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Funds Management - Real Estate & Superannuation

Client Update: Corporate and Financial Services – 3 October 2007

Simpler Regulatory System regulations

In brief: More regulations to give effect to measures implemented under the Federal Government's 'Simpler Regulatory System' legislation have now been made. Partner Susan Burns (view CV) and Senior Associate Justine Woodford report on the latest developments.

In June 2007, we reported on the Federal Government's simpler regulatory system laws1 (see AAR Client Update – 29 June 2007 and AAR Focus: Corporate and Financial Services – June 2007), noting that implementation of a number of the measures would be supplemented by supporting regulations. In early July 2007, we reported that regulations dealing with some of the financial services and broader corporate measures had been made for that purpose (see AAR Client Update – 3 July 2007). The new Corporations Amendment Regulations 2007 (No 12) (Cth) (the new regulations) give effect to the remaining financial services regulation matters (and some other related matters). Details of the main changes and requirements are summarised below.

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Regulations commencing on 29 September 20072
  • Existing regulations have been extended to ensure that they also apply to replacement product disclosure statements (PDS), as follows:
    • when an Australian financial services (AFS) licensee identifies itself in a replacement PDS, that document must include its licence number; and
    • the definition of 'defective' applies also to replacement PDSs (in addition to PDSs and short-form PDSs).

Other amending regulations also clarify that the lodgment of a replacement PDS with the Australian Securities & Investments Commission (ASIC) does not attract a fee.3  

  • Franchised, authorised deposit-taking institutions that hold an AFS licence and are regulated by the Australian Prudential Regulation Authority have been given some relief from the financial services guides (FSG) requirements, subject to conditions, as follows.4
    • There is an exemption from the requirement to provide individualised FSGs for each franchisee that is a corporate authorised representative (CAR) or each employee of that franchisee.
    • Each individual employee is also exempt from having to provide their name and contact details in the FSG.5
    • The franchise agreement must subject CARs or employees to the franchisor's policies and require compliance with policies to give effect to the franchisor's obligations under its AFS licence.
    • The standardised FSG produced by the franchisor must state that the franchisor takes responsibility for services provided by the CAR or employee.
  • A record of advice (ROA) may be used (instead of a statement of advice) to document personal advice given to a retail client, when that advice concerns 'small investments' (ie not more than $15,000 (threshold amount)) or does not make a purchase or sale recommendation and the adviser does not receive any remuneration for the provision of the advice. In that latter case, the providing entity must keep an ROA which must set out: the investment advice given to the client; brief particulars of recommendations and the basis of the recommendations; and information about any remuneration or other benefits that the providing entity (and others, including its employees and associates) are to receive and any interests, associations or relationships that might reasonably be expected to be, or have been, capable of influencing the providing entity in giving the advice.

In relation to small investment advice, the new regulations:

  • set out how the threshold amount is to be calculated in relation to particular financial products and taking into account particular investment circumstances (and examples are provided in the regulations);
  • require the ROA to include: brief details of (including the reasons for) recommendations made; disclosure of any charges, significant costs etc where the advice recommends replacement of a financial product; and information about any remuneration or other benefits that the providing entity (and others, including its employees and associates) are to receive and any interests, associations or relationships that might reasonably be expected to be, or have been, capable of influencing the providing entity in giving the advice;
  • require the ROA to be given to the client when, or as soon as practicable after, the advice is provided but before the providing entity provides any further financial service in relation to that advice. However, if:
    • the ROA is not provided when the advice is provided, the client must, at that time, be given a statement containing information relating to remuneration or benefits and relationships and associations (as noted above), as well as, if applicable, the additional information required to be disclosed when the advice recommends replacement of a product; and
    • the client requests a further financial service (related to the earlier investment advice) to be provided immediately, or by a specified time, and it is not reasonably practicable to give the ROA to the client beforehand, the ROA can be given at a later time in accordance with the regulations.

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Regulations commencing no later than 28 December 20076
  • Insurance licensees will not be jointly and severally liable for the conduct of their authorised representatives (who are also cross-endorsed to provide financial services on behalf of other licensees) where those representatives provide financial services in relation to the following kinds of financial products: motor vehicle insurance, home building and home contents insurance, sickness and accident insurance, consumer credit insurance, and travel insurance.
  • The entity does not have to give the client an FSG where the entity provides general advice to the public or a section of the public in the following circumstances:
    • at an event organised by or for AFS licensees to which retail clients are invited;
    • pursuant to a broadcast that may be viewed or heard by any person; or
    • the distribution or display of promotional material that is available in a place accessible to the public.

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Regulation commencing on 1 July 2008
  • The new regulations clarify that under section 1015D(2)(b) of the Corporations Act 2001 (Cth), the relevant notice must be lodged with ASIC when a change is made to the fees and charges set out in the enhanced fee disclosure table in the PDS (or supplementary PDS) (rather than just the fees and charges set out in the PDS/supplementary PDS).7

We will continue to monitor changes and updates to this legislation. If you have any queries about this or any other related matter, please contact us.

Footnotes
  1. The 'simpler regulatory system' laws were implemented through the Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 (Cth) (the SRS Act) and other supporting legislation.
  2. The new regulations were made on 26 September 2007 and were registered in the Federal Register of Legislative Instruments on 28 September 2007.
  3. Refer to the Corporations (Fees) Amendment Regulations 2007 (No 1) (Cth) (the new fees regulations).
  4. This was originally part of the broader Corporate and Financial Services Regulation Review and included as part of the draft Corporations Amendment Regulations released for comment by the Federal Government on 26 March 2007 (rather than as part of the SRS Act). The drafting has been refined from what was proposed in the draft regulations (see AAR Focus: Corporate and Financial Services - April 2007).
  5. The Explanatory Statement for the new regulations (the ES) notes that this exemption is limited to dealing in financial products and the provision of general advice (ie it would not extend to providing personal advice). See regulation 7.7.05B.
  6. Under regulation 2(a), these changes come into effect on the commencement of items 218 and 219 of Schedule 1 to the SRS Act (ie the legislative provisions implementing the changed cross-endorsement provisions for specific kinds of financial products and exemptions from providing a financial services guide for 'public' advice). As at 1 October 2007, no commencement date has been proclaimed. If no earlier date is proclaimed, these changes will commence on 28 December 2007.
  7. The new fees regulations also clarify that, as from 1 July 2008, the lodgment of a notice in relation to a PDS (or supplementary PDS) does not attract a fee if a change is made to the fees and changes in the statement, or if the financial product to which the statement relates is no longer recommended or offered to new clients in a recommendation, issue or sale situation.

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