The Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 (FoFA amendment regs) were disallowed by the Senate on Wed 19.11.2014, after Senators Lambie and Muir joined cross-bench Senators to support a motion by Senator Dastyari (ALP) to disallow the Government’s FoFA amendment regs. The vote to disallow the Regulation was agreed to 32 votes to 30.
ASIC said that it will take a practical and measured approach to administering the law as it now stands following the disallowance of the Regulation. ASIC acknowledged that many Australian financial services (AFS) licensees will now need to make systems changes as a result of the changes to the law governing financial advice. ASIC further recognised that this issue may arise in relation to particular FoFA rules that have now been reinstated following the disallowance of the Regulation, including fee disclosure statements (FDS) and remuneration arrangements. (Source: ASIC media release 14-307MR, 19 November 2014.)
The Regulation, originally registered on 30 June 2014, had amended the Corporations Regulations 2001 to implement time-sensitive aspects of the Government’s FoFA changes until the measures contained in the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 could be passed by the Senate (having already been passed by the House of Reps with 7 amendments). The disallowed Regulation had made “interim” changes (applicable from 1 July 2014 until 31 December 2015)
- to remove the “catch-all” requirement from the best interests duty and facilitate “scaled advice”;
- remove the requirement for fee disclosure statements (FDS) to be sent to pre-1 July 2013 clients; and
- remove of the “opt-in” requirement so that investors would not be required to renew their ongoing fee arrangement with their adviser every 2 years.
- The Regulation had also broadened the FoFA grandfathering arrangements for the ban on conflicted remuneration and specified that benefits relating to general advice would not be conflicted (subject to certain conditions) to prevent commission-style payments.
- Among other things, the Regulation had also sought to clarify that bonuses paid in relation to “permissible revenue” would not be conflicted remuneration and allowed benefits to be paid under a “balanced scorecard arrangement”.
Given that the Government’s FoFA amendments have had the force of law as Regulations since 1 July 2014, the Minister for Finance said that the Government has asked ASIC to facilitate an appropriate transition to 1 July 2015. Senator Cormann also said that the Government remains committed to progressing through the Senate its substantive FoFA measures contained in the Bill.
(Source: Minister for Finance media release MC 122/14, 19 November 2014.)
[FJM note: But see below for the effect of the new regulation agreed with the opposition.]
[LTN 225, 20/11/14]
FoFA: grandfathering; conflicted remuneration: Govt and Opposition reach agreement on new regulations
Finance Minister Senator Cormann has on Wed 26.11.2014, announced that the Government has agreed with the Opposition that a revised regulation to progress the broadly supported elements of the disallowed FoFA Regulations be re-made by the Government before the end of this year. The Government has given notice of a motion in the Senate to give effect to this by seeking the support of the Senate.
The agreement provides that the following specific elements of the Government’s amendments, which were disallowed on 19 November 2014, will be able to be re-made in a new regulation:
- amendments to the grandfathering provisions that will address unintended consequences, and facilitate competition in the financial advice industry, by enabling advisers to move licensees with their clients whilst continuing to receive grandfathered remuneration;
- amendments to the training and education provisions that specify that benefits in relation to education and training that relate to conducting a financial services business are not conflicted remuneration;
- amendments to the stamping fee provisions that clarify its application to capital raising activities and broaden its application to include investment entities;
- amendments to the accountants’ certificate renewal period to provide that the extended 2-year renewal period also applies in relation to FoFA; and
- amendments to the brokerage-related provisions of FoFA to extend the provisions to products traded on the ASX24.
The Minister said the new Regulation will commence the day after it is registered.
[LTN 229, 26/11/14]
FoFA reg reinstatement – Senate agrees
The Senate on Thur 27.11.2014, agreed to a motion by Minister for Finance Senator Cormann that sought approval to reinstate parts of the Corporations Amendment (Streamlining Future of Financial Advice) Regulations 2014.
[LTN 230, 27/11/14]