Assistant Treasurer Arthur Sinodinos is set to follow through on the Coalition Government’s pre-election promise to fix elements of the Future of Financial Advice reforms.
On the top of Sinodinos’s list is the removal of the opt-in requirement and modifications to how the ban on commissions applies to insurance.
The Treasurer has also signalled that he will work with the industry to address concerns around grandfathering arrangements for conflicted remuneration. However, the Government, which supports the principles underlying FOFA, will face a variety of challenges in implementing any changes.
A major challenge will be how to tackle amendments to FOFA without adding further complexity. One of the key learnings from the recent raft of regulatory changes is that initiatives which seek to fix issues or refine regulatory requirements often create further layers of regulation. A prime example of this is the way that primary legislation is expanded by exceptions or qualifications set out in subordinate regulations and is interpreted through guidance from the Australian Securities and Investments Commission. The FOFA reforms have followed this path. The Corporations Act amendments and Corporations Regulations have implemented FOFA together with a suite of new and amended ASIC regulatory guides. Unpicking this regulatory web presents a challenge to any refinements program.
A further issue relates to the process required to scope out the necessary changes. The Assistant Treasurer has signalled that the industry will be consulted in connection with any initiatives. While this should be taken as a positive message, the timing of any industry consultation is unclear and the Government will need to work through how engagement will work alongside the proposed broad-based Financial System Inquiry (dubbed the “Son of Wallis”). Until the terms of reference for the Financial System Inquiry are announced, it may be difficult to coordinate a parallel review of FOFA. The interdependence between these two initiatives (if any) will need to be considered by the Government and this could delay consultation. In the meantime, the industry will have to grapple with (and to the extent that it has not done so already) adapt to the present-day requirements under FOFA.
In revisiting some of the elements of FOFA, the Government will also have to balance the need for change against the value of regulatory certainty. FOFA has been a long time coming and significant industry resources have already been deployed to meet the requirements. The overarching challenge is to ensure that the results of any reform provide net benefits for customers and the industry rather than further compliance burdens and costs.