In this blog series, we will take a look at the regulatory issues that financial advisers will face over the next 12 months.

FOFA

The FOFA reforms have been the biggest story in financial regulation over the last few years. The change of government and subsequent rounds of amendment and repeal left the industry in a state of uncertainty. We expect further guidance from ASIC on the FOFA reforms. As you would recall, the Abbot Government's amendments to FOFA were disallowed by the Senate last November, reinstating the Gillard Government's reforms. Subsequent regulations reintroduced the grandfathering provisions, but no moves have been made to reintroduce any other elements of the Abbott Government's changes.

The result of these legislative changes means that there was a period between December 2013 and November 2014 where advisers may have been complying with regulations that never were law.

Technically, this meant that any licensee who complied with those laws was in breach of their AFSL and the Corporations Act.

At the time of the disallowance, ASIC announced that it would take a "facilitative approach until 1 July 2015". No further statements have been made at this time. We do not anticipate that ASIC will pursue action against licensees who took legal positions in good faith according to the situation at the time. However, ASIC will need to clarify exactly how it will approach enforcement of the FOFA reforms.

We also note that the opt-in provisions continue to be contentious. A number of professional bodies are lobbying to roll back the start date, and it will be interesting to see if any of those bodies adopt their own opt-in code of conduct. We anticipate that this area will continue to be a point of discussion in 2015.

ASIC oversight

It is old news to most that ASIC is currently under budgetary pressures. Budget reductions last year mean that, by the end of the current financial year, ASIC will have reduced its headcount by 20%. ASIC has stated that its reduced resources will mean a greater shift to risk-based surveillance, especially focused on high risk areas that have the greatest market impact. ASIC's Strategic Outlook for the current financial year provided some outline of the priorities that ASIC will be focusing on.

These areas include:

  • add-on insurance;
  • payday loans;
  • leases for household goods;
  • financial advice, especially advice relating to SMSFs; and
  • managed investment schemes.

The quality of financial advice remains a key concern for ASIC, especially in the wake of the CBA and Macquarie Private Wealth scandals. These concerns have also been highlighted in recent parliamentary inquiries, including the Financial Systems Inquiry. There are also indications that ASIC is considering moving to a user-funded system, similar to the funding model at APRA. This was a recommendation of the Financial Systems Inquiry that we believe has support in the current political climate.

Such a move would likely involve some form of levy on the regulated population that would be tied to the size and/or the regulatory risk of the relevant business – for example, superannuation funds currently pay a levy to APRA based upon their level of funds under management.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.