Hayne Royal Commission Reforms Make Quick Headway In Parliament - QMV Legal
Royal Commission Reforms 2020-21
The Financial Sector Reform (Hayne Royal Commission Response No.2) Bill 2020 introduced into Parliament departs significantly from the draft legislation as it relates to advice fees in superannuation – this is likely the reason for the delayed introduction and separation from the Hayne Royal Commission Response Bill. The new law does not entirely prohibit a trustee from charging advice fees to a member's MySuper account, but rather adds to Section 29VA(9A) of the SIS Act the requirement that advice fees be paid in accordance with the terms of an arrangement entered into by the member; and the arrangement is not an ongoing fee arrangement.
The Bill also imposes requirements that must be met before a trustee can charge a member for advice (other than intra-fund advice): the fee must be charged in accordance with an arrangement that the member has entered into; the member has to consent to being charge the fee; and the trustee has the consent or a copy of the consent from the member.
The Hayne recommendations related to ongoing fee arrangements and disclosure of lack of independence are also covered in the Bill.
Also last week, the Government announced that it would "further strengthen oversight of financial advisers while at the same time simplifying the regulatory framework governing the provision of financial advice, helping to reduce complexity and cost for advisers," and address recommendation 2.10 "by expanding the operation of the Financial Services and Credit Panel (FSCP) within the Australian Securities and Investment Commission (ASIC)." The current functions of FASEA will be split between the FSCP and Treasury.
The Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 which will likely receive royal assent shortly, after passing both Houses on 10 December, implements the following reforms that will impact superannuation trustees as early as 1 January 2021:
Industry Code Enforceability (1 January 2021): Amendment to the Corporations Act 2001 and the National Consumer Credit Act to strengthen the existing voluntary code of conduct framework to allow ASIC to designate enforceable code provisions in approved codes of conduct. Breaches of enforceable code provisions may attract civil penalties. The Bill also allows regulations that may prescribe a mandatory code of conduct, the contravention of which may attract a penalty.
No other duty for superannuation trustees (1 July 2021): Amendment to section 29E of the SIS Act to impose a new condition on RSE licenses prohibiting RSE licensees from having a duty to act in the interests of another person, other than a duty that arises in the course of: performing their duties or exercising their powers as a trustee of an RSE; or providing personal advice. According to the explanatory memorandum, other duties that are considered to be within the scope of the exemption include duties imposed under common law on trustees; duties arising from operation of investment vehicles; duties arising from holding an AFSL in relation to superannuation activities; and duties relating to business operations (such as those owed to staff).
No hawking of financial products (05 October 2021): Amendment to the Corporations Act to ban the hawking of financial products. It includes a new general prohibition of offers to sell or issue financial products made in the course of, or because of, unsolicited contact. Unsolicited contact is any contact in relation to a financial product to which the consumer did not consent that is made by telephone, in face-to-face meetings or any other real-time interaction which is in the nature of a discussion or conversation.
Contact is not unsolicited if the consumer consented to the contact in relation to the financial product. For a consumer to consent to contact, they must make a positive, voluntary, and clear request to be contacted about the financial product before the contact is initiated.
APRA & ASIC Roles (1 January 2021): Expansion of ASIC's role in superannuation to include protecting consumers from harm and market misconduct with ASIC now being generally responsible for consumer protection, market integrity, disclosure and keeping of reports. APRA and ASIC will share administration of the SIS Act member outcomes and consumer protection provisions.
The AFS licensing regime is also extended to require an RSE licensee to hold an AFSL to provide superannuation trustee services. ASIC must obtain APRA's agreement before cancelling an RSE licensee's AFSL, imposing certain license conditions or making certain banning orders.
Trustee indemnification rules: Amendment of the existing SIS Act indemnification rules to prevent superannuation trustees and trustee directors from using trust assets to pay a criminal, civil or administrative penalty incurred in relation to a breach of Commonwealth law. The Senate introduced an amendment to the Bill, which was agreed by the House, delaying the application of the indemnification related amendments to apply in relation to liabilities imposed and amounts that become payable under infringement notices given on or after 1 January 2022, rather than upon commencement.
ASIC breach reporting (1 October 2021): Expansion of the situations that require reporting to ASIC, including reporting investigations into whether there has been or will be a significant breach of a core obligation and the outcomes of those investigations; and serious compliance concerns about financial advisers engaged by another licensee. The test for determining whether a breach is or is likely to be a significant breach is also split into two separate tests – the first deems specified breaches to be significant and the second determines whether a breach is significant based on several listed factors.
Reference checking (1 October 2021): Requirements related to reference checking and information sharing regarding former, current and prospective representatives imposed on AFS licensees.
Regards
QMV Legal Team
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