Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2010-2011-2012
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
CORPORATIONS AMENDMENT (FURTHER FUTURE OF FINANCIAL ADVICE
MEASURES) BILL 2012
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be moved on behalf of the Government
(Circulated by the authority of the Minister for Financial Services
and Superannuation, the Hon Bill Shorten MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Explanation of amendments .......................................... 5
Chapter 2 Statement of Compatibility with Human Rights .............. 9
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
Act Corporations Act 2001
ASIC Australian Securities and Investments
Commissions
Bill Corporations Amendment (Further Future of
Financial Advice Measures) Bill 2012
FOFA Future of Financial Advice
Licence Australian Financial Services Licence
1
General outline and financial impact
Outline of amendments
On 24 November 2011, the Australian Government introduced the
Corporations Amendment (Further Future of Financial Advice Measures)
Bill 2012 (`the Bill'). Together with the Corporations Amendment
(Future of Financial Advice) Bill 2012, the Bill implements the
Government's Future of Financial Advice (`FOFA') reforms.
The amendments to the Bill make a number of changes to the application
arrangements for the reforms. Under the revised arrangements,
compliance with the FOFA reforms will be voluntary from 1 July 2012
and mandatory from 1 July 2013.
Date of effect: The amendments to the Bill commence at the same time as
the remainder of the Bill on 1 July 2012.
Proposal announced: The Government announced details of the revised
application arrangements on 15 March 2012.
Financial impact: This Bill has no significant financial impact on
Commonwealth expenditure or revenue.
Human rights implications: The amendments to the Corporations
Amendment (Further Future of Financial Advice Measures) Bill 2012 do
not raise any human rights issues. See Statement of Compatibility with
Human Rights -- Chapter 2, paragraphs 2.1 to 2.6.
3
Chapter 1
Explanation of amendments
Outline of chapter
1.1 These amendments modify the application of the measures
contained in Schedule 1 to the Corporations Amendment (Further Future
of Financial Advice Measures) Bill 2012 (the Bill).
1.2 Under the revised application arrangements, compliance with
the requirements relating to the best interests obligation and the ban on
conflicted remuneration will be voluntary from 1 July 2012 (but
mandatory for those who elect to comply with FOFA during the transition
period), and mandatory from 1 July 2013 for the remainder of the
industry.
1.3 A person can voluntarily elect to comply with the reforms from
1 July 2012 by lodging a notice with ASIC. Once a notice is lodged, all
the prohibitions and obligations under Part 7.7A will apply to the licensee
and all of the licensee's representatives. It is not possible for a licensee to
elect to apply only a subset of Part 7.7A or only have Part 7.7A apply to a
subset of its representatives.
Application of the best interests obligation
1.4 The Bill proposes a new Division 2 in Part 7.7A of the
Corporations Act 2001 (`the Act'), introducing an obligation on providers
of personal financial advice to retail clients to act in the best interests of
the client in relation to the advice.
1.5 The amendments propose changes to the application of the best
interests obligation so that the requirements are mandatory for those who
elect to comply with FOFA during the transition period and then
mandatory from 1 July 2013 for the remainder of the industry.
1.6 The amendments omit proposed section 1527 in the Bill and
substitute a new section 1527 stating that when personal advice is
provided to a retail client on or after the application day, proposed
Division 2 of Part 7.7A will apply and the current Subdivision B of
Division 3 of Part 7.7 of the Act (sections 945A and 945B) will not apply.
This means that Division 3 of Part 7.7 will continue to apply until
Division 2 of Part 7.7A comes into effect. The application day is defined
5
Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012
as either (a) the day specified in a notice lodged with ASIC by a financial
services licensee under subsection 967(1), or (b) if no notice is lodged,
1 July 2013.
Application of the ban on conflicted remuneration
1.7 The Bill proposes a new Division 4 in Part 7.7A of the Act,
introducing a ban on the payment and receipt of conflicted remuneration
which has the potential to influence the advice financial services licensees
provide to retail clients.
1.8 The amendments propose changes to the application of the ban
on conflicted remuneration so that the requirements are mandatory for
those who elect to comply with FOFA during the transition period and
then mandatory from 1 July 2013 for the remainder of the industry.
1.9 The amendments modify proposed section 1528 in the Bill by
omitting `the day on which that item commences' and substituting `the
application day'. The application day is defined as either (a) the day
specified in a notice lodged with ASIC by a financial services licensee
under subsection 967(1), or (b) if no notice is lodged, 1 July 2013.
1.10 For any other person who would be subject to the ban on
conflicted remuneration but would not be subject to the requirements as a
licensee or a representative of the licensee, the application day is either
(i) the day specified in a notice lodged with ASIC by the person under
subsection 967(3), or (ii) if no notice is lodged, 1 July 2013.
1.11 An example of a person who would be subject to the ban on
conflicted remuneration but does not hold a license is a product issuer or
seller. In certain circumstances, these parties may be exempt from
holding a licence and, therefore, would not be subject to Division 4 as a
licensee. This may occur in the circumstances where the issuer or seller
enters into an arrangement (an intermediary authorisation) with a licensee,
and the arrangement allows the licensee or a representative of the licensee
to approach clients to offer to arrange for the issuer or seller to issue or
sell the financial product, on the basis that the issuer or seller will do so if
the offers are accepted. Whilst these parties are exempt from a holding a
licence, they would still be subject to the requirements under, for example,
proposed section 963K.
1.12 A situation may arise where one party (the electing party) to a
proposed transaction during the transition period wishes to elect to comply
with FOFA, and the other party (the non-electing party) does not. In these
circumstances, it is up to the electing party to avoid entering into any
6
Explanation of amendments
subsequent arrangements (including with non-electing parties) that would
result in them breaching their FOFA obligations. Broadly, the FOFA
rules apply prospectively, so that arrangements already in place before an
election was made are unaffected.
Application of the ban on volume-based shelf-space fees and
asset-based fees on borrowed amounts
1.13 The Bill proposes a new Division 5 in Part 7.7A of the Act,
introducing a ban on the receipt of volume-based shelf-space fees by a
platform operator and the receipt of asset-based fees on borrowed amounts
by a financial services licensee.
1.14 The amendments propose changes to the application of the ban
on volume-based shelf-space fees and the ban on asset-based fees on
borrowed amounts to make these requirements mandatory for those who
elect to comply with FOFA during the transition period and then
mandatory from 1 July 2013 for the remainder of the industry.
1.15 The amendments modify:
(i) proposed section 1529 in the Bill by omitting `the day on
which that item commences' and substituting `the application
day'. The application day is defined as either (a) the day
specified in a notice lodged with ASIC by a financial services
licensee under subsection 967(1), or (b) if no notice is lodged,
1 July 2013. For any other person who would be subject to the
ban on volume-based shelf-space fees, the application day is
either (i) the day specified in a notice lodged with ASIC by the
person under subsection 967(3), or (ii) if no notice is lodged,
1 July 2013; and
(ii) proposed section 1531 in the Bill by omitting `the day on
which that item commences' and substituting `the application
day'. The application day is defined as either (a) the day
specified in a notice lodged with ASIC by a financial services
licensee under subsection 967(1), or (b) if no notice is lodged,
1 July 2013.
1.16 As noted with the ban on conflicted remuneration above, a
situation may arise where one party to a proposed transaction during the
transition period wishes to elect to comply with FOFA, and the other party
does not. In these circumstances, it is up to the electing party to avoid
entering into any subsequent arrangements (including with non-electing
parties) that would result in them breaching their FOFA obligations.
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Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012
Broadly, the FOFA rules apply prospectively, so that arrangements
already in place before an election was made are unaffected.
Lodging notice with ASIC
1.17 The amendments to the Bill propose a new Division 7 to
Part 7.7A of the Act, introducing additional arrangements during the
transition period.
1.18 These amendments modify proposed subsection 968(4) by
omitting the subsection and substituting with a new subsection 968(4) to
define the `notice day' for the purposes of paragraph 968(2)(b). The
notice day is earliest of the days where the licensee (or representative of
the licensee) has obligations to the client flowing from Part 7.7A.
Obligations can flow to the client as a result of the provision of personal
advice, the need to provide a fee disclosure statement or the charging of
an asset-based fee. For a client that satisfies more than one of the
circumstances listed in subsection 968(4) during the transition period, the
notice day for the client is the one that occurs the earliest.
1.19 If a person elects to lodge a notice with ASIC, all the
prohibitions and obligations under Part 7.7A will apply. It is not possible
for a person to elect to apply only a subset of Part 7.7A.
8
Chapter 2
Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Corporations Amendment (Further Future of Financial Advice Measures)
Bill 2012
2.1 The amendments to the Corporations Amendment (Further
Future of Financial Advice Measures) Bill 2012 (the Bill) are compatible
with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011.
Overview
2.2 The amendments to the Bill make a number of changes to the
application arrangements for the Bill. Under the revised arrangements,
compliance with proposed Part 7.7A of the Corporations Act will be
voluntary from 1 July 2012 and mandatory from 1 July 2013.
2.3 From 1 July 2012, a person can voluntarily elect to comply with
proposed Part 7.7A by lodging a notice with ASIC.
2.4 Those who elect to comply from 1 July 2012 will be required to
notify certain clients of this election. Those who do not elect to comply
will be subject to Part 7.7A from 1 July 2013.
Human rights implications
2.5 The amendments to the Corporations Amendment (Further
Future of Financial Advice Measures) Bill 2012 do not engage any of the
applicable rights or freedoms.
9
Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012
Conclusion
2.6 The amendments to the Corporations Amendment (Further
Future of Financial Advice Measures) Bill 2012 are compatible with
human rights as they do not raise any human rights issues.
The Hon Bill Shorten MP, Minister for Financial Services and
Superannuation
10
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