ASIC tightens AFSL process

July has been a very busy month in the financial services industry, with some important updates in the Financial Services Sector to start FY15. In this update, we report on:

  • changes to the AFSL application process;
  • the Future of Financial Advice regulations that survived the senate; and
  • The Murray Inquiry Interim Report (the Financial System Inquiry Interim Report).

ASIC tightens AFSL process

The Australian Securities and Investments Commission (ASIC) has introduced changes to the lodgement process for Australian Financial Services Licence (AFSL) applications. Previously, applicants had a 20 business day ‘grace period’ between lodging their AFSL application online and sending in the core supporting proof documents.

It appears that, from 28 July 2014, the grace period will no longer exist.

Practically, this will mean that ‘promptly‘ after online lodgement of an application for an AFSL, or an application to vary an AFSL, you will need to email the core proof documents (e.g. A5 Business Description, People Proofs for each Responsible Manager, B5 Financial Statements etc) to ASIC.

When lodging a Form FS20 to change responsible managers, you will need to submit the required people proofs (eg copy of criminal history check) when you lodge the form.

If lodging by mail you will need to send the core proof documents together with the paper application or paper form.

This change will presumably benefit ASIC by ensuring that all applications are complete when lodged, rather than allowing a ‘lag-time’ for all the paperwork to be submitted by applicants.

Prospective AFSL applicants, however, might not appreciate the increased work required to prepare the AFSL paperwork upfront. Historically, some applications involved the A5 Business Description being submitted ‘up front’ with the prospective applicant then spending the next couple of weeks finalising the B1 Table of Organisational Competence and/or the B5 Financial Statement. According to ASIC, this practice will no longer be permitted, although we await for confirmation of this through updates to ASIC Regulatory Guides 2 and 3 in particular.

FoFA: Finally Final

The Senate’s passing of the Federal Government’s (Government) Future of Financial Advice (FoFA) reforms last week provided a final resolution to what was a tumultuous and uncertain legislative progression for the reforms.  Technically, the Senate did not ‘pass’ the reforms but actually voted (34-31) in favour of rejecting a ‘motion to disallow’ them i.e. the proposed regulations currently tabled with Parliament remain intact.  In our previous blogs, we have charted the uncertain path that they FoFA reforms have taken to reach their current point.

The Government’s success in the Senate resulted in the repeal of the previous FoFA provisions introduced by Labor but it was not without controversy.   Last minute negotiations with the Palmer United Party (PUP) and other smaller party Senators were required by the Government to guarantee the final votes it needed for the dis-allowance motion to be rejected.  In exchange for its support, the PUP requested that the following requirements be contained in Statements of Advice (SOAs) which must then be signed by the adviser and the client:

  • the adviser is required to act in the client’s best interests and to prioritise the client’s interests;
  • the adviser genuinely believes that the advice is in the client’s best interests given their circumstances;
  • fees must be disclosed;
  • a Fee Disclosure Statement will be provided annually for ‘new’ clients (those who enter, or entered into, an arrangement after 1 July 2013);
  • details of a 14-day cooling off period; and
  • the client has the right to change their instructions.

The Government has 90 days to table new regulations including the above requirements.

In the aftermath of the Palmer v Abbott bout, the Government also announced an initiative to demonstrate its commitment ‘to continue lifting professional, ethical and educational standards across the financial advice industry’.  In a press release the Government announced the establishment of a working group to develop an enhanced public register of financial advisers (Register). The industry working group will consider:

  • the scope and content of the Register (including a record of each adviser’s credentials and status in the industry);
  • whether reporting obligations are placed on licensees and/or advisers;
  • who is responsible for providing information and input of data; and
  • potential privacy issues.

In its press release, the Government explains that the establishment of the Register delivers on a specific commitment made by the Government with PUP and the Australian Motoring Enthusiasts Party.

The changes to SOAs and the establishment of the Register are intended to support FoFA’s underlying objectives, being to:

  • improve the quality of financial advice; and
  • increase trust and confidence in the financial advice industry.

That said, it does seem ironic that the Government needs to introduce further reforms and initiatives to ‘reform the reforms’ in order to secure those objectives – which was the intention of the amending legislation itself.  The FoFA reforms have attracted criticism from many, particularly since the CBA financial adviser scandal and the release of the Senate Economics Committee Report into ASIC’s performance which identifies ASIC’s failures as a regulator.  Consumer groups and the Opposition believe that the reforms go too far in winding-back consumer protections introduced by the original FoFA. As if to re-iterate the views of the FoFA critics, this week’s media reports in relation to the brokerage firm Ord Minett, and its fee practices, again casts light on the unscrupulous practices that seem to tarnish the reputation the Australian financial services advice industry.

Although the Government has moved to allay the public’s fears of the consequences of a deregulated financial services industry post-FoFA reforms by tacking on the SOA changes and introducing the Register, it remains to see whether these initiatives will be the ‘band-aids’ for leaking consumer confidence in the financial services industry that it hopes they’ll be.

Murray Inquiry Interim Report takes stock of the Financial System

The Interim Report released by the Financial System Inquiry (Inquiry) on 15 July 2014 is a weighty tome (460 pages) published under the authority of the chairman of the Inquiry, former Commonwealth Bank of Australia (CBA) CEO David Murray (the ‘Report’). Due to the length of the Report, this article will not go into extensive detail into its themes and content but instead will provide a summary of its purpose and main observations.  If you would like to read more about the Inquiry and the Report, please refer to this more detailed article for more information.

Will the Report have a similar significant impact on the financial services system?

At this stage, the answer is likely to be no.  This is because in producing the Report, the Inquiry discusses the financial system from nine different perspectives and makes 28 observations about how the system is working.  Actual recommendations will be made in a final report due in November.  Breadth and procedural issues aside, the overall theme of the Report is that there is no real apparent push for a significant shift in policy or regulation.

To read about the Murray Inquiry Interim Report in More Detail click here.

 

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This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on 1300 132 090 and we will be happy to assist.