Regulatory, legal and ethical framework for financial services
What this domain tests
New Zealand's insurance advice regime is conduct-focused: the exam checks whether you can place a client interaction inside the FMCA, the FAP licensing model and the Financial Advice Code, and whether you can identify ethical failures before they become breaches.
Core rules
- Licensing and registration. Financial advice must be given through a Financial Advice Provider (FAP) licensed by the FMA, or by its financial advisers and nominated representatives. FAPs must be on the Financial Service Providers Register and belong to an approved dispute resolution scheme.
- Financial Advice Code 2021. The Code's standards require advisers to treat clients fairly, act with integrity, give suitable advice, ensure the client understands it, protect client information, manage conflicts, maintain competence, keep records, handle complaints and remediate errors.
- Prudential and general law. Insurers are licensed by the RBNZ under the Insurance (Prudential Supervision) Act 2010. The Privacy Act 2020, AML/CFT Act 2009 and Fair Insurance Code also shape conduct.
- Ethics in practice. Conflicts such as commission must be disclosed and managed; advice must not be misleading; client confidentiality must be preserved.
Worked example
An adviser recommends House Policy A, which pays 20% commission, over House Policy B, which is cheaper and equally suitable and pays 10%. Commission is not banned, but the adviser must disclose the remuneration and the conflict, and must be able to show why A is suitable on the client's needs, not on the commission. Failure to disclose is a Code and FMCA disclosure issue; a recommendation that is only explainable by commission is unsuitable advice.
Traps that cost marks
- Assuming a FAP licence makes every employee a financial adviser.
- Treating disclosure of commission as a one-off form rather than an ongoing conflict-management duty.
- Forgetting that nominated representatives act under the FAP's licence and are not separately licensed.
- Confusing the RBNZ's prudential role with the FMA's conduct role.