On Mon 4.3.2013, ASIC released its finalised guidance (RG 246) to help industry understand the practical operation of the ban on conflicted remuneration and how ASIC will administer it.
The ban on conflicted remuneration is part of the FoFA reforms, and applies to both personal and general advice given to retail clients about any financial product, including managed investments, superannuation and platforms. The ban applies to commissions, volume-based payments, soft dollar benefits and volume-based shelf space fees.
Regulatory Guide 246 Conflicted remuneration (RG 246) covers:
- volume-based benefits;
- performance benefits for employees;
- volume-based shelf space fees;
- asset-based fees on borrowed amounts;
- transitional provisions;
- the anti-avoidance provision.
RG 246 follows consultations throughout last year, including a consultation paper released in September 2012.
As previously announced, ASIC said its final guidance on performance benefits as part of employee remuneration focuses on the principles underlying when a performance benefit is more likely to be conflicted remuneration (refer: 12-317MR). ASIC said this change was made following feedback on its draft guidance, which had included indicative thresholds as to when ASIC would be more likely to scrutinise such a benefit.
The conflicted remuneration provisions are set out in Divs 4 and 5 of Pt 7.7A of the Corporations Act 2001 and commence on 1 July 2013, although AFSL licensees can choose to comply with these provisions and other FOFA reforms earlier.
Source: ASIC release 13-038MR, 4 March 2013
[LTN 43, 5/3/13]
Draft FoFA regs on grandfathering released
Section 1528 of the Corporations Act 2001 and the Corporations Amendment Regulation 2012 (No 8) “grandfather” certain benefits from the application of the ban on conflicted remuneration under the FoFA rules. Treasury has now released a draft Regulation that proposes to amend the current arrangements to grandfather certain benefits that relate to the investments of existing clients prior to 1 July 2014. The ban on conflicted remuneration will apply to all new clients after that date.
The draft proposes to insert a new reg 7.7A.12EA to specify a type of monetary benefit that would be not conflicted remuneration for the purposes of para 963B(1)(e) of the Act. It is intended to cover what are commonly referred to in the financial advice industry as “buyer of last resort” arrangements. These arrangements allow a licensee to acquire the business of a representative for a purchase price using a specified formula. This proposed regulation would deem that purchase price not to be conflicted remuneration if it is based, in whole or in part, on the number or value of financial products held by the representative’s clients and the weighting attributed to the financial products that are issued by the licensee are the same of the weighting attributed to other financial products.
In addition, a proposed new reg 7.7A.16 would prescribe circumstances in which the ban on conflicted remuneration in Div 4 of Pt 7.7A of the Act would not apply to a benefit given by a platform operator. That is, the proposed reg would provide for the “grandfathering” of these payments. The effect of proposed reg 7.7A.16 would be to grandfather benefits given under pre-FoFA arrangements except where they relate to a new client coming onto the platform after 1 July 2014. Arrangements between financial services licensees and platform operators entered into after 1 July 2013 would not be grandfathered and must be negotiated on a FoFA-compliant basis.
COMMENTS are due by 18 March 2013.
[LTN 43, 5/3/13]
FoFA: ASIC clarifies its ‘no action’ position on fee disclosure statements in RG 245
ASIC announced on Tue 5.3.2013, that it has amended its Regulatory Guide (RG 245) on Fee Disclosure Statements (FDSs) at [RG 245.62] to clarify the operation of one of its “no-action positions”, following inquiries from stakeholders during ASIC’s FoFA Workshops.
Broadly, fee recipients (ie advice providers) must provide existing clients with an FDS within a period of 30 days that begins on the “disclosure day” (ie the anniversary of the day the ongoing fee arrangement was entered into).
If it is impossible or unreasonably onerous to determine the day an ongoing fee arrangement was entered into with an existing client, ASIC says that its “no-action position” at [RG 245.62] allows advice providers to determine a date between 1 July 2013 and 31 January 2014 that they will treat as the disclosure day. Advice providers must also give affected clients an FDS statement within 30 days of the date they have chosen.
[LTN 43, 5/3/13]