2 July, 2015
On 1 July 2015, the long awaited Corporations Amendment (Financial Advice) Regulation 2015 (FOFA Regulation) will commence. These amendments aim to deal with a number of unintended consequences that have arisen since the FOFA laws were introduced, most of awhich have been causing some difficulty within the financial services industry.
The FOFA Regulation operates to:
- clarify that advice provided to an employer about a default superannuation fund is considered to be providing a financial service to a retail client,
- make the FOFA provisions consistent with other parts of the Corporations Act 2001(Cth) with respect to the wholesale and retail client distinction,
- treat non-cash payments, such as travel money cards, consistently with other simple financial products. One consequence of this amendment is that it will extend the application of the modified best interests duty in Regulation 7.7A.05 to advice on a facility for making non-cash payments,
- ensure that the modified best interests duty applies in respect of advice on basic banking products and/or general insurance even where provided at the same time as advice on the provision of consumer credit insurance (which attracts the full best interests duty),
- make the conflicted remuneration exemption that applies to basic banking products and general insurance applicable to benefits relating to consumer credit insurance where an employee or agent of an authorised deposit-taking institution provides advice on any of (or a combination of) these three products, and
- clarify the operation of the client-pays provision by inserting notes that explain its operation. Specifically, the notes clarify that:
- the giving of a benefit includes causing or authorising a benefit to be given as provided in section 52 of the Act, and
- the client-pays provision can be used to permit payments made from a superannuation fund member’s balance.
Assistant Treasurer Josh Frydenberg has said that the Government is consulting on further refinements to be legislated in the second half of 2015 which aim to:
- ensure the existing 'mixed benefits' and 'intra-fund advice' provisions operate as intended,
- ensure that future governments can specify in regulations that certain benefits are caught by the ban on conflicted remuneration, and
- extend and align the periods of time that an adviser has to send an opt-in renewal notice and a fee disclosure statement to their client to 60 days, to facilitate adviser compliance.
The Assistant Treasurer has also stated that "once these refinements are finalised, FOFA should be considered settled and given time to work."
For further information, please contact:
Michael Vrisakis, Partner, Herbert Smith Freehills
michael.vrisakis@hsf.com
Fiona Smedley, Partner, Herbert Smith Freehills
