The bulk of the financial services sector must now hold a licence and the country's market watchdog says it will work on "nudging and cajoling and occasionally shouting and punching" to ensure the industry is up to standard.

A huge overhaul of capital markets law that began coming into effect two years ago is now fully in force.

From today, all fund managers - including KiwiSaver providers - must hold a licence from the Financial Markets Authority (FMA).

As of last week, the regulator had granted licences to 66 fund managers.

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Those fund managers are among more than 120 other financial services providers already licensed by the FMA, including derivatives issuers, crowdfunding platforms, peer-to-peer lenders and independent trustees.

As well as the licensing regime, the law - called the Financial Markets Conduct Act - introduced new rules around how financial products are sold and promoted.

While the industry was allowed time to transition to new regulations, they are now completely in force.

FMA chief executive Rob Everett said licensing gives regulators the ability to know who is operating in the market.

The regime also made it much easier for the FMA to be proactive and "interventionist".

"The licensing framework gives you leverage as a regulator to go cajole and threaten and demand if that's what you need to do," Everett said.

"It creates a relationship between you and the regulated party that enables the regulator to do what we're going to be doing in the next period which is the nudging and cajoling and occasionally shouting and punching just to get the industry to where we think they should be. Licensing is a massive help in doing that," he said.

"We're going to step on some toes along the way which is absolutely fine but...what we're trying to be off the back of licensing is a regulator that guides and encourages and prods the industry away from creating harm for investors as opposed to only being able to react when someone has complained and something's already happened," he said.

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The licensing process had helped the FMA work out where in the industry it should be focusing its attention, he said.

He didn't think that any particular financial product warranted more focus but did say the FMA would be spending more time with some providers because licensing had shown they needed to improve in certain areas.

The information which the FMA gets from licensees might also give the regulator a sense of which parts of the industry could be at risk from wider economic shifts.

"We don't have in our remit the ability - and I wouldn't want it honestly - to tell the fund managers to de-risk in certain areas or change their allocation methods. What we can do is say 'we we don't think it's clear enough in your documents as to the risk level of those particular funds in the current environment and how they're performing against the benchmarks'," Everett said.

"We're not going to tell you what you should and shouldn't be doing but we are going to make sure that you do everything you can to be clear to the people and investors in your funds what sort of risks you're taking for the returns that you're generating," he said.