The federal government is yet to make a decision on how it will resolve concerns over the lack of specific guidelines provided for at least two key elements of its industry reforms.
In the weeks after the delivery of the Future of Financial Advice (FOFA) first-draft reforms by Assistant Treasurer Bill Shorten, segments of the financial services industry have criticised the government for alleged failings in the draft.
The two immediate areas of concern for the industry are the ruling behind the best-interest duty and ASIC’s increased powers.
“The government is working through the feedback we have received on the draft legislation and has yet to finalise our position on these issues,” a spokesman for Shorten said.
FPA policy and government relations general manager Dante De Gori said while the industry would no doubt support measures that could potentially prevent a collapse, there were gaps in the reform detail.
“The gaps are in the detail in respect to how ASIC is allowed to apply those new powers,” De Gori said.
“We’re not saying that ASIC is going to abuse those powers, but I think everybody should be comfortable in understanding the scope in which they can use those powers and what guidelines will be available to determine [them].”
As an example, he said if ASIC had reason to believe an individual could commit a crime, then they could ban them, however, the question the association had of the regulator was how it was going to “prove this ‘reason to believe’ and what’s the process”.
“It’s more about giving the industry and the financial planners a bit more understanding as to what their processes will be,” he said.
Legal firm Henry Davis York (HDY) raised its own concerns in its submission, filed earlier this month, on the FOFA first draft.
“Whilst we are generally supportive of ASIC being granted enhanced powers to supervise the financial services industry, we are concerned that the draft bill fails to provide . any guidance as to the matters ASIC is required to take into consideration in determining whether to refuse, suspend or cancel an AFSL (Australian financial services licence) or issue a banning order under its enhanced powers,” the submission said.
“Furthermore, there is currently no materiality threshold limiting the circumstances in which ASIC may use these enhanced powers. This is inconsistent with the policy behind the existing significant breach reporting provision of the Corporations Act.
HDY said the lack of guidance could give rise to significant business risk and uncertainty for financial services licensees.
Meanwhile, Richard Batten, a partner of legal firm Minter Ellison, said his discussions with financial services industry clients had revealed high-level concerns about the best interest duty.
Batten said the reforms would lead to potentially higher costs and give rise to questions about transitional time frames.
