Speaking to InvestorDaily, Baker & McKenzie partner Astrid Raetze said the industry breathed a collective sigh of relief on December 20 when ASIC announced it would not be enforcing FOFA laws the government had previously announced it would amend.
“[Firms knew] that in the meantime they could effectively pay conflicted remuneration where there was general advice being given,” said Ms Raetze.
In addition, financial services firms have also put ‘balanced scorecard’ remuneration into place when it comes to employee bonuses, she said.
Under the balanced scorecard approach in the FOFA amendments, up to 10 per cent of a bonus payment would be permitted to be ‘conflicted’.
“Then it all got suspended [on March 24], so I’ve had a number of telephone calls with clients now expressing their concern, their anger and their anguish,” she said.
To further complicate matters, ASIC’s so-called ‘facilitative approach’ to FOFA is set to expire on 1 July 2014 – and the chances of the government finalising the FOFA legislation before then are looking slim.
Financial services firms are now “ignoring” the government’s intended amendments and complying with the law as it currently stands, according to Ms Raetze.
“They’re all saying: ‘We can’t rely on these changes, it’s too risky’ – so they’re reorganising their businesses yet again,” she said.
Firms are either “ditching” their conflicted remuneration policies or seeking client authorisation to pay them, said Ms Raetze.
One boutique product issuer with a distribution arm told Ms Raetze the latest round of process changes had cost the firm $200,000.
“Every time there is a change [to the regulations or proposed laws] it’s an addition of roughly another $200,000 to change their systems, change their documentation and retrain their employees,” she said.
“You can [imagine] what it must cost for the bigger players.
“It’s a very inefficient way to [operate a] financial services industry from a regulatory point of view,” Ms Raetze added.
