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Corporations Amendment (Future of Financial Advice) Bill 2012

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2010-2011-2012

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

SENATE

 

 

 

Corporations amendment (future of financial advice) Bill 2012

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

 

Amendments to be moved on behalf of the Government

 

(Circulated by the authority of the

Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 2

Chapter 1               Explanation of amendments.............................................. 3

Chapter 2               Statement of Compatibility with Human Rights.............. 5

 

Do not remove section break.



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

Act

Corporations Act 2001

ASIC

Australian Securities and Investments Commission

Bill

Corporations Amendment (Future of Financial Advice) Bill 2012

FOFA

Future of Financial Advice

Licence

Australian Financial Services Licence



 



Outline

On 13 October 2011, the Australian Government introduced the Corporations Amendment (Future of Financial Advice) Bill 2012 into the Australian Parliament.  Together with the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, the Bill implements the Government’s Future of Financial Advice (‘FOFA’) reforms.

These amendments make a number of changes to the application arrangements for the reforms.  Under the revised arrangements, compliance with the FOFA reforms will be voluntarily from 1 July 2012 and mandatory from 1 July 2013. 

Date of effect The amendments to the Bill commence at the same time as the remainder of the Bill on 1 July 2012.

Proposal announced :  The Government announced details of the revised application arrangements on 15 March 2012. 

Financial impact This Bill has no significant financial impact on Commonwealth expenditure or revenue.

Human rights implications :  The amendments to the Corporations Amendment (Future of Financial Advice) Bill 2012 do not raise any human rights issues.  See Statement of Compatibility with Human Rights — Chapter 2, paragraphs 2.1 to 2.6.

 



 



Chapter 1          

Explanation of amendments

Outline of chapter

1.1                   These amendments modify the application of the measures contained in Schedule 1 to the Corporations Amendment (Future of Financial Advice) Bill 2012 (the Bill). 

1.2                   Under the revised application arrangements, compliance with the requirements relating to ongoing fee arrangements will be voluntary from 1 July 2012 and mandatory from 1 July 2013. 

1.3                   The measures relating to the powers of the Australian Securities and Investments Commission (ASIC) and the anti-avoidance provisions will continue to apply from 1 July 2012.  It is the intention that the anti-avoidance provisions will be able to apply to new arrangements entered into after 1 July 2012 without resulting in an unjust acquisition of property. 

Application of ongoing fee arrangement requirements

1.4                   The Bill proposes a new Division 3 in Part 7.7A of the Corporations Act 2001 (‘the Act’), introducing an obligation on licensees and representatives to renew ongoing fee arrangements with new clients (Subdivision B of Division 3) and enhanced disclosure of ongoing fee arrangements to existing clients (Subdivision C of Division 3). 

1.5                   The amendments propose changes to the application of Division 3 so that the requirements are voluntary from 1 July 2012 and mandatory from 1 July 2013.  Under the amendments, the Division will apply from the ‘application day’ which is either (a) the day specified in a notice lodged with ASIC by a financial services licensee who is the recipient of the ongoing fees, or (b) if no notice is lodged, 1 July 2013.

1.6                   The amendments also make consequential changes to section 962D of the Bill to replace the term ‘a representative’ with ‘a person acting as a representative’.  This is to make the drafting in section 962D consistent with the drafting used in the amendments.  The use of the term ‘a person acting as a representative’ captures any representative of a licensee including one acting by an arrangement with an Australian ADI under the name of the Australian ADI. 

Lodging notice with ASIC

1.7                   The amendments to the Bill propose a new Division 7 to Part 7.7A of the Act, introducing additional arrangements during the transition period. 

1.8                   Under the new Division 7, between 1 July 2012 and 30 June 2013 (the ‘transition period’), a licensee may lodge a notice with ASIC that the obligations and prohibitions imposed under proposed Part 7.7A apply to the licensee and any person acting as a representative of the licensee. 

1.9                   In addition, a person other than a licensee or representative that is subject to obligations under Part 7.7A may also lodge a notice.  This option is necessary because some of the requirements in the FOFA apply to entities other than licensees or representatives.  For example, an issuer or seller of financial products may be exempt from having to hold a licence under section 911A of the Corporations Act but would still need to comply with some of the obligations in the FOFA reforms in particular the ban on paying conflicted remuneration. 

1.10               If a person elects to lodge a notice, all of the obligations in Part 7.7A will apply from the date specified in the notice.  If the person does not lodge a notice during the transition period, the obligations will automatically apply from 1 July 2013. 

1.11               If a licensee elects to lodge a notice with ASIC, all the prohibitions and obligations under Part 7.7Awill apply to the licensee and all of the licensee’s representatives.  It is not possible for a licensee to elect to apply only a subset of Part 7.7A or only have Part 7.7A apply to a subset of its representatives.  Individual representatives cannot lodge a notice, this must be done through their licensee. 

1.12               Once a person has lodged a notice with ASIC, ASIC will publish relevant details on its website.  In addition, the licensee must disclose to any person it has obligations to during the transition period that Part 7.7A applies to the licensee and its representatives.  This disclosure to the client can be generic in nature and does not need to explain how the obligations will impact on the specific client. 

1.13               These disclosures are to ensure there is adequate information provided to clients in situations where a licensee elects to comply with Part 7.7A prior to the mandatory date. 



Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Corporations Amendment (Future of Financial Advice) Bill 2012

2.1                   The amendments to the Corporations Amendment (Future of Financial Advice) Bill 2012 (the Bill) are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.2                   The amendments to the Bill make a number of changes to the application arrangements for the Bill.  Under the revised arrangements, compliance with proposed Part 7.7A of the Corporations Act will be voluntary from 1 July 2012 and mandatory from 1 July 2013.

2.3                   From 1 July 2012, a person can voluntarily elect to comply with proposed Part 7.7A by lodging a notice with ASIC. 

2.4                   Those who elect to comply from 1 July 2012 will be required to notify certain clients of this election.  Those who do not elect to comply will be subject to Part 7.7A from 1 July 2013.

Human rights implications

2.5                   The amendments to the Corporations Amendment (Future of Financial Advice) Bill 2012 do not engage any of the applicable rights or freedoms.

Conclusion

2.6                   The amendments to the Corporations Amendment (Future of Financial Advice) Bill 2012 are compatible with human rights as they do not raise any human rights issues.

The Hon Bill Shorten MP, Minister for Financial Services and Superannuation