The Australian Securities and Investments Commission (ASIC) has so far been content to prompt from the wings on all matters concerning the Future of Financial Advice (FoFA) reforms, but the release of its guidance on codes of conduct will see the spotlight placed squarely on the regulator.

ASIC has released a consultation paper on its approach to code approval and relief powers under FoFA, while also giving the clearest indication yet on how it will police the industry post July 1 next year.

The regulator confirmed it would take a “facilitative approach” during the first 12 months, especially where inadvertent breaches arise or systems changes are underway, provided industry participants are making reasonable efforts to comply.

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However, it is ASIC’s existing power under the Corporations Act to approve codes of conduct that will be of most immediate interest to the industry.

Consultation Paper 191 Future of Financial Advice: Approval of codes of conduct for exemption from opt-in requirement (CP 191) will seek feedback on how Regulatory Guide 183 Approval of financial services sector codes of conduct (RG 183) should be amended for FoFA.

It is relevant to advisers, associations and industry representatives who are considering submitting either a new or existing code for approval.

Under FoFA, an adviser who enters into an ongoing fee arrangement with a retail client after July 1, 2013, must give that client a renewal notice every two years.

If the client does not agree to continue the fee arrangement or does not respond to the renewal notice, then the arrangement terminates.

ASIC 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.

Obviate, opt-in, obligation and the codes

However, ASIC commissioner, Peter Kell (right), warned that 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,” 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 only when final policy is published in RG 183, a process that is likely to take months rather than weeks.

However, unless a licensee opts in to the FoFA regime before July 1, 2013, the earliest date an adviser would need to comply with the opt-in requirement or join an approved code is July 1, 2015.

Kell encouraged the 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,” he said.

Submissions to CP 191 close on December 3 2012.

Smoothing the path

Kell also attempted to reassure large sections of the industry that the regulator would not be adopting a punitive approach when the sun comes up on July 1 next year.

“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,” he 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.”

He added that this approach was consistent with the regulator’s stance during the introduction of other major policy reforms, such as the national credit laws.

“Consultation and engagement with industry participants and other interested stakeholders about key aspects of the FoFA reforms are ongoing,” said Kell.

“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.

“Our aim is to smooth the path of FoFA implementation for financial services firms, especially over the first 12 months.”

To review the consultation paper, click here.

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