New FOFA regulations registered yesterday will come into effect on 1 July 2015. As we have previously reported, not all of these changes will be new to the industry, with the Government previously consulting in January and March 2014 on some of the new regulations.
The new regulation is intended to improve the operation of FOFA by alleviating a number of unintended consequences of the original FOFA laws. At their heart, the regulations:
- result in a consistent treatment of the wholesale client/retail client distinction for the purposes of FOFA laws by inserting new provisions into 761G Corporations Act 2001 (Cth) to clarify a person does not need to be treated as a “retail client” if they:
- acquire a product or service for a company or trust that they control;
- meet the “net assets” test when including the net assets and gross income of a company, or trust that a person controls;
- are a related body corporate of a wholesale client; or
- are a “professional investor”.
These changes are effected by amending Corporations Regulations 2001 (Cth)7.6.02AB, AC, AD and AE;
- modify the application of the “best interests” duty for basic banking products and general insurance products by:
- ensuring the availability of the modified best interests duty for basic banking and general insurance products where, at the same time, advice is also being given on a consumer credit insurance product (but section 961B must still be satisfied in respect of the consumer credit insurance product);
- providing that a person does not need to satisfy the steps set out in sections 961B(2)(d) to (g) of the Act when providing advice on a general insurance product; and
- extending the definition of “basic banking product” for the purpose of the best interests duty to include facilities for making non-cash payments that are not related to basic deposit products (for example, travel money cards).
These changes are effected by repealing regulation7.7A.1 and substituting new regulations 7.7A.05, .06 and .07; and
- inserting new notes into regulation 7.7A.12 to clarify the application of the conflicted remuneration provisions while also amending regulation 7.7A.12H(a)(iii) to extend the exemption from the conflicted remuneration regime to consumer credit insurance products in certain circumstances.
In addition to these amendments, the Assistant Treasurer has foreshadowed future reforms to come in the second half of the year. These future reforms are undergoing further consultation and relate to the following:
- changes to the ‘mixed benefits’ and ‘intra-fund advice’ provisions;
- new powers for regulations to determine that certain benefits are caught by the ban on conflicted remuneration; and
- extend and align the periods of time that an adviser has to send an opt-in renewal notice and a fee disclosure statement to their client to 60 days, to facilitate adviser compliance.
If these future reforms are enacted, the Federal Government has indicated it will consider the FOFA laws finalised and should be given time to work. However, if the legislative history of FOFA and the political football it has become are reliable indicators, achieving this lofty ambition may prove difficult for the Government.