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Corporations Amendment (Financial Advice Measures) Bill 2016

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2013-2014-2015

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

SENATE

 

 

 

Corporations Amendment (Streamlining of Future oF financial advice) Bill 2014

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

Amendments to be moved on behalf of the Government





(Circulated by the authority of the Minister for Small Business and Assistant Treasurer, the Hon Kelly O’Dwyer MP)

 



Table of contents

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

General outline and financial impact............................................................ 3

Chapter 1               Amendments to the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014................................................ 7

 



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

Abbreviation

Definition

Bill

Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014

FOFA

Part 7.7A of the Corporations Act 2001 , as introduced by the Corporations Amendment (Future of Financial Advice) Act 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 , also known as the Future of Financial Advice

Licensee

Holder of an Australian Financial Services Licence

Representative

Representative of an Australian financial services licensee

SOA

Statement of Advice



Amendments

On 19 March 2014, the Government introduced the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 (Bill) as part of the Government’s Autumn Repeal Day. The purpose of the Bill is to reduce compliance costs imposed on the financial services industry by amending Part 7.7A of the Corporations Act 2001 . Part 7.7A is also referred to as Future of Financial Advice (FOFA).

Following refinements to better target a number of FOFA provisions, the Bill passed the House of Representatives on 28 August 2014.

The Government’s amendments to FOFA were initially implemented through the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 (the Regulation). The Regulation commenced on 1 July 2014. On 19 November 2014, the Senate voted to disallow the Regulation, reversing the law to the original legislation.

Following the disallowance of the Regulation, a number of measures from the Regulation were remade through the Corporations Amendment (Revising Future of Financial Advice) Regulation 2014 , which commenced in December 2014. Further measures were remade through the Corporations Amendment (Financial Advice) Regulation 2015 , which commenced on 1 July 2015. The Bill is being amended to remove a number of the proposed amendments to FOFA and to implement minor and technical changes.

The minor and technical amendments to the Bill relate to:

•        amending the short title of the Bill;

•        extending the time for fee recipients to provide a renewal notice to a retail client from 30 to 60 days after the client’s fee renewal notice day; and

•        extending the time for fee recipients to provide fee disclosure statements to pre-1 July 2013 retail clients from 30 to 60 days.

In summary, the amendments seek to remove the following from the Bill:

•        changes to the Statements of Advice requirements;

•        repeal of the requirement that licensees send fee disclosure statements to pre-1 July 2013 clients;

•        repeal of the opt-in requirement for continuing an ongoing fee arrangement between a fee recipient and a client;

•        changes to the definition of ‘volume-based shelf-space’;

•        changes to the best interests duty and scaled advice;

•        changes to the execution only provision;

•        changes to allow the payment of mixed benefits; and

•        the general advice exemption from conflicted remuneration.

Extensive consultation has occurred on the FOFA measures as part of the Government’s introduction of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 (No.102, 2014), the Corporations Amendment (Revising Future of Financial Advice) Regulation 2014 (No. 208, 2014), and the Corporations Amendment (Financial Advice) Regulation 2015 (No. 108, 2015), in addition to the consultation and parliamentary scrutiny of the Bill.

These parliamentary amendments have also been the subject of targeted consultation with key industry and consumer group stakeholders. Stakeholders including the Association of Financial Advisers, Australian Bankers’ Association, Choice, Council of the Ageing, Financial Planning Association of Australia, Financial Services Council, Industry Super Australia, and National Seniors Australia provided written submissions on the parliamentary amendments.

Date of effect : These amendments commence on the day after this Bill receives Royal Assent.

Proposal announced : The Government announced the proposal in a media release dated 25 June 2015.

Financial impact : These amendments have no significant financial impact on Commonwealth expenditure or revenue.

Human rights implications : The amendments to the Bill are compatible with human rights as they do not raise any human rights issues.

Compliance cost impact : A regulation impact statement was not required for these amendments.



Outline of chapter

1.1                   This chapter explains the amendments to the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 (Bill).

Short title

1.2                   Amendment 1 changes the short title of the Act to the Corporations Amendment (Financial Advice Measures) Act 2015 .

1.3                   The Bill has renamed the Act to reflect that the proposed amendments have substantially changed and are now primarily of a minor and technical nature.

1.4                   Amendments 21, 22, 24, 25, 27 and 28  change references to the Corporations Amendment (Streamlining of Future of Financial Advice) Act 2014 to the Corporations Amendment (Financial Advice Measures) Act 2015 . [Schedule 1, item 43, Division 2 of Part 10.18, sections 1531A and 1531B  to 1531E]

Removal of amendments to the Statements of Advice requirements

1.5                   The current Bill makes the following three key amendments to the Statements of Advice (SOA) requirements in sections 946A, 947B and 947C of the Corporations Act 2001 :

•        requiring the SOA to be signed by the providing entity, or an individual acting on behalf of the providing entity, and acknowledged by the client;

•        providing clarity that the client may seek further or varied advice and specifying requirements if such advice is sought; and

•        amending the content requirements of the SOA.

1.6                   Amendment 2 removes these amendments to the Statement of Advice requirements. [ Schedule 1, items 1A-1J, subsections 946A(2), 947B(2) and 947C(2)]

1.7                   Amendment 23 is a consequential amendment that removes section 1531AA which relates to the application of these amendments. [Schedule 1, item 43, section 1531AA]

Removal of amendments to fee disclosure and the renewal opt-in requirements

1.8                   The current Bill repeals the following requirements:

•        that fee recipients must send a fee disclosure statement to pre-1 July 2013 clients in an ongoing fee arrangement; and

•        that fee recipients who have an ongoing fee arrangement with a post-1 July 2013 client must obtain the client’s agreement at least every two years to continue the arrangement by way of a renewal notice (opt-in requirements).

1.9                   Amendment 11 removes the repeal of the fee disclosure requirements from the Bill. As a result licensees will continue to be required to provide fee disclosure statements to pre-1 July 2013 clients. [Schedule 1, item 22, Subdivision C of Division 3 of Part 7.7A]

1.10               Amendments 3, 10 and 11 remove the repeal of the opt-in requirements. As a result fee recipients will continue to need to seek their client’s agreement to continue an ongoing fee arrangement by providing a renewal notice. [Schedule 1, items 3 to 5, 17 to 20 and 21, sections 960, and 962CA, Subdivision B of Division 3 of Part 7.7A]

1.11               Amendment 20 removes the repeal of the penalty provisions related to the requirement for a fee recipient to give a fee disclosure statement to pre-1 July 2013 clients, from the Bill. [Schedule 1, items 39 and 40, subsection 1317E(1) (table item 22) and subparagraph 1317G(1E)(b)(v)]

Extended timeframe for sending renewal opt-in and fee disclosure statements

1.12               Amendment 11 modifies the time period in which a renewal notice is required to be sent to a client from 30 days to 60 days after the client’s renewal notice day. [Schedule 1, item 21, subsection 962K(1)]

1.13               Extending the due date for a renewal notice to 60 days after the renewal notice day will align this requirement with the timing for sending a fee disclosure statement, which is also being extended from 30 to 60 days after the client’s disclosure day items 20A and 20B.

1.14               Amendment 11 also extends, from 30 to 60 days after the disclosure day, the time period for fee recipients to send a fee disclosure statement to clients under Subdivision C to align it with the proposed amendment to Subdivision B items 20A and 20B. [Schedule 1, item 22, subsection 962S(1)] .

1.15               The effect of amendment 11 and items 20A and 20B of the Bill is that a renewal notice will be due before the end of a period of 60 days beginning on the renewal notice day, and a fee disclosure statement will be due before the end of a period of 60 days beginning on the disclosure day.

1.16               Amendment 25 provides that the extended time period in which a renewal notice is required to be sent applies in relation to ongoing fee arrangements with renewal notice days that occur on or after the day after Royal Assent. [Schedule 1, item 43, section 1531C]

1.17               Amendment 26 amends the heading of section 1531D to reflect that it applies to all fee disclosure recipients.

1.18                Amendment 27 provides that the extended time period in which a fee disclosure statement is required to be sent applies in relation to disclosure days that occur on or after the day after Royal Assent. [Schedule 1, item 43, section 1531D]

Removal of amendments to the definition of volume-based shelf-space fees

1.19               The current Bill makes amendments to clarify the definition of ‘volume-based shelf-space fee’ and the payments the ban on volume-based shelf-space fees intends to capture.

1.20           Amendments 4 and 19 remove the changes to the definition of ‘volume-based shelf-space fee’ and the amendments relating to the types of payments that are not considered volume-based shelf-space fees. [Schedule 1, items 6 and 36 to 38, sections 960 and 964A]

1.21           Amendment 19 also removes the items that amend the definition of funds manager in section 964. [Schedule 1, items 36 and 37, subsections 964(1) and (2)]

1.22           Amendment 29 removes the related application provision (section 1531F) from the Bill. [Schedule 1, item 43, section 1531F]

Removal of amendments to best interest duty

1.23           The current Bill makes amendments to the best interest duty, and provides additional clarity on the ability for a client and adviser to agree on the subject matter of any scaled advice sought.

1.24           Amendment 5 removes the items that:

•                repeal paragraph 961B(2)(a) and replace it with the requirement for the provider to identify the objectives, financial situation and the needs of the client that are disclosed to the provider by the client [Schedule 1, items 7 to 8, paragraphs 961B(2)(a) and (ba)]; and

•                repeal paragraph 961B(2)(g). [Schedule 1, items 9 to 11, paragraphs 961B(2)(f) and (g), and note at end of subsection 961B(2)]

1.25           Amendments 6 and 7 insert references to paragraph 961B(2)(a) and remove those to 961B(2)(ba) in section 961B as a consequence of amendment 5. [Schedule 1, item 12, subsections 961B(3) and (4)]

1.26           Amendment 8 removes the provision which specifies that for the avoidance of doubt a client and adviser can agree on the scope of the advice to be provided. The note that is at the end of section 961B, which relates to scaled advice, will be retained. [Schedule 1, item 13, subsection 961B(4A)]

1.27           Amendment 8 also removes the repeal of s 961E, which is a consequential amendment related to proposed changes to the best interest duty. [Schedule 1, item 14, section 961E]

1.28           Amendment 9 removes changes to the appropriate advice requirement, that provided that advisers must only provide advice to the client if it would be reasonable to conclude that the advice is appropriate to the client ‘having regard to’ the best interest duty in s 961B. [Schedule 1, item 15, section 961G]

1.29               Amendment 24 amends the application provision for the best interest obligation (section 1531B) to refer to the amendments made by items 12, 14A and 16 of the Bill and which is required as a consequence of amendments 5, 8 and 9. [Schedule 1, item 43, section 1531B]

Removal of amendment to the execution only provision

1.30               Under the current law, the execution-only provision provides that benefits paid for execution-only services (such as the issue or sale of a financial product) where no advice has been provided by the licensee or representative to the client in relation to the product - or products of that class - in the previous 12 months are not conflicted remuneration.

1.31               The current Bill broadens the execution-only provision so that it applies where no advice on that product - or the class of products of which the product is one - has been provided to the client by the individual receiving the benefit in the previous 12 months.

1.32               Amendments 12 and 14 remove this amendment to the execution-only provision. [Schedule 1, items 27 and 29, section 963B]

Conflicted remuneration: removal of the general advice exemption

1.33               Under the current law, remuneration (both monetary and non-monetary) received in relation to both personal advice and general advice is captured by the ban on conflicted remuneration.

1.34               The current Bill provides a targeted general advice provision that deems benefits on general advice to not be conflicted remuneration provided certain conditions are met.

1.35               Amendment 14 removes the targeted general advice exemption. [Schedule 1, item 29, section 963B] Amendment 17 makes a consequential amendment to the basic banking exemption from conflicted remuneration. [Schedule 1, item 35, section 963D]

 

Conflicted remuneration: removal of the mixed benefits provisions

1.36               The current Bill makes amendments that would clarify that a single ‘mixed benefits’ payment can relate to two or more benefits that - if paid individually - would not be considered conflicted remuneration.

1.37               Amendments 12, 13 and 15 remove this amendment. [Schedule 1, items 24 to 26, 28 example and 30 to 32, sections 963B and 963C]

Conflicted remuneration: removal of expanded regulation making power

1.38               The Bill currently makes amendments to introduce regulation-making powers that would clarify the operation of existing exemptions to conflicted remuneration.

1.39               Amendments 14, 16 and 18 remove the regulation-making power . [Schedule 1, items 29, 34 and 35, sections 963B, 963C and 963D]



 

Schedule 1: Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014

Bill reference

Paragraph number

Items 1A-1J, subsections 946A(2), 947B(2) and 947C(2)

1.6

Items 3 to 5, 17 to 20 and 21, sections 960, and 962CA, Subdivision B of Division 3 of Part 7.7A

1.10

Items 6 and 36 to 38, sections 960 and 964A

1.20

Items 7 to 8, paragraphs 961B(2)(a) and (ba)

1.24

Items 9 to 11, paragraphs 961B(2)(f) and (g), and note at end of subsection 961B(2)

1.24

Item 12, subsections 961B(3) and (4)

1.25

Item 13, subsection 961B(4A)

1.26

Item 14, section 961E

1.27

Item 15, section 961G

1.28

Item 21, subsection 962K(1)

1.12

Item 22, Subdivision C of Division 3 of Part 7.7A

1.9

Item 22, subsection 962S(1)

1.14

Items 24 to 26, 28 example and 30 to 32, sections 963B and 963C

1.37

Items 27 and 29, section 963B

1.32

Item 29, section 963B

1.35

Items 29, 34 and 25, sections 963B, 963C and 963D

1.39

Item 35, section 963D

1.35

Items 36 and 37, subsections 964(1) and (2)

1.21

Items 39 and 40, subsection 1317E(1) (table item 22) and subparagraph 1317G(1E)(b)(v)

1.11

Item 43, Division 2 of Part 10.18, sections 1531A to 1531E

1.4

Item 43, section 1531AA

1.7

Item 43, section 1531B

1.29

Item 43, section 1531C

1.16

Item 43, section 1531D

1.18

Item 43, section 1531F

1.22