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The penultimate FOFA changes?

The penultimate FOFA changes?

July 3, 2015 6:20 PM | Posted by Batten, Richard | Print this page

With the start of a new financial year and the end of ASIC's facilitated implementation period, we have been blessed with a new set of FOFA regulations and the promise of only one more iteration of changes to come.


The Corporations Amendment (Financial Advice) Regulation 2015 commenced on 1 July 2015.  As set out in the Minister's release and the Explanatory Statement, the new regulations:

  • clarify that advice provided to an employer about default superannuation funds is considered to be providing a financial service to a retail client

    Strangely this is done by defining 'financial product advice' given to employers in such circumstances as a financial service.  The purpose seems to be to remove any doubt that such advice is 'financial product advice' but the use of that term in the definition makes the effectiveness of the regulation unclear.  As the regulation is arguably not be necessary, the drafting may not matter.


  • make FOFA consistent with other parts of the Corporations Act by including a wholesale and retail client distinction

    This means that the same retail and wholesale client tests apply to both FOFA and the other retail client obligations such as FSGs, SOAs and PDSs and means that assets controlled by a client can be counted when working out if they are a retail client.


  • update FOFA to treat non-cash payments, such as travel money cards, consistently with other simple financial products

    This welcome and sensible amendment is achieved by included non-cash payment facilities which are not related to a basic deposit product in the definition of 'basic banking product' (related facilities were already included).


  • ensure that the modified best interests duty applies in respect of advice on basic banking products and/or general insurance even where provided at the same time as advice on the provision of consumer credit insurance (which attracts the full best interests duty)

    In other words, the full safe harbour steps still apply to consumer credit insurance advice whether or not given with advice on basic banking or general insurance products, but only limited safe harbour steps apply to the basic banking and general insurance advice.  The Explanatory Statement (ES) states that: 'In order to access the modified best interests duty, the provider cannot provide advice on any other financial product.'


  • clarify the application of the client given benefit exemption from conflicted remuneration

    This is done by inserting notes to confirm that benefits are given when the client causes or authorises the benefit to be given.  The ES goes on to state that for the exemption to apply the benefit must given 'with the client’s clear consent' which requires the consent to be 'clearly and expressly sought'.  According to the ES, this means consent cannot be sought 'as part of a broad range of terms and conditions agreed by the client in aggregate' – it would need to be 'sought in a separate and distinct section of the terms and conditions agreed by the client'.  This suggests that a separate signature or ticked box would be required.  The ES also notes that any consent is limited to the time specified by the client (if applicable).


  • extend the conflicted remuneration exemption that applies to basic banking products and general insurance to consumer credit insurance

    This exemption only applies if no other financial product advice is given 'at the same time'.

Copies of the new regulations and the Explanatory Statement are attached.

 The Minister also announced that the Government is consulting on further refinements which will be made by a Bill to be tabled in Parliament in the second half of 2015.  These amendments will:

  • ensure the existing ‘mixed benefits’ and ‘intra-fund advice’ provisions operate as intended;
  • enable regulations to categorise benefits as being caught by the ban on conflicted remuneration; and
  • extend and align the periods of time that an adviser has to send an opt-in renewal notice and a fee disclosure statement to their client to 60 days.

Apparently, these are the only amendments that will be contemplated by the Government.  This is unfortunate as it seems to mean that a number of other key (and in at least some cases, uncontroversial) changes will not be made, including:

  •  giving ASIC modification and exemption power in Part 7.7A;
  • expressly confirming that clients can define the scope of the advice they are seeking;
  • clarifying the operation of the ban on volume-based shelf space fees, such as by:
    • properly defining volume-based shelf space fees and the operation of the exemptions;
    • expressly excluding wholesale platforms;
    • excluding deposit products and life insurance.

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