Refining the Financial Services Reform Act

The Federal Government has proposed further amendments to the FSRA to improve the practical operations of the financial services regulation framework.  In effect, many of the onerous disclosure and licensing requirements should be wound back.

Some Background

Whilst the introduction of a uniform licensing, conduct and disclosure regime for financial services providers has provided significant benefits to consumers, it has also imposed an enormous and, in some cases, impractical, compliance burden.  Industry participants have raised concerns about the amount and detail of information that needs to be provided to consumers (which contradicts the requirement to provide information in a 'clear, concise and effective' manner), as well as the cost of complying with many of the requirements.

The government has consulted key interested parties (including industry and consumer groups) about changes to some of the current requirements, with the aim of improving the quality of disclosure to consumers and also of reducing compliance costs for providers.

Simplifying Disclosure

To deal with concerns relating to lengthy and costly disclosure, the new proposals recommend the following:

Financial Services Guides (FSG)  

• Tailoring: Australian financial services licensees should be able to tailor their FSGs to specific financial services or products that are relevant to those to whom they will be provided, instead of having to describe the full range of services or products offered by the licensee.
• Non-duplication of information: The FSG should not be required to include information that is also disclosed in a relevant PDS where it is likely that the potential client will also receive the PDS. Also, it is suggested that remuneration and conflicts of interest disclosure in FSGs could be limited to general descriptions where advice providers expect that they will later provide personal advice to the client.

Statement of Advice (SOA)

• Ongoing relationships: Advice providers should be exempt from the requirement to provide an SOA for information provided subsequent to the initial SOA, where there is an ongoing relationship between a retail client and a provider and there are no significant changes in the client's personal circumstances or the basis of the advice since the last SOA was given. (Instead, the provider would be required to keep a record of the subsequent advice for seven years and provide it to the client, if requested.)
• Alternative strategies: Advisers should not be required to include in an SOA information on alternative products or strategies that are considered but that do not form part of the final recommendation given by the adviser.

Product Disclosure Statement (PDS): Financial product issuers should be allowed to provide a 'short form' PDS that contains core information, with full product information available on request or through an easily accessible forum (eg the Internet).

Oral/Disclosure cooling off: Where a cooling-off period applies for a product recommended or issued by telephone, the oral disclosure requirements should be reduced by requiring only that the consumer be told about the availability of the cooling-off period and the fact that a written PDS will be provided.

General Advice Warning: ASIC should develop simplified general advice warnings (including on advertising of financial products by licensed and unlicensed product issuers), which convey the substance of the legislative requirements instead of relying on the precise wording of the Corporations Act and which take account of practical issues.

Basic Deposit Products: These products should be exempt from the PDS requirements, subject to appropriate oral disclosure and adequate and accessible disclosure of information on fees and charges on application, at point of sale and on a website.

General Insurance Products:

• Core information: The PDS requirements for general insurance products should be tailored so that an insurer need only disclose core information, including that required to comply with obligations under the Insurance Contracts Act 1984.
• No renewal PDS: A general insurance PDS should not need to be given on renewal of the product where no material changes to the policy have occurred (other than in relation to the amount of premium payable).

Retail/Wholesale Distinction

The current tests to determine the status of a client may lead to inconsistent outcomes, particularly when applied to some trust and corporate structures. The proposals suggest that companies and trusts that are controlled by wholesale investors and related bodies corporate of wholesale investors be treated as wholesale;

To clarify the application of the 'professional investor' test, the definition refer to a person with a minimum of $10 million in gross assets (rather than controlling at least $10 million).

The current six-month renewal period for accountants' certificates that certify a person's wealth or income should be extended to 24 months.

General Advice

Where no remuneration or other benefit is received, the regulations should specify that financial product advice does not include general advice from an unlicensed product issuer about its own products or anyone that is not linked to a specific product

ASIC will provide additional guidance to clarify that the mere possession (as opposed to consideration) of information about a client's relevant personal circumstances does not render advice given to that client 'personal advice'.

Changes to the regulations concerning authorised representatives, staff training and non-cash payment facilities are also proposed.

ASIC’s Involvement

ASIC has confirmed its support for the government's proposals paper and agreed to take the lead on eight of the refinement proposals.  ASIC's role will involve developing further guidance and, where applicable, issuing the relief in relation to those issues identified in the proposals paper.

Since the announcement, ASIC has issued class order relief (CO 05/27: Financial Services Guides – Tailoring relief) that promotes tailoring of FSGs by relieving financial services providers from the need to comply in the circumstances outlined in the class order with the additional remuneration disclosure requirements currently prescribed by the Corporations Regulations 2001.

Source: ASIC