Financial Services Reform Update April 2007

Corporate and Financial Services Regulation Review - Government releases draft Corporations Amendment Regulations

On 26 March 2007, the Federal Government released the first round of draft regulations for public consultation, to implement reform proposals under the Corporate and Financial Services Regulation Review.

To recap, in April 2006, the Federal Government released a consultation paper containing “the most comprehensive package of corporate law reform proposals since the commencement of the Corporate Law Economic Reform Program (CLERP)”. Many of these proposals will form part of a single bill to be introduced into Parliament titled the Simpler Regulatory System Bill. 

The proposals cover financial services regulation, company reporting obligations, auditor independence, corporate governance, fundraising, takeovers, collective investments and dealing with regulators. 

After receiving more than 80 submissions, the Government announced in August 2006 that the reform proposals had been categorised for progressing into:

•  draft regulations for consultation;
•  proposals papers for consultation (we discussed some of these in our March 2007 Financial Services Reform Update); and
• focused projects for further consultation.
  

In this update, we summarise the first draft regulations that have been issued for consultation.  The draft regulations are available electronically from the Treasury website (www.treasury.gov.au). Submissions on the draft regulations can be made to Treasury by 23 April 2007.

Subject	Overview of regulation
Repetition of information in a Statement of Advice	Provides that the provision of information already given to a client in a Statement of Advice does not have to be repeated in a subsequent Statement of Advice.
Issue of disclosure documents when product or advice is rejected	Specifies that if a client clearly rejects a product and/or advice, a Financial Services Guide and Statement of Advice do not have to be provided in respect of that product and/or advice.
Combining a Financial Services Guide and a Prospectus	Allows a Financial Services Guide to be combined with a disclosure document under Chapter 6D, similar to the provision which enables a Financial Services Guide and Product Disclosure Statement to be combined.
Updating Financial Services Guides	Removes the requirement to update a Financial Services Guide where the change would relate to information that is not materially adverse, provided there is disclosure on how access an be made to the updated information.
Standardised Financial Services Guide	Allows community-owned branches of banking licensees and individuals that are sub-authorised by authorised representatives to have a standard Financial Services Guide.
Treatment of superannuation trustees	Allows aggregation of funds for wholesale test purposes, where a superannuation fund trustee administers more than one fund.  Trustee needs to manage at least one fund of $10 million.
Treatment of employers	Allows employers operating businesses other than small businesses to be considered wholesale clients when provided financial services relating to superannuation products.
‘Bundled’ general insurance products	Treats bundled general insurance products (that are predominantly wholesale) as totally wholesale.
‘Badging’ of disclosure documents	Clarifies ‘badging’ and circumstances where ‘badging’ is not considered the provision of financial product advice.
Jurisdictional reach of Australian financial services licence holders acting on behalf of others	Extends the new licensing exemption and applies conditions to ensure those on whose behalf the Australian licensee is acting are adequately protected.
Dollar disclosure for general insurance	Provides relief from the dollar disclosure provisions in relation to a general insurance PDS.  Where a cost or benefit is specific to a particular insured, a general insurer will be able to satisfy the dollar disclosure provisions if such costs and benefits are disclosed, in dollar amounts, in the policy schedule.
Incorporation by reference in disclosure documents	Permits information in disclosure to be ‘incorporated by reference’ to other information sources such as information provided in other documents required under the legislation and from other sources.
Exemption from FSR retail client obligations for secondary services providers	Relieves secondary service providers from their obligations to retail clients in specific situations.  Allows intermediaries to accept responsibility to the retail client for the financial services provided.
Oral disclosure	Reduces oral disclosure requirements that apply to Financial Services Guides and Statements of Advice, for products with a cooling-off period.
Sickness and accident insurance and life risk insurance	Clarifies that a provider of sickness and accident insurance or a provider of life risk insurance can treat a client as wholesale where cover is part of a package with Workers Compensation insurance being provided for the liability of the employer for the benefit of an employee.
Licensing of actuaries	Changes the definition of an actuary and provides limited relief from the Australian financial services licensing requirements for eligible actuaries.
Enhanced fee disclosure and investment life insurance	Extends the enhanced fee disclosure obligations to investment life insurance products and revises the current enhanced fee disclosure regulations to implement a previous commitment.
Australian Standards on complaints handling	Updates references to Australian Standard on internal complaints handling.
Share and member reporting	Amends Corporations Regulation 2N.2.01 to remove the obligation on public companies to notify ASIC each year of the top 20 shareholders.
Correction of legislative errors and anomalies	Corrects 12 minor errors in the existing regulations.

We will keep you informed on further developments in the Simpler Regulatory System Bill and the Corporate and Financial Services Regulation Review.