ASIC has released a consultation paper on its approach to code approval and relief powers under the Future of Financial Advice (FOFA) reforms. ASIC also confirmed that it will be taking a facilitative approach to the implementation of FOFA.
ASIC has existing power under the Corporations Act to approve codes of conduct, with Regulatory Guide 183 Approval of financial services sector codes of conduct (RG 183) setting out ASIC’s minimum expectations in this area.
Consultation Paper 191 Future of Financial Advice: Approval of codes of conduct for exemption from opt-in requirement (CP 191) seeks feedback on how RG 183 should be amended for FOFA. It is relevant to advisers and industry representatives who are considering submitting either a new or existing code for approval.
CP 191 covers matter such as:
- appropriate content of a code submitted for approval, including methods to obviate the need for opt-in
- administration, governance, monitoring and enforcement of codes, and
- ASIC’s approval and relief process.
ASIC Commissioner Peter Kell said membership of a code should not be seen as an easy option for compliance.
‘Obviating the need for opt-in via subscribing to a code does not mean financial advisers will suddenly have no responsibility or obligations in this area,’ Mr Kell said.
‘We expect codes will contain provisions that require members to have active obligations towards their clients that will achieve the same outcome as the opt-in requirement intends to achieve. That is, to prevent disengaged clients from paying ongoing advice fees for services of little or no value.’
ASIC will consider applications for approval of a FOFA code once final policy is published in RG 183. The code approval process will be careful and rigorous and it will take months rather than weeks for ASIC to assess a code. ASIC notes that unless a licensee opts in to the FOFA regime before 1 July 2013, the earliest date an adviser would need to comply with the opt-in requirement, or join an approved code, is 1 July 2015.
Mr Kell encouraged industry to engage in this consultation process.
‘We encourage advisers, industry code representatives and consumer representatives to have their say, and are particularly interested in feedback about whether ASIC should modify its existing approach to defining what is a code in RG 183 for a FOFA code,’ Mr Kell said.
Submissions to CP 191 close on 3 December 2012.
More broadly, ASIC today reaffirmed that it will take a facilitative approach during the first 12 months of the FOFA reforms from 1 July 2013.
‘ASIC recognises in a number of areas that FOFA will require businesses to undertake major work so that IT systems and compliance requirements are in place for the new regime,’ Mr Kell said.
‘ASIC is liaising with industry associations and firms to ensure that we understand where the most significant implementation challenges arise, and we will adapt our regulatory approach during the introduction of FOFA to take account of these issues.
‘Consistent with our stance during the introduction of other major policy reforms, such as the national credit laws, ASIC will work with industry participants to assist them comply with the new laws.’
ASIC will adopt a measured approach where inadvertent breaches arise or systems changes are underway, provided industry participants are making reasonable efforts to comply.
‘Consultation and engagement with industry participants and other interested stakeholders about key aspects of the FoFA reforms are ongoing. We have met with individual firms, large and small, as well as industry associations, providing the opportunity for implementation issues to be brought to our attention,’ Mr Kell said.
ASIC stated that the interaction to date with industry about FOFA has been constructive and productive. ASIC will continue its dialogue with industry about the reforms, to help ensure that the introduction of the new requirements takes place in a measured and sensible way.
‘Our aim is to smooth the path of FOFA implementation for financial services firms, especially over the first 12 months,’ Mr Kell said.
Under FOFA, an adviser who enters into an ongoing fee arrangement with a retail client after 1 July 2013 must give that client a renewal notice every 2 years. If the client does not agree to continue the fee arrangement, or does not respond to the renewal notice, then the arrangement terminates. This is known as the ‘opt-in requirement’.
ASIC also has the ability to exempt advisers from the opt-in obligation if it is satisfied the adviser is bound by a professional code which ‘obviates the need’ for opt-in.
ASIC’s existing power to approve codes of conduct is set out in s1101A of the Corporations Act 2001.