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HOW COVID-19 HAS AFFECTED REFORMS TO WEALTH BUSINESSES.

HOW COVID-19 HAS AFFECTED REFORMS TO WEALTH BUSINESSES.

With the ongoing COVID-19 pandemic, it’s fair to say that regulators and businesses have shifted their priorities. Timelines for legislative reforms driven by the Hayne Royal Commission and licence applications for wealth businesses have changed.

APRA and ASIC licences may be delayed

APRA has announced that it will not issue any new insurance or banking licences for at least 6 months. While ASIC has said it’s ‘business as usual’ for the Australian financial services licensing process, we expect timelines to be impacted by remote working and a reduced workforce.

Regulators have changed their priorities

ASIC is prioritising challenges arising from the pandemic and regulatory change where:

  • There is the risk of significant consumer harm;
  • There are serious breaches of the law;
  • There are risks to market integrity; or
  • The matter is time critical.

Policy work on key Royal Commission reforms were to start on 1 July 2020 but these will be delayed by at least six months.1

To help you plan, we’ve identified which changes apply now and which ones are likely to be delayed. This means you may have more time to prepare. We’ll update this blog as more information comes to hand.

Initiatives already law

Initiative What When More detail
Design and distribution obligations
  • Target market determinations for retail client products that have a PDS
  • Extensive distribution, record-keeping and reporting requirements
  • Changes will apply from 5 April 2021 but this has been delayed to 5 October 2021
  • Consultation period for ASIC Consultation Paper 325 Design and Distribution Obligations (CP 325) ended on 11 March 2020
  • Final regulatory guide will be published by December 2020
  • ASIC’s product intervention powers
  • Gives ASIC product intervention powers (PIP)
  • No PIP orders or instruments relevant to financial planning and wealth businesses have been issued
  • Commenced on 6 April 2019
  • No delay announced
  • Consultation period for Consultation Paper 313 Product Intervention Power (CP 313) ended on 7 August 2019
  • May not become a regulatory guide until after September 2020 unless ASIC believes there is risk of significant consumer harm if delayed
  • Initiatives likely to be delayed

    Initiative What When
    Enforceable industry codes
  • Allows ASIC to designate enforceable code provisions in financial services industry codes
  • Some of these codes will become mandatory
  • Breaching codes may attract civil penalties
  • Consultation period for draft legislation ended on 28 February 2020
  • Legislation expected to pass by December 2020
  • Ongoing fee disclosure and disclosure of lack of independence Draft exposure bill requires:
  • Financial service licensees and their authorised representatives who provide personal advice to retail clients to include a statement in the FSG that they are not independent (if applicable) and why; and
  • Financial service providers must:
    1. Seek annual renewal from clients for all ongoing fee arrangements;
    2. Disclose in writing the total fees to be charged;
    3. Set out the services that will be provided during the next 12 month period; and
    4. Obtain written consent to deduct fees from the client’s account under an ongoing fee arrangement
  • Consultation period for draft legislation ended on 28 February 2020
  • Legislation expected to pass by December 2020
  • New financial adviser disciplinary system The Royal Commission recommended a new disciplinary system and single disciplinary body for financial advisers. 

    A consortium of financial planning groups intended to fund and establish a code-monitoring body, however the Government terminated this plan and will establish the new body.
  • No draft legislation has been released
  • The Government intends to establish the new body in early 2021, however we anticipate that this will be delayed until mid-2021 at the earliest
  • This means there will a Code of Ethics (we anticipate that this will come in from January 2021) but there will be no body to monitor compliance with the Code
  • Breach reporting requirements;

    Compulsory reference checking; and

    Misconduct investigation and remediation obligations
    A draft exposure bill for all of this legislation requires:
  • A compulsory scheme for checking references for prospective financial advisers;
  • Strengthened breach reporting requirements for licensees; and
  • Licensees must investigate misconduct by their financial advisers and appropriately remediate clients affected by the misconduct
  • Consultation period for draft legislation addressing all of these recommendations ended on 28 February 2020
  • Legislation originally intended to pass on 1 July 2020, but now not expected to pass until mid-2021

  • If you or your compliance team need help planning for these changes, get in touch – we’d be happy to help.

    Charmian Holmes, Simon Carrodus and Lydia Carstensen

    May 2020

    1See Treasury’s media release: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/update-implementation-banking-superannuation-and; and also see ASIC’s media release “20-109MR ASIC defers commencement of mortgage broker reforms and design and distribution obligations” dated 8 May 2020.

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