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
HOUSE OF REPRESENTATIVES
CORPORATIONS AMENDMENT (FURTHER FUTURE OF FINANCIAL ADVICE
MEASURES) BILL 2011
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments 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
Bill Corporations Amendment (Further Future of
Financial Advice Measures) Bill 2011
FOFA Future of Financial Advice
PJC Parliamentary Joint Committee on
Corporations and Financial Services
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 2011 (`the Bill'). Together with the Corporations Amendment
(Future of Financial Advice) Bill 2011, the Bill implements the
Government's Future of Financial Advice (`FOFA') reforms.
On the same day, the Bill was referred to the Parliamentary Joint
Committee on Corporations and Financial Services (`the PJC') for inquiry
and report. The PJC reported on both the FOFA Bills on 29 February
2012, and made a number of recommendations to improve the
implementation of the reforms.
The amendments to the Bill address concerns that were raised during the
course of the PJC's consultation process. Specifically, these amendments:
· clarify the timing of one aspect of the best interests
obligation;
· explain clearly the relationship between the best interests
obligation and the provision of scaled advice;
· clarify the `execution-only' exception to the definition of
conflicted remuneration; and
· make a number of mechanical amendments to the
grandfathering arrangements.
Date of effect: The amendments to the Bill commence at the same time as
the remainder of the Bill; on 1 July 2012. In some circumstances, under
grandfathering arrangements included in the Bill, the proposed provisions
in Divisions 4 and 5 of Part 7.7A banning certain kinds of remuneration
do not apply to remuneration provided after commencement under
arrangements entered into before commencement. Regulations may
prescribe circumstances in which the provisions do apply to such
remuneration and do not apply to other kinds of remuneration.
Proposal announced: On 26 April 2010, the then Minister for Financial
Services, Superannuation and Corporate Law, the Hon Chris Bowen MP,
3
Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011
announced the Future of Financial Advice (FOFA) reforms. On 28 April
2011, further detail on the operation of the FOFA reforms was announced
by the Assistant Treasurer and Minister for Financial Services and
Superannuation, the Hon Bill Shorten MP.
Human rights implications: The amendments to the Corporations
Amendment (Further Future of Financial Advice Measures) Bill 2011 do
not raise any human rights issue. See Statement of Compatibility with
Human Rights -- Chapter 2, paragraphs 2.1 to 2.4.
Financial impact: This Bill has no significant financial impact on
Commonwealth expenditure or revenue.
4
Chapter 1
Explanation of amendments
Outline of chapter
1.1 The amendments are intended to clarify the operation of certain
measures in the Bill, to ensure that the FOFA reforms can be implemented
in a sensible and cost-effective manner.
1.2 There are four elements in the amendments:
· clarifying the timing of one aspect of the best interests
obligation;
· explaining the relationship between the best interests
obligation and the provision of scaled advice;
· clarifying the `execution-only' exception to the definition of
conflicted remuneration; and
· making mechanical amendments to the grandfathering
arrangements.
Best interests obligation
1.3 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.
1.4 Proposed subsection 961B(2) of the Act sets out a number of
steps that providers may prove they have taken to demonstrate that they
have acted in the best interests of the client. The final step, in proposed
paragraph 961B(2)(g), is that the provider has:
taken any other step that would reasonably be regarded as being in the
best interests of the client, given the client's relevant circumstances.
1.5 Proposed section 961E provides further detail on what would
reasonably be regarded as in the best interests of the client.
5
Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011
1.6 The amendment proposes to change the step in proposed
paragraph 961B(2)(g) so that it is clear that it is at the time at which the
advice is provided that the reasonableness of taking a step is to be
assessed. That is, to satisfy proposed paragraph (g), a provider will have
to take any other step that, at the time the advice is provided, would
reasonably be regarded as being in the best interests of the client.
Scaled advice
1.7 A key element of the FOFA reforms is the facilitation of limited
or `scaled' advice, as well as more comprehensive forms of financial
advice. As the original Explanatory Memorandum to the Bill noted, at
paragraph 1.34, the design of the best interests obligation is intended to:
accommodate the provision of limited advice (also referred to as
`scaled advice') that only looks at a specific issue (for example, single
issue advice on retirement planning) and `holistic' advice that looks at
all the financial circumstances of the client. In some situations, the
client might prefer to receive more targeted advice on a matter that is
particularly concerning them rather than comprehensive advice. As
long as the provider acts reasonably in this process and bases the
decision to narrow the subject matter of the advice on the interests of
the client, the provider will not be in breach of their obligation to act in
the client's best interests. The scaling of advice by the provider must
itself be in the client's best interests, especially since the client's
instructions may at times be unclear or not appropriate for his or her
circumstances.
1.8 The proposed amendments include a new explanatory note at the
end of proposed subsection 961B(2), clarifying how the best interests
obligation is expected to facilitate the provision of scaled advice. The
note observes that a client may seek scaled advice, and that the inquiries
to be made by the financial adviser into the client's relevant circumstances
will be tailored to the advice sought.
Execution-only services
1.9 The Bill proposes a new Division 4 in Part 7.7A of the Act,
introducing bans on paying and receiving conflicted remuneration.
Conflicted remuneration is defined in proposed section 963A of the Act,
and proposed 963B sets out a number of benefits given in certain
circumstances which are not conflicted remuneration.
1.10 Proposed paragraph 963B(1)(c) provides for an `execution-only'
exception to the definition of conflicted remuneration. Any benefit given
6
Explanation of amendments
to a licensee or representative in relation to the issue or sale of a financial
product to a person will not be considered conflicted remuneration where
financial product advice in relation to the product, or products of that
class, has not been given to the person as a retail client by the licensee or
representative.
1.11 The amendment proposes to clarify that the advice referred to in
paragraph 963B(1)(c) must not have been provided in the 12 months
immediately before the benefit is given. This is proposed to avoid a
situation where a licensee or representative can never receive
remuneration of an execution-only type if it has ever provided financial
product advice to the retail client. Where the financial product advice is
remote with respect to the issue or sale of the financial product -- that is,
it took place over 12 months before the issue or sale -- it will not deny the
licensee or representative the benefit of paragraph 963B(c).
Grandfathering
1.12 The Bill proposes to `grandfather' a range of matters that take
place before the commencement of the reforms, by providing that the new
measures do or do not apply in certain circumstances. Specifically, the
Bill proposes a new section 1528 of the Act which would provide that the
ban on conflicted remuneration does not apply to a benefit given to a
licensee or representative if:
· the benefit is given under an arrangement entered into before
the day on which the ban commences; and
· the benefit is not given by a platform operator.
1.13 Proposed section 1528 would also allow for regulations to be
made, prescribing circumstances in which the ban does or does not apply.
1.14 The proposed amendments are intended to ensure that these
grandfathering arrangements can be given full effect. They would clarify
that regulations can be made for proposed section 1528 for any
circumstances (and are not, for example, limited by the exclusion of
benefits given by platform operators in proposed subsection 1528(1)).
1.15 The proposed amendments would also clarify that the provisions
of proposed Division 4 do not apply to the extent that the operation of the
Division would result in an acquisition of property from a person
otherwise than on just terms (within the meaning of paragraph 51(xxxi) of
the Constitution).
7
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 2011
2.1 The amendments to the Corporations Amendment (Further
Future of Financial Advice Measures) Bill 2011 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 are intended to clarify the operation of certain
measures in the Bill, to ensure that the FOFA reforms can be implemented
in a sensible and cost-effective manner.
2.3 There are four elements in the amendments:
· clarifying the timing of one aspect of the best interests
obligation;
· explaining the relationship between the best interests
obligation and the provision of scaled advice;
· clarifying the `execution-only' exception to the definition of
conflicted remuneration; and
· making mechanical amendments to the grandfathering
arrangements.
Human rights implications
2.4 The amendments to the Corporations Amendment (Further
Future of Financial Advice Measures) Bill 2011 do not engage any of the
applicable rights or freedoms.
9
Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011
Conclusion
2.5 The amendments to the Corporations Amendment (Further
Future of Financial Advice Measures) Bill 2011 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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