The Corporations Amendment (Financial Advice Measures) Bill (as amended by the Senate) today received Royal Assent, nearly two years after being introduced to Parliament on 19 March 2014. The Bill makes changes to the FoFA provisions of the Corporations Act that will take effect tomorrow.
Time extensions: Advisers will have 60 days to provide renewal opt-in notices and fee disclosure statements to retail clients, an extension from the current 30 days. The Government expects that this additional time will be used by advisers to properly prepare and assure the quality of these documents.
Client priority obligation: The exemptions from the obligation to give priority to the client's interests when a conflict of interest arises will be broadened.
Currently, the obligation does not apply if the subject matter of the advice sought by the client is solely a general insurance product. Under the amended provision, the obligation will not apply to the extent that the subject matter of the advice sought by the client is a general insurance product. This means the advice sought by the client need not be solely a general insurance product for the exemption to apply.
For advisers who are agents or employees of an Australian ADI (or who otherwise act by arrangement with an Australian ADI under the name of the Australian ADI), the obligation does not currently apply when the subject matter of the advice sought by the client is solely a basic banking product. Under the amended provision, the obligation will not apply to the extent that the advice relates to a basic banking product or a general insurance product (or a combination of those two products) so long as the subject matter of the advice sought by the client relates only to a basic banking product, a general insurance product or consumer credit insurance (or a combination of any of those products). This means the exemption will apply in additional circumstances.
Consequential amendments and enactment of Regulations: The Bill provides for consequential amendments to the Corporations Act (the insertion of a definition for consumer credit insurance and an extension of the definition of basic banking product to include non-cash payment facilities that are not related to a basic deposit product) and embeds in the Corporations Act laws that currently operate through the Regulations. These provisions relate to:
- the application of the modified best interests obligation; and
- the exemption from the prohibitions on conflicted remuneration of certain benefits given to advisers who are agents or employees of an Australian ADI (or who otherwise act by arrangement with an Australian ADI under the name of the Australian ADI). The terms of the amendment to the Corporations Act differ from the terms of the existing exemption in the Regulations, however, with the former applying to a benefit that is in whole or in part remuneration for work carried out (or to be carried out) by the licensee or representative, while the latter applies to a benefit that is given in relation to financial product advice.
Conflicted remuneration: A note will be inserted to confirm that the conflicted remuneration provisions apply to causing or authorising a benefit to be given.
Notes and a definition will also be inserted in relation to regulated superannuation funds. These are to clarify and specifically indicate that:
- the term "intrafund advice" refers to a type of financial product advice provided to a member of a regulated superannuation fund by a trustee of the fund, or by persons under an arrangement with the trustee of the fund and the provision of monetary benefits; and
- the client-pays provision operates with respect to advice paid from a superannuation fund member’s fund balance, as the member will have caused or authorised the amount to the paid.
A limited regulation-making power will be inserted to prescribe circumstances in which benefits will be conflicted remuneration. The Government has indicated that this is to allow for the winding back of exemptions to address any future unintended consequences.
The education and training exemption from the conflicted remuneration provisions will be broadened. To meet the current exemption, non-monetary benefits that have a genuine education or training purpose need to be relevant to the provision of financial product advice to persons as retail clients (and need to comply with the Regulations). Under the amended provision, this limb of the exemption will be satisfied so long as the benefits are relevant to the carrying on of a financial services business.
The Bill was introduced to the House of Representatives by the current Federal Government on 19 March 2014 after coming into power in September 2013. After passing the House of Representatives on 28 August 2014, the Senate debated and, with bipartisan support, passed the Bill with amendments on 24 November 2015. In the intervening period, the Senate had disallowed the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 on 19 November 2014. On 1 March 2016, the House of Representatives passed the bill as amended by the Senate.
What do you need to do?
- look for opportunities under the amended provisions to improve their approach to providing renewal opt-in notices and fee disclosure statements to retail clients;
- identify benefits that they cause or authorise to be given and ensure that they treat those benefits in the same was as they treat benefits given directly in relation to the conflicted remuneration provisions;
- be aware of the broadened exemptions from the client priority obligation; and
- keep up to date with any regulations made by the Government under the new regulation-making powers which could affect the application of the conflicted remuneration provisions.
The exemption from the prohibition on conflicted remuneration of certain benefits given to advisers who are agents or employees of an Australian ADI (or who otherwise act by arrangement with an Australian ADI under the name of the Australian ADI) under the Bill is in different terms to the existing exemption under the Regulations. Businesses should therefore also review any remuneration arrangements which rely on the existing exemption under the Regulations to ensure that they will continue to be covered by the amended provision should the Regulations be repealed.