FOFA: What Are The Latest Changes? | imac legal & compliance


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FOFA : What are the latest changes?

January 8, 2016 imaclegal 2 Comments

So, you’ve seen the surprise announcement that several unexpected changes were made to the previously rejected FOFA rules in November. But what exactly are the changes and what do they mean? And what is the state of play? In this article, imac legal & compliance tracks through the changes for you to bring you up to speed.

But first, some housekeeping. The most recent changes (i.e. in November 2015) were introduced by a Bill called “Corporations Amendment (Financial Advice Measures) Bill 2015”. But if you go searching for this, you are likely to have a heck of a job finding it. This is because the Bill actually made amendments to the Bill that was previously disallowed in 2014, the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. The current Bill has passed both Houses of Parliament and, at the time of writing (early January 2016), is expected to receive Assent and be enacted in early 2016.

PUP Amendments removed

The main amendments brokered with Palmer United Party back in 2014 to get passage of the legislation have been abandoned.

That is, SOAs don’t need be signed by the providing entity and client; instructions for further or varied advice do not need be signed by the client and the providing entity does not have to acknowledge receipt of the instructions; statements are not required re: the adviser acting in the best interests of the client and having to give priority to the client’s interest, fees receivable for the advice [this information is required under other obligations], the obligation to provide an FDS yearly, rights of return for financial products under cooling off periods, and the client’s right to receive further advice.

Best Interests Duty 

The provision that was to remove the ‘catch-all’ requirement in the FOFA best interests in s961B(2)(g) has itself been removed in the latest Bill, as has the proposed addition to the note at the end of s961B(2) which was to have read “The provider need not inquire into circumstances that would not reasonably be considered as relevant to the subject matter”.

This means that it will still be a requirement under FOFA for advisers to “take any other step that … would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances” when providing personal advice.

A new section, s961B(4A), will no longer go ahead. This section would have clarified that it is possible for ‘scaled advice’ to be agreed between an adviser and client. Note: in our view the laws have always made it clear that scaled advice may be provided. We therefore do not think this will have any material effect.

Fee Disclosure Statements 

The Bill changes the time to give an FDS from 30 days to 60 days. This means advisers/fee recipients need to give an FDS “before the end of a period of 60 days beginning on the disclosure day for the arrangement”: s962G(1). These timing changes take effect from the start date of the Financial Advice Measures Bill.

Incidental amendments have been made to s962H(1)(b)(i) to accommodate this change.

Also, failing to give an FDS will no longer be a civil penalty provision and a Court will no longer be able to order a person to pay a pecuniary penalty for failing to provide an FDS. These amendments are by virtue of changes to s1317E(1) (table item 22) and s1317G(1E)(b)(v).

Opt-in Renewal Notices 

Opt-in renewal notices are required to be given to post-FOFA clients who receive personal advice and have ongoing fee arrangements with an adviser. The Bill changes the period for giving a renewal notice from 30 days to 60 days. That is, the renewal notice must be given “before a period of 60 days beginning on the renewal notice day”: s962K(1). By virtue of a new s1531C, the 60 day period only applies to renewal notice days that occur after the start of the new amendments.

The same timing change has also been made for new clients after the ‘application date’ (i.e. the start of FOFA (1 July 2013) or, if you opted into the regime prior, that date): s962S(1). As well as the timing change, the wording in s962S(1) has been changed from “within a period of 30 days” to “before the end of a period of 60 days”. This is significant as it removes uncertainty around whether renewal notices could effectively be brought forward from the ‘renewal date’. It is now clear that they can be brought forward.

Conflicted Remuneration 

A note has been added to s963A which clarifies that conflicted remuneration can include “causing or authorising” such benefits to be given.

A note is added at the end of s963B(1) to clarify that if a member authorises a superannuation trustee to make a payment for financial advice the member has received and the trustee then recovers that amount out of the member’s fund assets then such payments are not conflicted remuneration.

Changes that were contemplated by new subsections 963B(4) to (9) in the November 2014 FOFA Streamlining Bill will now not go ahead as these provisions have been deleted from the current Financial Advice Measures Bill.

The deleted subsections:

• set out certain timing rules for determining if a benefit is conflicted or not (e.g. if advice is given to a client in the 12 months prior to a benefit being received the benefit may be conflicted and vice versa): ss963B(4) & (5);
• removed benefits given in relation to general advice from being conflicted remuneration: s963B(6); and
• made it clear that regulations could be introduced to amend the above provisions (s963B(7) & (8)) and defined ‘business name of a licensee’ and ‘trade mark of a licensee’.

However, despite the fact that the deleted subsections will now not become law, a new s963B(4) was introduced which enables regulations to be made which may amend when a benefit may be conflicted remuneration. And a note was introduced at the end of s963B to define intrafund advice.

Many more training and education benefits will be allowed without being conflicted remuneration. This is because the current provision in s963C(c)(ii) which reads “the benefit is relevant to the provision of financial product advice to persons as retail clients” is to be repealed and replaced with “the benefit is relevant to the carrying on of a financial services business”. The new provision is much broader, so that more training and education benefits will not be considered conflicted remuneration as long as they are relevant to carrying on a financial services business.

However, a new s963C(2) is added which enables regulations to be made which may amend when a training or education benefit may be conflicted remuneration.

Existing s963D, which sets out circumstances where benefits are given to representatives of an ADI will not be conflicted remuneration, is repealed. It is to be replaced with a completely new and expanded s963D which deals, in a lot more detail, with when benefits given to representatives of ADIs are not conflicted remuneration.

Note that if any of the above provisions relate to benefits which were not conflicted remuneration by virtue of s1528, the new provisions will not change that; they will still be exempt by virtue of a new s1531E. The new provisions will apply only to benefits which are not otherwise exempt and which are given on or after the Financial Advice Measures Bill becomes an Act.

The proposed s964A in the original FOFA Streamlining Bill has been deleted. This provision stated that platform operators must not accept volume-based shelf space fees and set out the requirements in relation to that provision. However, note that the current s964A, still operates to ban volume-related shelf space fees.

Miscellaneous Changes 

New definitions have been introduced for consumer credit insurance and regulated superannuation fund: (s960).

Advice given by ADIs (i.e. banks and other Authorised Deposit-taking Institutions) – provisions relating to meeting the best interests duty (s961B(3) & (4) and conflicts between client’s interest and the advice provider (and others) (s961J(2) & (3)) have been amended. The changes, while significant in volume, are not materially different from current requirements. These changes take effect from the start date of the Financial Advice Measures Bill.


imac legal has marked up all the changes in the ‘Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014’ that were brought about by the recently passed FOFA ‘Corporations Amendment (Financial Advice Measures) Bill 2015’ so you can easily identify what the requirements are. If you would like to save yourself the time and effort, you can get a FREE copy of the marked up Bill from imac legal. Simply email [email protected] requesting your FREE copy.


    February 3, 2016 REPLY

    […] The changes include: removing the Palmer United Party-agreed changes; re-introducing the ‘catch all’ requirement in the best interests obligations; allowing 60 days instead of the previous 30 days to send FDSs and opt-in renewal notices; clarifying wording regarding conflicted remuneration so that it is clear that ‘causing or authorising’ such benefits can be caught by the provisions; relaxing conflicted remuneration rules so that more training and education benefits will be allowed; and miscellaneous minor changes. The changes are expected to come into effect in the first half of 2016. For a more detailed analysis of the FOFA changes, see imac legal’s blog post here. […]

    May 10, 2016 REPLY

    […] FOFA changes that imac legal summarised here beat the prorogation of Parliament, have passed both Houses of Parliament and received Assent on 18 […]

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