In March 2014, the government introduced a bill to give effect to a range of FoFA reforms, targeted at reducing the regulatory burden on the financial industry.
The Senate Economics Legislation Committee (Committee) is due to report on the bill in June 2014.
What follows is a summary of the status of the government’s proposed FoFA reforms
Reasons for the Proposed Changes to FOFA
The proposed reforms aim to amend FoFA to reduce the compliance burden on the financial services industry while apparently maintaining consumer protection.
The government has stated that while it agrees with FoFA’s broad policy objectives, it considers the current law too complex, too expensive to implement and creates too much red tape.
Proposed Changes
The government has not proposed a wholesale repeal of FoFA. The proposed reforms include:
Removing Best Interest item 7 – the ‘catchall’ provision: When providing personal advice to a retail client, the advice provider must act in the client’s best interests in relation to financial advice — the ‘best interests duty’.
The proposed Bill removes the requirement for advice providers to establish they have ‘taken any other step’ in order to discharge the best interests duty.
Removing the Opt-in requirement: Currently, where an ongoing Financial Advice relationship exists between a Financial Adviser and a Retail Client and the Financial Adviser charges an ‘ongoing advice fee’ (a fee for a period longer than 12 months) — the Retail Client must give consent every 2 years to be charged the fee. Such ongoing fees are ‘opt-in’ and cease if the Retail Client does not give the required consent.
The proposed amendment removes the requirement to obtain the client’s consent to charge an ongoing advice fee.
Removing Prospective Disclosure Obligations: The proposed amendment removes the retrospective operation for disclosure statement obligations and as such if amended as proposed will apply to ongoing fee arrangements entered into from 1 July 2013.
The proposed amendments if passed are scheduled apply to arrangements entered into from 1 July 2013.
Next Steps
The Committee is due to report on the proposed amendments on16 June 2014.
During the Committee review process, the government has pledged to consult in good faith with stakeholders about the proposed amendments. FoFA.
Therefore it is unlikely that the FoFA amendments will be implemented before the 2015 financial year.
Furthermore in December 2013 ASIC stipulated that it would will not take enforcement action in relation to areas that are the subject of the proposed amendments until the proposed amendments and changes arising (if any) have been passed into law.
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