The Future of Financial Advice - the policy impacts of a new Government
We last reported on the Future of Financial Advice (FoFA) reforms in April 2013 – just three months prior to the compulsory commencement of FoFA on 1 July 2013.
At that time, we concluded that it was too early to predict the impacts of those changes for underwriters, claims managers, brokers and insureds. However, we highlighted the risks of increased costs as a result of FoFA, particularly for insureds and insurers.
We speculated that under FoFA not only would compliance costs for financial advisers be expected to increase (for instance, by way of the opt-in provisions), but also their exposure to claims.
In September 2013 the Labour government (who brought in these reforms) was replaced by a new Liberal government.
In July 2013, the then opposition released a policy report to boost productivity and reduce regulation. It promised to conduct a review into the banking and financial services industry and, if elected, to place a moratorium on further regulation of the financial services industry.
This election promise appears to have been confirmed recently by assistant treasurer Senator Arthur Sinodinos. On 13 October 2013, in a speech to the Association of Financial Advisers, the Senator explained the “government’s deregulation agenda”.
As well as the moratorium on further changes to FoFA, the Senator stated that at the top of the Government’s agenda was the removal of the opt-in requirements and a focus on the issues surrounding the complexity and confusion of insurance remuneration arrangements.
Unfortunately, no specific timelines have been published for when these changes might be implemented, however, the Senator stated that the government will shortly announce a timeframe in respect of the consultation process with stakeholders. The Senator stated that the government would not be rushed on this consultation process.
In light of the government’s deregulation agenda, these announcements may provide comfort to those insureds within the financial services industry concerned with the impacts of FoFA that, at least, some of the more burdensome and costly provisions will be examined further.
Further comfort may also be taken from ASIC’s assurance that it will adopt a facilitative approach until 1 July 2014. In particular, it has announced that it will take a “measured approach where inadvertent breaches arise or systems changes are underway, provided industry participants are making reasonable efforts to comply.” ASIC warned, however, that regulatory action would be taken for “deliberate and systemic breaches.”
In the meantime, care should be taken by financial service providers to comply with FoFA, as it stands. If the government decides to amend FoFA, it is likely that a large number of provisions will remain unaltered. For instance, the government has previously expressed its firm support for the elimination of conflicted remuneration structures in the financial services industry.
In these circumstances, we maintain our previous suggestion that brokers consulting with financial services professionals be mindful of the requirements of the present FoFA regime.
For further information, please contact either Richard Leahy or Samantha Pillay.