The Opposition will lodge in the Senate as early as today a notice of intention to disallow regulations to the Corporations Amendment (Streamlining Future of Financial Advice) Bill 2014, paving the way for the regulations to be disallowed with immediate effect from tomorrow.
Disallowing the regulations means that “original FoFA” – the law that came into effect on July 1, 2013, and which includes opt-in, the so-called “little-g” provision of the best interests duty and the requirement for fee disclosure statements (FDS) – remains in force.
With regulations disallowed, the government would be forced to negotiate with the opposition and with minor parties to secure passage of a revised set of amendments.
The opposition has indicated it is prepared to negotiate on some points of FoFA, but not on anything it believes reduces consumer protection. It is prepared to negotiate to secure a sensible compromise on grandfathering.
Until now the Australian Securities and Investments Commission (ASIC) has take a “no-action” approach to the parts of FoFA that the Government said it intended to repeal.
On December 20 last year it said that “for example, we will not take action for breaches of current section 962S of the Corporations Act 2001, which requires fee disclosure statements to be provided to retail clients with ongoing fee arrangements entered into before 1 July 2013”.
Enforcement concerns
However, those provisions will not be repealed if the regulations are disallowed. There are growing concerns that licensees and planning businesses that relied on FoFA being amended may run foul of renewed enforcement by ASIC.
Rhett Das, professional standards manager for Centrepoint Alliance, says there is a real risk that advisers will have to immediately begin producing fee disclosure statements (FDS) for pre-July 1, 2013, clients.
“Our concern, and the industry’s concern, is on FDSs for your pre-1 July 2013 clients. Does that mean we are going to have to start writing these documents?” Das says.
“Can we still rely on ASIC’s no-action statement from December?”
Das says the burden on businesses and staff of constantly changing legislation and regulations should not be underestimated.
“It’s been going on for so long,” Das says.
“I can say from a personal point of view the pressure that it puts on staff is immense. And as a manager having to manage staff and support them, there’s just so much flying around at the moment. You hear something, and inside a couple of days there’s a new position.
“If this happens, this is going to put enormous pressure on small businesses, especially in the independent space, who don’t have unlimited resources on tap.”
Regulations tabled
The Opposition forced the regulations to be tabled last Thursday after the Opposition Whip, Senator Anne McEwen, moved a motion requiring the Minister for Finance, Mathias Cormann (pictured), to table the regulations no later than 1.50pm. The opposition was seeking to have the regulations tabled so it could give notice of its intention to have them disallowed sooner rather than later, thus bringing some certainly to the regulation of financial planning.
The motion was passed but Cormann failed to table the regulations. Later in the day, just before 3.30pm, Senator Sam Dastyari rose to speak on the motion, and quoted a section of the regulations relating to the best interests duty.
McEwen moved that Dastyari table the document he’d been reading from. That motion was passed and the document, containing the FoFA regulations, was tabled.
The Senate rules provide that anyone can table regulations; it is not unique for an opposition to table a government’s regulations and then seek to have them disallowed.
Cautiously optimistic
The Opposition is cautiously optimistic of success, with independent senator Nick Xenophon and Motoring Enthusiasts Party senator Ricky Muir thought likely to vote in favour, following their support for Thursday’s motions.
Palmer United Party senators are also thought likely to support the disallowance, although their opposition is said to be to the political process of enacting the amendments by regulation as much as to the amendments per se. Professional Planner understands that their position has been hardened by what they see as harassment and bullying by members of the government on FoFA and other issues, including the carbon tax.
All of this means that the pre-amendment FoFA laws remain fully intact and that financial planners’ compliance obligations remain unchanged. That is the “certainty” that the Opposition Leader Bill Shorten, Shadow Treasurer Chris Bowen and Shadow Minister for Financial Services and Superannuation Bernie Ripoll said last week that the opposition wanted to bring certainty to the financial planning sector, when they called for the regulations to be tables and also flagged their intention to launch a fresh Senate inquiry into financial advice.
‘No plan B’
The way forward from here, however, is anything but clear. Cormann has reportedly said the Government has “no plan B” if its regulations are disallowed.
Ripoll says the Government cannot reintroduce the FoFA regulations to the Senate for at least another six months. If it wants to secure amendments to the legislation before then, it will he to engage in the “normal” parliamentary processes of consultation and debate.
“If everyone follows through on what they say they will do in the Senate, the Government’s changes to FoFA will be disallowed in total on Tuesday,” Ripoll says.
“What that means is we revert back to ‘original FoFA’.
“The uncertainty created by the Government on all of this – and we have highlighted this – was [because] it refused to negotiate and it’s just rammed through its own agenda.”
Left with no option
Ripoll says changes can legitimately be made by regulation, but regulations are “instruments that are disallowable”, and they can’t be amended. They can only be accepted or disallowed.
“So we are left with no option,” he says.
Reverting to “original FoFA” means “we know what the rules are, and people can continue to work to those rules,” Ripoll says.
“Our view very seriously is that the amendments brought forward by the Government are absolutely detrimental to and pull apart the consumer protection elements of FoFA,” he says.
“We won’t have a bar of that.”
