NEED TO KNOW

The Government has released draft legislation to unwind parts of the Future of Financial Advice (FoFA) regime but issues remain regarding the way in which the reforms will be introduced. Click here for a link to the Government’s FoFA consultation documents.

Contrary to comments in the explanatory material that the regulations will temporarily amend the statute, there appears to be no reference in the regulations to such amendments.

BACKGROUND

The draft legislation follows through with the Government’s commitment to implement the recommendations of its ‘Dissenting Report to the Parliamentary Joint Committee on Corporations and Financial Services’.  This Report inquired into the Bills that introduced the FoFA provisions in 2010. 

The Government maintains its proposal will increase certainty and reduce compliance costs in the financial advice industry. Our In Brief on 20 December 2013 reported on the Government’s initial announcement regarding the package of changes to the FoFA regime. 

THE DRAFT LEGISLATION

The draft legislation proposes to amend Part 7.7A of the Corporations Act 2001  dealing with the best interests obligation and conflicted remuneration, and the related Corporations Regulations 2001.  The amendments are set out in the following exposure drafts:

  • Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 (the draft FoFA Bill)
  • Corporations Amendment (Streamlining of Future of Financial Advice) Regulation 2014 (the draft FoFA Regulations)

A list of the key proposals under the draft FoFA Bill is summarised in the table below.

Click here to view table.

Under the draft FOFA Bill, the changes are proposed to commence the day after the Corporations Amendment (Streamlining of Future of Financial Advice) Act 2014 receives Royal Assent.

A list of the proposals under the draft FoFA Regulations is summarised in the table below. 

Click here to view table.

The Government proposes to amend the FoFA regime by using the regulation-making power under the Corporations Act to amend both the statute and the regulations.  The Explanatory Memorandum to the draft FoFA Bill states that the following changes “will all be implemented via regulation, and subsequently repealed” once they receive Royal Assent:

  • removal of the opt-in requirement;
  • changes to fee disclosure statements;
  • removal of the ‘catch-all’ provisions under the best interests obligation;
  • facilitation of the provision of scaled advice; and
  • clarification of the meaning of ‘intra-fund’ advice.

The Explanatory Statement to the draft FoFA Regulations states that to the extent possible under the regulation-making power, the draft FoFA Regulations will make interim changes until the draft FoFA Bill is passed and receives Royal Assent. However, the draft FoFA Regulations do not appear to make reference to any of the above changes - so a question remains as to whether the draft FoFA Regulations are incomplete, or whether the explanatory material is inaccurate.

In the meantime, it is expected that ASIC will take a facilitative approach to the FoFA regime until mid-2014.  This means ASIC will not take enforcement action in relation to the specific FoFA provisions that the Government is planning to repeal.

NEXT STEPS

The draft FoFA Bill and FoFA Regulations are open for consultation and submissions close on 19 February 2014.