With continued public scrutiny and increased pressure on the financial advice industry, the Senate yesterday passed a motion disallowing the latest Future of Financial Advice Regulations (Streamlining Regulations). As a result, the original Future of Financial Advice (FOFA) reforms as enacted by the former Labor Government came into effect immediately.
ASIC’s Facilitative Approach
Recognising the difficulties faced by financial services providers and consistent with other major policy reforms, ASIC has published a Media Release outlining that it will take a practical and measured approach to administering the law as it now stands following the disallowance of the Streamlining Regulations.
ASIC intends to work with financial service providers and adopt a facilitative approach until 1 July 2015. Financial services providers should carefully consider their processes and procedures to identify any potential issues, and engage in early discussions with ASIC.
More uncertainties ahead
After his successful effort with crossbench colleagues to remove the Streamlining Regulations, the independent senator Nick Xenophon said on the ABC’s Lateline program, that there was scope for compromise on the Government’s controversial financial planning regulations. That seems to indicate potentially more changes in the near future.
What were the Streamlining Regulations all about?
The Streamlining Regulations were initially introduced to resolve concerns surrounding the practical operation of the FOFA provisions and to reduce what the Government considered to be burdensome compliance costs that provided minimal benefit to consumers. With the Streamlining Regulations now no longer applying, financial services providers relying on the disallowed regulations may potentially be in breach of their legal obligations.
In particular, the disallowance means that financial services providers must satisfy, amongst others, the following obligations:
- ‘Opt-in’ requirement for clients to renew their ongoing fee arrangement with advisers every two years;
- Annual fee disclosure statement to be sent to all retail clients, including those with ongoing fee arrangements entered into pre-1 July 2013;
- ‘Catch-all’ best interests duty of providers to have regard to the best interests of a client given their relevant circumstances; and
- Conflicted remuneration provisions applicable to certain general advice, performance bonuses, execution-only services, and others.