With the Streamlining Regulations now disallowed, a key question for the financial services industry will be what the future holds for dealings between advisers and their clients (see our previous blog for the consequences).
In a statement issued by the Finance Minister, Senator Mathias Cormann, the Government has indicated an intention to return its proposed Future of Financial Advice (FOFA) laws for further debate in the Senate.
The next battleground is therefore likely to be fought through the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. Currently before the Senate, the original intention of the bill was to enshrine the (now disallowed) Streamlining Regulations into legislation.
While the bill includes the same provisions that resulted in the current heated political debate, the bill also includes provisions aimed at resolving certain technical difficulties of the FOFA regime. For example, it sought to clarify the availability of giving scaled advice.
However, assuming that the current political uncertainty in the Senate may endure into the foreseeable future, it is unlikely that this bill will pass the Senate without amendment.
In particular, after a successful effort with crossbench colleagues to remove the Streamlining Regulations, independent senator Nick Xenophon has suggested there was scope for compromise with the Government.
With some new found friends in the Senate, the existing amendments to the bill proposed by Senators Madigan and Xenophon on 1 October 2014 may gain more traction and they provide some insight into the future direction of FOFA.
These amendments include:
- Substituting the “catch-all” requirement so that a financial services provider is instead required to have “exercised the judgement, care and objectivity which a person with a reasonable level of expertise in the subject matter of the advice, acting in the best interests of the client, would exercise in providing the advice.”;
- Replacing the scaled advice provision with one that only enables a provider to exclude matters from the scope of advice and from the provider’s investigation of the subject matter of the advice, so long as it is reasonable to do so having regard to the client’s instructions, needs and circumstances; and
- Limiting the products to which general advice may be exempt from conflicted remuneration to: general insurance products, consumer credit insurance products, basic deposit products, and facilities for non-cash payments.
The reformulation of the ‘catch-all’ best interest obligation is likely to require some refinement as it introduces a duty of care into the best interests obligation. Likewise, the reformulation of the scaled advice provision is unlikely to find favour with the financial services industry, who will lobby the Government to reject it.