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2010-2011-2012
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
CORPORATIONS AMENDMENT (FUTURE OF FINANCIAL ADVICE) 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 ....................................................... 2
Chapter 1 Explanation of amendments .......................................... 3
Chapter 2 Statement of Compatibility with Human Rights .............. 5
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
Act Corporations Act 2001
ASIC Australian Securities and Investments
Commission
Bill Corporations Amendment (Future of
Financial Advice) Bill 2012
FOFA Future of Financial Advice
Licence Australian Financial Services Licence
1
General outline and financial impact
Outline
On 13 October 2011, the Australian Government introduced the
Corporations Amendment (Future of Financial Advice) Bill 2012 into the
Australian Parliament. Together with the Corporations Amendment
(Further Future of Financial Advice Measures) Bill 2012, the Bill
implements the Government's Future of Financial Advice (`FOFA')
reforms.
These amendments make a number of changes to the application
arrangements for the reforms. Under the revised arrangements,
compliance with the FOFA reforms will be voluntarily 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 (Future of Financial Advice) Bill 2012 do not raise any
human rights issues. See Statement of Compatibility with Human Rights
-- Chapter 2, paragraphs 2.1 to 2.6.
2
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 (Future of
Financial Advice) Bill 2012 (the Bill).
1.2 Under the revised application arrangements, compliance with
the requirements relating to ongoing fee arrangements will be voluntary
from 1 July 2012 and mandatory from 1 July 2013.
1.3 The measures relating to the powers of the Australian Securities
and Investments Commission (ASIC) and the anti-avoidance provisions
will continue to apply from 1 July 2012. It is the intention that the
anti-avoidance provisions will be able to apply to new arrangements
entered into after 1 July 2012 without resulting in an unjust acquisition of
property.
Application of ongoing fee arrangement requirements
1.4 The Bill proposes a new Division 3 in Part 7.7A of the
Corporations Act 2001 (`the Act'), introducing an obligation on licensees
and representatives to renew ongoing fee arrangements with new clients
(Subdivision B of Division 3) and enhanced disclosure of ongoing fee
arrangements to existing clients (Subdivision C of Division 3).
1.5 The amendments propose changes to the application of
Division 3 so that the requirements are voluntary from 1 July 2012 and
mandatory from 1 July 2013. Under the amendments, the Division will
apply from the `application day' which is either (a) the day specified in a
notice lodged with ASIC by a financial services licensee who is the
recipient of the ongoing fees, or (b) if no notice is lodged, 1 July 2013.
1.6 The amendments also make consequential changes to section
962D of the Bill to replace the term `a representative' with `a person
acting as a representative'. This is to make the drafting in section 962D
consistent with the drafting used in the amendments. The use of the term
`a person acting as a representative' captures any representative of a
licensee including one acting by an arrangement with an Australian ADI
under the name of the Australian ADI.
3
Explanation of amendments
Lodging notice with ASIC
1.7 The amendments to the Bill propose a new Division 7 to
Part 7.7A of the Act, introducing additional arrangements during the
transition period.
1.8 Under the new Division 7, between 1 July 2012 and
30 June 2013 (the `transition period'), a licensee may lodge a notice with
ASIC that the obligations and prohibitions imposed under proposed
Part 7.7A apply to the licensee and any person acting as a representative
of the licensee.
1.9 In addition, a person other than a licensee or representative that
is subject to obligations under Part 7.7A may also lodge a notice. This
option is necessary because some of the requirements in the FOFA apply
to entities other than licensees or representatives. For example, an issuer
or seller of financial products may be exempt from having to hold a
licence under section 911A of the Corporations Act but would still need to
comply with some of the obligations in the FOFA reforms in particular the
ban on paying conflicted remuneration.
1.10 If a person elects to lodge a notice, all of the obligations in
Part 7.7A will apply from the date specified in the notice. If the person
does not lodge a notice during the transition period, the obligations will
automatically apply from 1 July 2013.
1.11 If a licensee elects to lodge a notice with ASIC, all the
prohibitions and obligations under Part 7.7Awill 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. Individual representatives cannot lodge a
notice, this must be done through their licensee.
1.12 Once a person has lodged a notice with ASIC, ASIC will publish
relevant details on its website. In addition, the licensee must disclose to
any person it has obligations to during the transition period that Part 7.7A
applies to the licensee and its representatives. This disclosure to the client
can be generic in nature and does not need to explain how the obligations
will impact on the specific client.
1.13 These disclosures are to ensure there is adequate information
provided to clients in situations where a licensee elects to comply with
Part 7.7A prior to the mandatory date.
4
Chapter 2
Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Corporations Amendment (Future of Financial Advice) Bill 2012
2.1 The amendments to the Corporations Amendment (Future of
Financial Advice) 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 (Future of
Financial Advice) Bill 2012 do not engage any of the applicable rights or
freedoms.
Conclusion
2.6 The amendments to the Corporations Amendment (Future of
Financial Advice) 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
5
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