COVID-19 and Royal Commission implementation
The Government has deferred the implementation of the Royal Commission recommendations for six months because of the significant impacts of the coronavirus. While a revised Implementation Roadmap has not been released, the Government has confirmed the following changes:
- measures that were to be introduced into the Parliament by 30 June 2020, will now be introduced by December 2020
- measures originally scheduled for introduction by December 2020 will now be introduced by 30 June 2021
- the commencement dates contained in Royal Commission related exposure draft legislation issued prior to the coronavirus pandemic will be extended by an additional six months – meaning draft legislation scheduled to commence from 1 July 2021 will now commence from 1 January 2021.
The deferral does not apply to recommendations that have already been legislated. The ban on Grandfathered Commissions will proceed from 1 January 2021.
Read the Treasurer’s announcement
On 31 January 2020, the Government released draft legislation to implement 22 recommendations from the Royal Commission. These changes were subject to a short consultation period with the government planning to progress them through Parliament by 30 June 2020.
The FPA provided submissions to the consultation process on the following changes that will affect financial planning practices:
Recommendation 2.1 - Ongoing Fee Arrangements (draft legislation requirements
- Opt-In obligations will now apply to all ongoing fee arrangements and not just those post July 2013. Opt-In will be required on an annual basis rather than every second year.
- The content required in the FDS will be expanded to include forward looking information on services to be provided and fees to be charged.
- There are also additional obligations in areas such as record keeping.
- These changes apply from 30 January 2021 with transitional arrangements.
FPA’s key recommendations:
- Amend the renewal period to allow advisers to give clients the FDS and RN before the renewal notice date and disclosure date, by up to 90 days, without resetting the renewal day
- Allow a signed renewal notice agreement from a client to be a valid authorisation form that can be accepted by product providers.
- Allow the FDS, renewal notice and product authorisation to be provided separately or as one document
- Transitional arrangements – a single transition period for both pre- and post- FoFA clients
Read FPA submission in response to this draft legislation
Recommendation 2.2 - Disclosure of Lack of Independence (draft legislation requirements
- Licensees and advice providers must include an additional statement in their FSG stating that they are not independent, impartial or unbiased (where that is the case) and explain the reasons why.
- This will be required from 1 July 2020.
FPA’s key recommendations:
- The FPA supports disclosure of non-independence in the FSG
- Transition arrangements – be extended to 1 January 2021 to allow time for documents to be updated
Read FPA submission in response to this draft legislation
Recommendations 1.6, 2.7, 2.8, 2.9, 7.2: Reference checking and information sharing, breach reporting and remediation (draft legislation requirements)
- New breach reporting obligations include an expanded definition of what constitutes ‘reportable situations’, a new significance test, and significantly shorter timeframes for reporting breaches and likely breaches (30 days) and outcomes of investigations (10 days) to ASIC and affected consumers.
- Licensees will be required to report a suspected breach or likely breach of an adviser of another licensee.
- Under the new test, a breach or likely breach is ‘significant’ if the breach results, or is likely to result, in loss or damage to clients.
- This means the new obligations will require licensees to determine the nature and full extent of an adviser’s misconduct and the degree to which it has impacted clients.
- Any significant breach of a core obligation resulting in loss or damage to a client, where financial advice has been provided to the client must be investigated.
- Licensees must tell affected clients and, following an investigation, remediate any affected clients within 30 days.
- Stronger penalties for failing to comply with the requirements including civil penalties for some provisions.
- New record keeping requirements.
- Transition arrangements include a commencement date of 1 April 2021.
- Licensees must undertake reference checking and information sharing regarding former, current and prospective employees.
- ASIC is required to develop a Reference Checking and Information Sharing Protocol, which will include the type of information that must be checked and shared about a prospective representative and record keeping requirements.
- Transition arrangements include a commencement date of 1 April 2021.
FPA’s key recommendations:
- The Protocol include a complaint mechanism for representatives should the individual face repercussions or an unfounded negative reference from a former or current licensee.
- ASIC to establish and maintain a register of ‘designated reference checkers’.
- the Reference Checking and Information Sharing Protocol should be extended to include individuals who provide general advice, and with the responsibility or ability to influence the advice process; and apply to all financial services and AFS licensees.
- Further consultation on the proposed significance test
- Requirements should apply to all financial services, not just in cases where financial advice has been provided
- Timeframes should include flexibility for PI insure involvement, corporate governance arrangements of licensees, and the complexity of some investigations.
- Transition arrangements – one reporting regime applies to all breaches from 1 July 2021, regardless of when the breach occurred
Read FPA submission in response to this draft legislation
Recommendation 3.2 and 3.3 – No advice fees from MySuper and deduction of advice fees from choice super (draft legislation requirements)
- Financial advice fees will not be able to be collected from MySuper products from 1 July 2020.
- Financial advice fees from choice products will only be able to be collected where:
- The client has authorised the payment (as per the annual renewal and product authorisation rules), and
- Trustees are satisfied that ongoing services are being provided (in the case of ongoing fee arrangements)
- This change applies from 1 July 2020.
FPA’s key recommendations:
- The FPA does not support establishing different rules for paying advice fees from MySuper and Choice investment options within the same superannuation fund.
- All superannuation accounts and investment options should be subject to the same requirements for paying advice fees
- Transition arrangements – be adjusted to 1 July 2021
Read FPA submission in response to this draft legislation
Read the draft legislation on Treasury’s website
Read the Royal Commission Final Report (February 2019)
Read the Government Response (February 2019)
Read the Government’s Roadmap to implementing the recommendations of the Royal Commission (August 2019)
Read the FPA Royal Commission wrap-up (February 2019)
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