Financial services lawyer and principal of imac legal & compliance, Ian McDermott, said the regulators should scrap Chapter Seven of the Corporations Act (the main financial services provisions) and start again.
Mr McDermott cited two main issues with the current legislation – some structural problems and complexity.
On the structural problems, Mr McDermott said “While I support the move to making the financial advice industry a profession, and FOFA introduces some worthwhile progress towards that end goal, there is no escaping the fact that the financial services laws were drafted ostensibly with financial products in mind. But one of the enduring complaints with financial advisers is that they are seen as ‘product floggers’.”
“We all know that the current financial services regime has developed from the previous life insurance and fledgling investment product industry. This has resulted in the law having a ‘product’ focus instead of a strategic advice focus. Even advice, under the Act, is called ‘financial product advice’.
“FOFA tried to remedy some of this by introducing the term ‘financial advice’ for the first time, as opposed to financial product advice. But as ‘financial advice’ is not defined in the Act, this has actually resulted in greater legal uncertainty instead of the greater clarity sought.
“In my view, if the Act were to introduce a new definition of ‘financial advice’ as opposed to ‘financial product advice’ this would help break the nexus between advice and product and be another useful step in making this vital industry the respected profession we all want it to be,” he said.
“But this would be difficult for regulators as such a definition could capture advice by real estate agents, accountants, lawyers and others. So, the definition would need be properly scoped.”
Mr McDermott said that as licensees and representatives are required to be clear, concise and effective with their disclosures so should the law makers with their legal requirements.
“Unfortunately, even though Chapter 7 came out of the Corporate Law Economic Reform Program and should have simplified the law, this hasn’t been the case. Financial services licensees and representatives face enough regulatory obligation and complexity without Chapter 7 adding to the difficulties,” he said.
“Some of the drafting was poor from the start. For example, if you’ve ever tried to work out what all the different categories of wholesale clients are, while this should be a simple task it now requires a lawyer to painstakingly identify all the various categories and exemptions. FOFA was supposed to have clarified wholesale client categories but as yet hasn’t.
“Also, with many provisions a licensee has to look at the Act itself, as well as regulations that relate to the particular provisions, and perhaps ASIC Class Orders, relief decisions and ‘no action’ positions, and then read ASIC’s guidance on the matter in a Regulatory Guide that expresses ASIC’s expectations and general position.
“Add to this the numerous regulatory changes since the Financial Services Reform Act was introduced and Chapter 7 starts to read look like a maze of unclear requirements to many licensees.
“This all adds time, complexity and cost which ultimately clients must wear,” Mr McDermott said. “But it needn’t be so difficult. It would be worthwhile the regulators getting together to see how they can incorporate all these different requirements into the Act in a streamlined way that is clear, concise and effective.”
Source: imac Legal