Government releases proposals paper for Simpler Regulatory System Bill
On 16 November 2006, the Federal Government issued a proposals paper for consultation relating to some of the proposed amendments to the Corporations Act to be implemented by the Simpler Regulatory System Bill. The aim of the Bill is to reduce the regulatory burden in the corporate and financial services sectors.
The proposals paper, available from The Treasury at www.treasury.gov.au, contains 35 proposals to refine and simplify the law relating to financial services regulation, company reporting obligations, auditor independence, corporate governance, fundraising, takeovers and compliance.
The Government expects to release a draft Bill in “early 2007”. However, industry participants such as the Financial Planning Association have raised some serious objections to some of the proposals (including the sales recommendation proposal) and so we should not be surprised if the Bill does not appear until later this year.
In this Financial Services Update we outline most of the proposals that relate to financial services regulation.
Sales recommendations (Proposal 1.1)
At present, the pure selling of financial products can fall within the personal advice definition. This can result in representatives of product issuers holding themselves out as financial advisers when in fact they are merely intending to sell a product.
It is proposed that, in some situations, a licensed financial product issuer and its representatives would be able to recommend the issuer’s products based on a client’s personal circumstances without that recommendation constituting financial product advice (either personal or general). This would instead be defined as a “financial product sales recommendation”.
Situations where the proposed sales recommendation framework would be useful include product issuer call centres and front counters. Sales representatives would be prohibited from holding themselves out as financial planners, stockbrokers or other financial advisers. In other words, a person could provide either sales recommendations or financial product advice, but not both.
Sales representatives could act for more than one licensed product issuer, however sales recommendations could not be made in relation to superannuation products or retirement savings accounts. Nor, it would appear, could they be made by or on behalf of unlicensed product issuers (for example, companies issuing their own shares).
Statement of Advice (SOA) exemption where no recommendation and no remuneration (Proposal 1.2)
It is proposed that a SOA not be required where personal advice is provided that either does not contain any recommendations relating to a specific financial product, or is simply a recommendation to continue holding an existing financial product. However, the adviser must not receive any remuneration for the advice and must keep a Record of Advice (ROA) (available to the client on request) which sets out brief particulars of the advice given.
Threshold for SOA (Proposal 1.3)
It is proposed that a SOA not be required where personal advice is provided where the amount to which the advice relates is less than $10,000. In this case a ROA would be required.
However, existing SOA requirements, regardless of the amount advised on, would continue for superannuation, requirement savings accounts, life risk insurance, sickness and accident insurance, consumer credit insurance and derivatives. And an SOA would still be required if the first investment is less than $10,000 but further investments are likely that will in total exceed $10,000.
Public forum - Financial Services Guide (FSG) exemption (Proposal 1.4)
The existing FSG exemption for general advice provided in a public forum attended by 10 or more retail clients is limited to events “any person is permitted to attend”. Consequently, invitation-only seminars fall outside the exemption. It is proposed to amend the definition of public forum to include all situations where 10 or more retail clients attend, whether or not it is open to any person to attend the forum.
Sophisticated investors (Proposal 1.6)
A new category of wholesale client is proposed to be added, which is similar to the sophisticated investor definition in section 708(10), for offers of securities made through a financial services licensee. A person could access wholesale client status if the licensee is satisfied that the person has previous experience that allows them to knowledgeably assess the offer, the licensee provides a written statement of their reasons for being so satisfied and the investor acknowledges they are not getting full disclosure about the offer.
PDS in use notices (Proposal 1.9)
It is proposed to replace the PDS in use notice with a new report (tentatively called a “Financial Product Activity Report”) that must be lodged, not only when a financial product under a PDS is first recommended or issued, but also if there is a change in the fees and charges in the enhanced fee disclosure table or changes are made in a supplementary or new PDS. It appears to us that, unfortunately, this proposal (if implemented) would add to the regulatory burden, rather than reduce it.
Registered managed investment schemes investing in unregistered schemes (Proposal 1.12)
Registered schemes are currently prohibited by section 601FC(4) from investing scheme property in unregistered schemes, unless permitted under ASIC Class Order 98/55.
It is proposed to remove the prohibition on investments in unregistered schemes that are predominantly operated outside Australia and not operated by the responsible entity or any of its associates. The proposals paper indicates that existing class order relief will remain in place for “some kinds of investment in Australian based unregistered managed investment schemes (for example, in asset-backed schemes)”. It is unclear whether class order relief would remain for investments in overseas schemes referred to in Class Order 98/55 that are associated with the responsible entity, or whether the responsible entity would need to obtain its own case-specific relief.
Disclosure of ABN and AFSL numbers (Proposal 7.2)
At present AFSL holders are required to cite both their AFSL number and their ABN in disclosure documents. It is proposed to remove the requirements to cite the AFSL number. AFSL holders will instead be required to cite their ABN and state that they have an AFSL.
We will keep you informed on further developments in the Simpler Regulatory System Bill.
To view a print friendly version of this update please click on the PDF below.
If you would like more information, please contact one of our National Financial Services Reform partners listed on the right hand side of the screen.
