The revised MDA services framework has (finally) arrived and the news is good. The changes strike a constructive balance between consistency and flexibility, and should effectively accommodate the considerable variety of MDA service models in today’s financial services landscape.
Here’s a quick summary of the changes and their impact.
Licensing
The No Action Letter that allowed ‘limited’ MDA services to be provided within platforms has been revoked.
AFS licensees who want to continue providing MDA services within a platform will need to apply to vary their licence on or before 1 October 2018.
The good news is that ASIC will accept your limited MDA experience (as long as you’re not planning to operate outside a regulated platform going forward).
New Obligations
Two new requirements will apply to existing limited MDA providers from 1 October 2017:
- Withdrawing funds – One constraint on limited MDAs that will be removed is that you will be able to withdraw funds from the platforms using your discretion; and
- Reporting – For the first time, reporting obligations will apply to platform MDAs, levelling the playing field. However, you won’t need to provide quarterly transactions reports, if the platform provides these, or annual audit reports.
FSGs
MDA operators’ FSGs will need to contain even more MDA information about the following:
- MDA service fees and costs;
- Outsourcing arrangements; and
- The risks of non-limited recourse products, if you use these.
The MDA information was always a lot more detailed than the rest of the information in a standard FSG – now it’s even more so.
We’ll be suggesting that advisers who don’t offer MDA services to all their clients give a special purpose supplementary FSG when it becomes apparent that you will provide an MDA service to a client. Simpler and less confusing.
MDA Contract
MDA Contracts will now need to contain information about fees and costs, the difference between acquiring financial products directly and through the MDA service and how the contract can be terminated.
Investment Program
Rectifying a somewhat inexplicable omission in the original guidance, Investment Programs are now required to contain an investment strategy providing sufficient detail to enable an opinion to be formed on its suitability for the client.
Non-Limited Recourse Arrangements
Non-limited recourse products such as contracts for difference and leveraged OTC derivatives can result in losses that exceed the client’s investment.
Express client consent will be required before investing in these products – separately to the MDA Contract.
Conflicts Management
ASIC has provided some helpful guidance on identifying and managing MDA conflicts.
Termination of MDA Services
Written policies for terminating MDA Contracts will be required, including how the client’s MDA portfolio assets will be dealt with. Clients can ask for a copy of this policy.
Breaches
The breach reporting timeframe has changed from 5 to 10 business days, the same as for other breaches.
Claire Wivell Plater is managing director of The Fold Legal
