. Ask where the money has come from. -Layering: breaking up Funds and moving them around to hide the original source. Note: look out for funds spread across an unnecessarily large number of providers, funds moved/liquidated without rational economic reason, or transactions that do not match their profile.
52
AML-CFT Suspicious Activity Under s40 when must you file a Suspicious Transaction Report (STR) with police?
- a person conducts a transaction you suspect may be or linked to criminal activity - a person attempts to conduct a transaction you suspect may be or linked to criminal activity, even if you don't complete it
53
AML-CFT Suspicious Activity The STR goes to the NZ Police Financial Intelligence Unit (FIU) As per s40 the STR must contain (3):
- details required under AML- CFT (requirements and compliance) regulations 2011 - a Statement of the grounds on which you hold the suspicion - be signed by you or a person authorised by you to sign an STR
54
AML-CFT Suspicious Activity Case Study If a customer presents with an unusually large sum of money or requests unusual transactions, what steps should be followed?
1. Enhanced CDD, Identification, Verification, and Information on the source of funds. 2. Decision on sending an STR 3. Keep a confidential record of the transaction.
55
AML-CFT Enforcement Who supervises Financial Advisors and Brokers under the act?
The FMA - supervises all Reporting entities listed under s130.
56
AML-CFT Enforcement Who supervises Banks, Life Insurers, and non bank deposit takers?
RBNZ
57
AML-CFT Enforcement Who supervises Casinos, non-deposit taking lenders, money changers, and reporting entities not covered by other supervisors?
The Dept. of Internal Affairs
58
AML-CFT Enforcement Sanctions as covered under Part 3 include:
- formal warning - Enforceable undertaking - Serious penalties, fines from $300k for individuals up to $5 million for an entity - 2 years imprisonment
59
DIMS - General Reporting Condition
- insolvency of business - bankruptcies of key personnel - appointment or resignation of directors, auditors or key personnel - change of name or legal structure
60
DIMS - Document Availability
- kept seven years - provided within 10 days of investor request - admin fees may apply
61
DIMS - Wholesale Services Disclosure
If a wholesale service is provided you must give a warning statement that it is not a retail service and is not covered by your license.
Legislative Framework For AFA's
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