While many of the previous Government's reforms will be retained, the Coalition will amend them and launch a major inquiry into the financial services industry.
The previous Labor Government made a number of significant amendments to legislation governing the financial services industry, some of which have come into operation recently or are set to commence in the near future.
The change of government at the Federal election held on 7 September 2013 raises the question: what will be the fate of these amendments and what legislative changes can the industry expect under the new Federal Government?
Financial system inquiry
Before the Federal election, the then shadow treasurer announced that, if elected,the new Federal Government would appoint a private sector executive to conduct an inquiry into Australia's financial system (dubbed by Mr Hockey as the "son of Wallis" inquiry). Mr Hockey also said that there would be a moratorium on any big financial services policy changes while the inquiry is being conducted.
On 20 November, the Government released the draft terms of reference for the inquiry and announced that David Murray, a former chief executive of the Commonwealth Bank, will head the inquiry. The draft terms include a requirement that the inquiry report on the consequences of developments in the Australian financial system since the Wallis inquiry and the global financial crisis. The final terms of reference are yet to be released.
The inquiry is to publish an interim report by September 2014 and deliver its final report by November 2014.
Although the Government is committed to a moratorium, some legislative changes have been announced and these changes are briefly discussed below.
Future of Financial Advice (FOFA) amendments
The FOFA amendments to the Corporations Act 2001 are contained in the Corporations Amendment (Future of Financial Advice) Act 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012. The amendments commenced on 1 July 2012, but a 12 month transitional period provided for by the legislation meant that compliance with FOFA did not become mandatory until 1 July 2013.
Some aspects of FOFA received a mixed response from the financial services industry. For example, the Financial Services Council said that it did not support the Bills because they did not give "any certainty to consumers and advisers on the operation of the Best Interest Duty and scalable advice".
During the Federal election campaign, the Coalition said that it will implement all 16 recommendations made in the dissenting report by Coalition members of the Parliamentary Joint Committee on Corporations and Financial Services which examined the FOFA Bills. These recommendations include:
- that the opt-in requirements be removed from the legislation;
- the simplification and streamlining of the additional annual fee disclosure requirements;
- improving the Best Interest Duty;
- providing certainty around the provision and availability of scaled advice; and
- refining the banning of commissions on risk insurance inside superannuation.
In a speech on 7 November, the Assistant Treasurer Mr Sinodinos made a number of comments on FOFA, including:
- confirming that the opt-in requirement will be repealed;
- that the fee disclosure requirements will be streamlined so that they are less onerous;
- that a public announcement outlining the government's changes to FOFA will be made before the end of the year; and
- legislation implementing these changes will be introduced into Parliament in the autumn sittings and passed during the 2014 winter sittings (which conclude in July 2014).
Credit reform bills
Most provisions of the Consumer Credit Legislation Amendment (Enhancements) Act 2012 (the Enhancements Act), which amends the National Consumer Credit Protection Act 2009 (the NCCP Act), came into operation on 1 March 2013.
The Enhancements Act was the first part of the former Labor Government's Phase 2 credit reforms and includes enhancements to the NCCP Act and provisions dealing with reverse mortgages, short term and small amount credit contracts, caps on costs for credit contracts and consumer leases.
An exposure draft of the second part of the Phase 2 reforms, the National Consumer Credit Protection Amendment (Credit Reform Phase 2) Bill, was released in December 2012. The exposure draft dealt with a number of matters, including the provision of credit to small businesses, credit provided for investment purposes and short-term and indefinite term consumer leases.1 Submissions on the exposure draft closed in February 2013, but the Bill had not been introduced into Federal parliament when parliament rose for the election.
The new Federal government is yet to announce its policy in relation to the matters covered by the Credit Reform Phase 2 Bill.
The Government's policies in relation to superannuation were discussed by the Assistant Treasurer in a speech to the Association of Financial Advisers (AFA) national conference. Some of the policy issues raised by Mr Sinodinos in his speech included:
- the Government is committed to improving the quality of information available to superannuation fund members and employers. It wants members and employers to have the information they need in order to make informed decisions when comparing the relative performance of funds, but the compliance costs of providing this information must be low;
- the introduction of MySuper default superannuation products has failed to introduce genuine competition and transparency into the default fund market for award-covered employees (this is a reference to previous statements by the Coalition that it wishes to open the default superannuation provisions in awards up to greater competition amongst superannuation funds); and
- the Government is committed to aligning superannuation governance more closely with the corporate governance principles applicable to Australian Securities Exchange listed companies. A discussion paper will be issued before the end of the year which will include timeframes for consultation with stakeholders.
In relation to improved governance, in its election policy, the Coalition said improvements would include:
- provision for independent directors on superannuation fund boards;
- mandatory disclosure of conflicts of interest; and
- a requirement that persons who wish to sit on multiple superannuation fund boards advise the Australian Prudential Regulation Authority that there is no potential for conflicts of interest.
In his speech, Mr Sinodinos also said that there would not be any unexpected or detrimental changes to the superannuation system under the Coalition.
On 28 November, the Assistant Treasurer released a discussion paper, Better regulation and governance, enhanced transparency and improved competition in superannuation, which seeks feedback on governance and transparency issues, including those mentioned by Mr Sinodinos in his AFA speech.
The closing date for submissions on the discussion paper is 12 February 2014.
The Privacy Amendment (Enhancing Privacy Protection) Act 2012 commences on 12 March 2014. The amending Act makes significant amendments to the Privacy Act 1988, including Part IIIA, which deals with credit reporting. The Australian Privacy Commissioner is currently considering a new Credit Reporting Code of Conduct submitted for registration by Australasian Retail Credit Association.
The Privacy Amendment (Privacy Alerts) Bill 2013 which was introduced into Federal Parliament by the previous Labor Government had not been passed when Parliament rose for the election. It provided that serious data breaches involving personal information, credit reporting or eligibility information or tax file numbers must be reported to the Information Commissioner and the persons significantly affected by the breach must be notified. On 9 October 2013, the results of the Office of the Australian Information Commissioner's 2013 Community Attitudes to Privacy survey were released. One of the findings of the survey was that 96 percent of survey participants expect to be informed if their information is lost.
The new Government is yet to announce its policy on matters such as privacy alerts, although the parliamentary committee (which included two Liberal Party senators) that examined the Privacy Alerts Bill concluded that it was "long overdue". Because the Privacy Alerts Bill did not pass prior to the election, the Bill has now lapsed, so if the Government wishes to proceed with legislation regarding privacy alerts, a new bill will be required.
Corporate bonds and restricting the use of the term "financial planner"
The Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013 was also introduced into Federal Parliament by the former Labor Government, but not passed before the election. The matters covered by the bill include:
- facilitating increased offerings of corporate bonds to retail investors in Australia, as part of a competitive and sustainable financial system; and
- providing that only those who hold an Australian financial services authorising them to give personal advice, or persons who provide personal advice on behalf of a licensee, may describe themselves as a "financial planner" or "financial adviser".
The former Federal Government stated that the Bill supports the FOFA reforms by allowing consumers of financial services to identify genuine providers of financial product advice. In his second reading speech to Parliament, the then Minister for Financial Services and Superannuation said that the amendment would help protect consumers from unlicensed persons such as "property spruikers" who hold themselves out to be genuine providers of financial advice when they are not.
In April 2013, the Australian Securities and Investments Commission expressed concern about the increasing promotion of self-managed superannuation funds (SMSFs) as a vehicle for investment in real estate. ASIC Commissioner Peter Kell said that ASIC did not want to see SMSFs become the vehicle of choice for property spruikers and where ASIC saw examples of unlicensed SMSF advice, or misleading marketing, it will take regulatory action.
The Simple Corporate Bonds and Other Measures Bill was referred to the Parliamentary Joint Committee on Corporations and Financial Services for inquiry and report. In additional comments included in the report, the Coalition members stated that the Coalition strongly supports efforts to establish a deep and liquid corporate bond market. In relation to restricting the use of terms such as "financial planner", the Coalition members commented that although the Coalition was sceptical about this proposal, it would not oppose passage of the legislation.
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1On 15 February 2013, it was announced that the Government had decided to defer any reforms to small business credit and that such reforms would not be passed during the life of the current Parliament.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.