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June 26, 2007

Simpler Regulatory System: financial services regulation changes

The Corporations Legislation Amendment (Simpler Regulatory
System) Bill 2007
made changes to FSR requirements including:

  • removing the need for a Statements of Advice to be provided in two circumstances:  where there is no recommendation in relation to a particular financial product and no remuneration (eg a free initial consultation or where a financial adviser recommends
    that a person continue to hold an existing product); and where the amount to which the advice relates is under the prescribed threshold;
  • refining the circumstances where a Financial Services Guide is not required to be provided, particularly at seminars which are not open to the public;
  • introducing changes to the retail/wholesale client distinction regarding sophisticated investors;
  • refining the liability of licensees under the cross-endorsement provisions where authorised representatives act
    for a number of financial services licensees with their consent;
  • introducing a new ‘in use’ notice for Product Disclosure Statements to determine when a Product
    Disclosure Statement is no longer current;
  • improving the mechanism whereby the Australian Securities and Investments Commission (ASIC) takes a role in overseeing compliance with a financial market’s rules where the market operator has a conflict of interest; and
  • allowing registered managed investment schemes to invest in unregistered managed investment schemes.

Statement of Advice exemption — no product recommendation and no remuneration
requirement to provide a Statement of Advice when personal advice is
provided that does not involve the recommendation of a product and no
remuneration is received for, or in relation to, the advice will be
removed. Instead, a Record of Advice will be required to be prepared by
the adviser and provided
to the client upon their request.

The measure does not alter the
need for the advice to be appropriate or for the adviser to be appropriately
trained to provide personal advice.

The amendments will commence on Royal

Threshold for requiring a Statement of Advice
threshold will be introduced into the Statement of Advice requirements
so that a full Statement of Advice will only be required if the advice
given is in relation to an investment amount that is above a prescribed
threshold. A Record of Advice would need to be given to the client for
advice in relation to amounts less than this threshold.

An initial threshold of $15,000 is proposed.

A Statement of Advice will be required
to be prepared and provided to a client if the amount to which the advice
relates is $15,000 or more.  For advice relating to amounts less
than $15,000, the adviser will be required to provide a Record of Advice
to the client.

The Bill will limit the application
of this relief in relation to superannuation advice where the advice relates to consolidation into, or supplementation of, a superannuation fund in which the person is an existing member.

The amendments will commence on Royal

Financial Services Guide exemption — general advice to the public
Financial Services Guide will not need to be provided at a forum where
10 or more retail clients attend, whether or not it is open to any
person to attend the forum.

The amendments commence from a day
to be fixed by Proclamation.  If no date is fixed within 6 months
from the date on which the Act receives Royal Assent, then the amendment
will commence on the first day after that period.

Sophisticated investors
In Chapter 7 of the Corporations Act 2001
a mechanism will be adopted similar to provisions of Chapter 6D, which
allows a financial services licensee to be satisfied that investors who satisfy a financial services licensee as to their experience may be treated as wholesale clients for the purpose of Chapter 7.

The amendments will commence on Royal
Assent. The amendments apply to financial products
and financial services provided on and after the day the amendments

Cross‑endorsement of authorised representatives
cross‑endorsement arrangements will be amended so that licensees are
only jointly and severally responsible for the conduct of their
authorised representatives where those representatives provide
financial services in relation to the same sub‑class of financial

The amendments commence from a day
to be fixed by Proclamation. If no date is fixed within 6 months
from the date on which the Act receives Royal Assent, then the amendment
will commence on the first day after that period. The amendments apply in relation to
the conduct of a representative on or after the day on which the amendments

Product activity and data collection
will replace the current mechanism for reporting the requirements of
the in‑use notice with a new mechanism which will require the
responsible person for a Product Disclosure Statement (PDS) to provide
information in a standardised online report when:

  • a financial product for which a PDS must be prepared is first recommended, issued or sold;
  • a financial product for which a report previously had to be made ceases to be available to be recommended;
  • there is a change in the fees and charges set out in the enhanced fee disclosure table; or
  • changes are made in a supplementary or new PDS.

The requirement commences on 1 July
2008, when ASIC has established the on-line report and electronic lodgement
mechanism. From 1 July 2008 to 1 January 2009, both hard copy
and electronic lodgement will be available. From 1 January 2009,
the notices will have to be lodged electronically.

Self‑listing and licensed market operators
will provide for ASIC to supervise listed entities which are related to
the market licensee, and participants who are related to or in
competition with the market licensee.

The new section 798C will apply not only to market licensees, but also to a body corporate related to the market licensee, a managed investment scheme whose responsible entity is a related body corporate of the market licensee and a trust whose trustee is a related body corporate of the market licensee, if they list on that market.

The amendments commence on Royal Assent.

Pooled superannuation trusts and product disclosure
current exemption from licensing for dealing services provided by
trustees of pooled superannuation trusts under the retail/wholesale
client test will be extended to the product disclosure framework.

The trustees of superannuation funds, approved deposit funds, pooled superannuation trusts or public
sector superannuation schemes with net assets of at least $10 million
are no longer treated as retail clients for the purpose of the product
disclosure and related provisions when acquiring an interest in a pooled
superannuation trust.

The amendments commence on Royal Assent.

Registered managed investment schemes investing in unregistered managed investment schemes
The prohibition on investments by managed investments schemes in unregistered managed investment schemes will be removed.

The amendments commence on Royal Assent.

Non‑cash payment facilities
requirements that apply to all non‑cash payment facilities that are not
related to a basic deposit product will be streamlined by applying the
same limited disclosure requirements to these facilities. The
disclosure requirements that currently apply to non‑cash payment
facilities related to basic deposit products will be maintained.

This change will be implemented by regulation.

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Posted 26th June 2007 by David Jacobson in Financial Services