Personal lending risk: where CCCFA carve outs may not apply

Are personal lending financial advisers covered by the exclusions to the Financial Markets Conduct Act 2013 (FMC Act)?

It is a question which many assume to be the case. However, this may not be the case for an unsuspecting group within the industry. 

Lenders can use agents (including intermediaries) to undertake parts of the responsibility lending assessment. While the lender remains responsible for compliance with their obligations under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) relating to responsible lending, if the intermediary (i.e. person or entity who is taking an application from a consumer and submitting it to a suitable lender) is providing advice for the primary purpose of achieving compliance with the lender responsibility principles – they might also be able to rely on such exclusions.

However, this is case-by-case only, and given the narrowness of the exclusion, some personal lending intermediary businesses might decide it’s more effective, and less risky, to become an FAP. This is especially relevant when they are advising and recommending which lender is right for the client.

Fewer businesses are now prepared to take the risk that they are covered by the exclusions and are applying for FAP licenses. In applying for their FAP License, a key consideration is how to meet the Code of Professional Conduct for Financial Advice Services requirements, specifically Part 2: Competence, Knowledge and Skill. With no providers currently offering the relevant specialist strand to complete, within the New Zealand Certificate in Financial Services Level 5, this can be problematic.

Professional IQ has seen a significant increase in the number of personal lending intermediaries applying for FAP licenses where the advice they are giving goes beyond the available exclusions. This means that they then need to demonstrate they meet the required minimum competency specified in the Code. Using the Residential Property Lending Strand, as many have done, is not a good fit. To solve this, Professional IQ has developed learning modules and assessments for personal lending advisory financial advice providers to enable them to demonstrate equivalent competency”.

Professional IQ’s Competency Equivalency Solution allows personal lending advisory businesses to train their financial advisers to the required standard and provides a solution for them as FAPs to meet the competency requirements under the Code.

If you would like to speak to the team about the equivalency solution, set up a time with the team to speak to you.