Most pass financial advice test

The FMA has declined only one application since the Ross failure and none in the 12 months to June 30. Pictured is David Ross who is serving a 10-year, 10-month jail sentence. Photo / Mark Mitchell

Market watchdog turns down only one applicant in two years since Ross debacle.

New Zealand's market watchdog has declined only one financial adviser application since the collapse of David Ross' Ponzi scheme two years ago.

Ross' status as an authorised financial adviser was a designation his investors took confidence from. He later proved to be New Zealand's single biggest individual fraudster and is serving a 10-year, 10-month jail sentence.

His victims lost around $115 million when his company collapsed in November 2012. The former financial adviser ran a Ponzi scheme through his Wellington business and disguised it by falsely reporting clients' investments.

It has been against the law since 2008 to provide financial adviser services without being registered.

Professionals in this area must either be a registered financial adviser (RFA) or an authorised financial adviser (AFA).

AFAs must be licensed by the Financial Markets Authority while RFAs need only to be listed on an industry register.

To get authorisation as an adviser by the FMA, an applicant needs to provide proof of competence and pass a "good character" test.

If an applicant satisfies the relevant criteria, the FMA must authorise them. It has discretion only over the "good character" test and whether any criminal convictions an applicant may have would be relevant to their fitness as a financial adviser.

According to figures released under the Official Information Act, in the four years to June 2014 the FMA declined four AFA applications and approved more than 2200.

The FMA has declined only one application since the Ross failure and none in the 12 months to June 30.

One adviser application was declined in the past four years because he or she failed to meet the required level of competence, knowledge, and skills. The other three were turned down because they did not meet the good character requirements.

In the wake of Ross' collapse, it was suggested to the Commerce Minister, Craig Foss, that improvements to the rules on advisers could "significantly reduce the possibility of this type of case arising again".

Former FMA boss Sean Hughes suggested a number of regulatory improvements the Government could make, but these were not acted on.

They included "significantly higher entry requirement hurdles" for applicants, including making them submit detailed business records and client files. Another was making applicants satisfy "a fit and proper" test like those for a trustee or statutory supervisor licence.