In brief
The Federal Government has made the 'time critical' FoFA amendments that it promised. Most of the amendments are not new, but are reinsertions of some regulations (with minor amendments) that were caught up in the more substantial amending regulations disallowed late last year. There is also a new regulation that says that any financial product advice provided to an employer about their default superannuation fund is a financial service provided to a retail client. These amendments have bipartisan support and so they should be here to stay. Partner Michelle Levy and Associate Rosie Thomas report.
1 July 2015
Background
The Corporations Amendment (Financial Advice) Regulation 2015 was registered on Monday, 29 June. It contains a small number of amendments to the Corporations Regulations related to the Future Of Financial Advice (FoFA) laws. Most of the provisions will be familiar to anyone who was following the FoFA fanfare last year, as the amendment chiefly reinserts regulations that were disallowed by the Senate in November 2014. ASIC had announced it was taking a 'facilitative approach' to compliance with requirements related to the previous disallowance motion until today (1 July 2015). Now that the facilitation period has ended, financial services licensees will need to be careful to ensure that they are no longer relying on regulations that were disallowed but which have not now been reinserted. The regulations that have been reinserted are very limited.
New provision – advice to employers about superannuation
There is one provision that we have not seen before:
7.1.28AA Provision of financial product advice about default funds
For paragraph 766A(1)(f) of the Act, the provision of financial product advice to an employer about the choice of a fund to which to contribute for the benefit of those employees for whom there is no chosen fund (within the meaning of the Superannuation Guarantee (Administration) Act 1992) is prescribed.
Note: The financial product advice provided to the employer is a financial service provided to a person as a retail client: see paragraph 761G(6)(b) of the Act.
The explanatory statement for the amendment says that the effect of this new regulation is that a person providing an employer with advice in these circumstances must treat the employer as a retail client. This means that the best interests duty might apply (if the advice is personal advice) and the bans on conflicted remuneration will apply in relation to that advice. The intention is to ensure corporate super sales teams are subject to FoFA duties (if they are providing personal advice) and that their bonus or incentive payments pass the conflicted remuneration test.
However, the regulation only applies if there is 'financial product advice' being provided. This raises the very live question about what amounts to financial product advice in section 766B of the Corporations Act. How much information about a corporate super product can be provided before there is a recommendation or statement of opinion that could reasonably be regarded as being intended to influence an employer's decision in relation to a superannuation product or class or superannuation products? And how can this be monitored?
The (not so) new regulations
The previous FoFA laws that have been reinstated by the amendment are:
- extending the regulations that modify the meaning of 'retail client' and 'wholesale client' so that the modifications also apply to FoFA provisions in Part 7.7A;
- the modified best interest duty for advice about basic banking products and general insurance products (but the new regulation predictably excludes the notorious paragraph (g) in s961B (taking any other step that would reasonably be regarded as being in the best interests of the client) from the steps that must be taken to satisfy the modified best interests duty);
- expanding the definition of a basic banking product (for FoFA purposes) to include a non-cash payment facility;
- the notes 'clarifying' the exception for client given benefits in a superannuation context; and
- including consumer credit insurance in the exemption from the ban on conflicted remuneration for basic banking and general insurance products.
These will be welcomed back by licensees.