Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)General outline and financial impact
Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020
On 4 February 2019, the Government released its response to the Financial Services Royal Commission Final Report entitled Restoring trust in Australia's financial system. The Government's response committed to taking action on all the recommendations of the Financial Services Royal Commission, and made additional commitments to address the issues identified by Commissioner Hayne.
This package implements a further four recommendations of the Financial Services Royal Commission to improve consumer protections.
The Financial Services Royal Commission Final Report has been certified as being informed by a process and analysis equivalent to a Regulation Impact Statement for the purposes of the Government decision to implement this reform.
The Financial Services Royal Commission Final Report can be accessed through the Australian Parliament House website. [1]
The following table provides a summary of the reforms implemented by this package and the primary area of law that is being amended:
| Chapter | Recommendation implemented | Primary area of law amended |
| 1 | 2.1 - Annual renewal and payment | Chapter 7 of the Corporations Act. |
| 2 | 2.2 - Disclosure of lack of independence | Chapter 7 of the Corporations Act. |
| 3 | 3.2 - No deducting advice fees from MySuper accounts
3.3 - Limitations on deductive advice fees from choice accounts |
Part 2C and 11A of the SIS Act. |
Schedule 1 - Ongoing fee arrangements (recommendation 2.1)
Schedule 1 to the Bill amends the Corporations Act to require financial services providers that receive fees (fee recipients) under an ongoing fee arrangement to:
- •
- provide clients with a single document each year which outlines the fees that will be charged and the services which the client will be entitled to in the following 12 months and which seeks annual renewal from clients for all ongoing fee arrangements; and
- •
- obtain written consent before fees under an ongoing fee arrangement can be deducted from a client's account.
Date of effect: Schedule 1 commences on 1 July 2021.
Proposal announced: The proposal was announced on 4 February 2019 as part of the Government's response to the Financial Services Royal Commission.
Financial impact: Nil.
Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights -Chapter 4, paragraphs 4.1 to 4.6.
Compliance cost impact: The Office of Best Practice Regulation has agreed to an estimated average annual compliance cost of $28.4 million for the measures relating to recommendation 2.1. This includes $11.7 million of upfront costs in the year of commencement, followed by an annual compliance cost of between $21.2 million and $33.7 million in subsequent years.
Schedule 2 - Disclosure of lack of independence (recommendation 2.2)
Schedule 2 to the Bill amends the Corporations Act to require a providing entity (a financial services licensee or authorised representative) to give a written disclosure of lack of independence where they are authorised to provide personal advice to a retail client.
Date of effect: Schedule 2 commences on 1 July 2021.
Proposal announced: The proposal was announced on 4 February 2019 as part of the Government's response to the Financial Services Royal Commission.
Financial impact: Nil.
Human rights implications: Schedule 2 does not raise any human rights issues. See Statement of Compatibility with Human Rights- Chapter 4, paragraphs 4.7 to 4.10.
Compliance cost impact: This measure results in low increases to compliance costs.
Schedule 3 - Advice fees in superannuation (recommendations 3.2 and 3.3)
Schedule 3 to the Bill amends the SIS Act to provide greater protection for superannuation members against paying fees for no service. The amendments increase the visibility of advice fees for all superannuation products and prohibit the charging of ongoing advice fees from MySuper products.
Date of effect: Schedule 3 applies from 1 July 2021, with a 12-month transitional period commencing 1 July 2021 for arrangements entered into before 1 July 2021.
Proposal announced: The proposal was announced on 4 February 2019 as part of the Government's response to the Financial Services Royal Commission. Some changes to the Government's response concerning the charging of fees to MySuper products have not previously been announced.
Financial impact: Nil.
Human rights implications: Schedule 3 does not raise any human rights issues. See Statement of Compatibility with Human Rights- Chapter 4, paragraphs 4.11 to 4.14.
Compliance cost impact: This measure will result in a small increase to compliance costs.