On 28 June 2013, the long awaited Corporations Amendment Regulations 2013 (No.5) (Amending Regulations) were registered. The Amending Regulations amend the transitional and grandfathering arrangements relating to the ban on conflicted remuneration contained in Parts 7.7A and 10.18 of the Corporations Act 2001 (Corporations Act).

Background

Under the conflicted remuneration provisions in the Corporations Act, the payment of any benefits which influence or could reasonably be expected to influence financial advice (i.e. conflicted remuneration) given by a financial services licensee or its representatives is generally prohibited. Strict penalties apply to both product issuers who provide, and financial advisers who receive, conflicted remuneration.

At the time the legislation was enacted, it was considered that, in order to protect the value of existing financial advisory businesses, certain benefits in respect of existing and new clients would be grandfathered where the financial adviser and the product issuer had entered into arrangements for the payment of such benefits before 1 July 2013.

The Government subsequently considered this position to be excessively generous and proposed in March 2013 to introduce the Amending Regulations which will effectively introduce a sunset date of 1 July 2014 on most types of grandfathering.

Grandfathering and exemptions – the final position

The Amending Regulations implement a number of grandfathering and transitional amendments which were initially released in the exposure draft of the Amending Regulations in March 2013. The Amending Regulations also implement a number of additional transitional, grandfathering and exemption changes not contemplated in the exposure draft.

These key provisions of the Amending Regulations are summarised below.

Click here to view table.

Comments

While the Amending Regulations have been drafted to cover a wide variety of situations in which conflicted remuneration would be grandfathered or exempt, the provisions of the Amending Regulations are themselves complex and in certain circumstances, open to different interpretation. However, the clear intention is to harmonise the application of grandfathering as between platform providers and non-platform operators. The explanatory statement also makes it clear that grandfathering is not intended to apply if a client is investing in a completely different scheme, product or offering, on or after 1 July 2014. 

Practical issues for consideration by platform operators, product issuers and financial advisers include:

  • Whether the non-platform grandfathering applies if a particular financial product had not been offered before 1 July 2013?

  • Whether the platform and non-platform grandfathering applies to both upfront benefits (such as upfront rebates and commissions) as well as ongoing benefits (such as trailing commissions)?

  • How much an existing arrangement between platform operators or product issuers and financial advisers can change before grandfathering ceases to be available?

  • If a financial product offered under a multi-product offer PDS ceases to be offered under that document, will grandfathering continue to apply?