The Australian Securities and Investments Commission (ASIC) has released its final guidance on financial services sector codes of conduct but delayed releasing guidance on conflicted remuneration until Monday.
The Future of Financial Advice (FoFA) codes guidance, in the form of an update to Regulatory Guide 183 Approval of financial services sector codes of conduct (RG 183), details how ASIC will approve codes and use its relief powers.
“Approved FoFA codes must meet substantially the same policy objective as opt-in: that is, they must promote client engagement and ensure clients do not pay ongoing financial advice fees where they are receiving little or no service,” said ASIC Commissioner Peter Kell.
He added that ASIC’s guidance should assist code applicants to decide whether to submit a new or existing code for approval. It will also help licensees and representatives to decide whether to comply with opt-in or to subscribe to an approved code.
The regulator also confirmed that, for the purposes of FoFA codes only, it will only accept an application for approval of a code with limited content and not accept an application for approval of a single entity FoFA code.
“A FoFA code approved under our policy will provide a flexible alternative to complying with the opt-in requirement,” Kell said. “In particular, under a FoFA code ongoing client arrangements may not terminate in the same way that they do under the law.
“All codes approved under RG 183 – including FoFA codes – will still need to meet ASIC’s existing standards relating to compliance and administration and review.”
ASIC’s code content checklist requires a FoFA code applicant to address the scope and renewal of ongoing fee arrangements, what ongoing services are to be delivered to clients and appropriate record keeping.
“As we begin to assess code applications, we will work through a number of practical implementation issues with code applicants, licensees and their representatives,” Kell said.
“We encourage code applicants to engage with us early on in the process and, as needed, we will give further guidance on our FoFA webpage.
“Effective cooperation between all parties will be necessary for an approved code to work as an effective alternative to complying with the law.”
ASIC will publish guidance on the FoFA conflicted remuneration provisions on Monday March 4.
FPA reaction
The Financial Planning Association (FPA) welcomed the release of ASIC’s regulatory guide on approval of codes.
“Whilst the FPA welcomes ASIC’s update to its regulatory guide and the changes its proposal will make to financial planning, the FPA is a strong supporter of the need for a complete code of professional standards rather than just opt-in only codes,” said FPA CEO Mark Rantall.
“As the professional association for financial planners, we will ultimately seek code approval by ASIC, but understand this course may be too hard for other industry associations.”
Rantall believes the FPA Code solution removes the need for opt-in for its members.
“It is our view that alternative arrangements to manage opt-in are best handled within a comprehensive professional code. The FPA Code solution to the opt-in problem removes the draconian two-year termination requirement.
“Instead, it replaces it with a consideration of the suitability of the ongoing services to the client, judged at the initial engagement and again at a pre-agreed renewal point. Without this, we believe that clients could find themselves without financial support at a time of great need.”
The FPA will be considering in full detail the revised ASIC Regulatory Guide before proceeding with the next steps in the code approval process.
Professional Planner Online will seek legal opinion and industry views on both regulatory guidance papers and publish analysis throughout next week.
