Explanatory Statement

Issued by authority of the Minister for Revenue and Financial Services

Corporations Legislation Amendment (Professional Standards of Financial Advisers) Regulations 2017

Corporations Act 2001

Corporations (Fees) Act 2001

Corporations Legislation Amendment (Professional Standards of Financial Advisers) Regulations 2017

Section 1364 of the Corporations Act 2001 (the Act) provides that the Governor-General may make regulations prescribing matters necessary or convenient to be prescribed, for carrying out or giving effect to the Act.

Section 922A of the Act provides that the regulations may prescribe the maintenance of registers relating to financial services. Section 926B of the Act states these regulations may provide that Part 7.6 of the Act applies as if specified provisions were omitted, modified or varied as specified in the regulations.

Section 8 of the Corporations (Fees) Act 2001 (the Fees Act) allows the Governor-General to make regulations which prescribe fees for chargeable matters by specifying an amount as the fee or by specifying a method for calculating the amount of the fee. The regulations may prescribe two or more fees for the same chargeable matter or different fees where electronic means are used.

The purpose of the Corporations Legislation Amendment (Professional Standards of Financial Advisers) Regulations 2017 (the Regulations) is to update the regulations relating to the Register of Relevant Providers (the Register) so that they are consistent with the changes made in the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 (Professional Standards Act). This primarily involves repealing regulations which are moved into the Act by the Professional Standards Act and updating referencing.

Two recent inquiries have uncovered shortcomings in the education, ethical and professional standards in the financial advice industry. Theses inquiries were the Financial System Inquiry (FSI) which released its report on 7 December 2014 and the Parliamentary Joint Committee on Corporations and Financial Services (PJC) which reported on 19 December 2014.

The FSI found that the professional and education standards of financial advisers were not sufficiently high to protect consumers.

The PJC developed a comprehensive model for raising standards. It recommended that financial advisers should be required to hold a degree or higher qualification, pass an exam, complete a professional year, complete ongoing professional development and comply with a Code of Ethics. It also recommended that the Register be enhanced so that a customer could verify whether the financial adviser had complied with the new requirements.

The Professional Standards Act creates new education training and professional standards for financial advisers. Relevantly, the Professional Standards Act amends the provisions relating to the Register so that the Register includes information about:

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the financial adviser's principal place of business;

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the compliance scheme which monitors and enforces the financial adviser's compliance with the Code of Ethics;

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any breaches of the Code of Ethics and the sanctions imposed;

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whether a financial adviser is completing their professional year; and

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whether the financial adviser failed to complete their ongoing professional development for the last year.

The provisions relating to the Register are currently contained in the Corporations Regulations 2001 (the Corporations Regulations) and a schedule to the Corporations Regulations. This is potentially confusing and inconsistent with the approach used for other Registers maintained by ASIC where the relevant provisions are in the Act, rather than the Corporations Regulations.

The Regulations, together with the Professional Standards Act, moves the provisions relating to the Register into the Act. The Regulations also amend the Corporations (Fees) Regulations 2001 (Fee Regulations) so that appropriate fees apply to notices about the new information included on the Register or provided to the Australian Securities and Investments Commission (ASIC).

The benefits of the proposed amendments are:

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consumers are able to easily verify that their financial adviser has met the new education, training and professional standards;

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consumers are able to search for financial advisers in their area by using information about the financial adviser's principal place of business; and

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greater transparency because the provisions relating to the Register appear in the Act, rather than the Corporations Regulations.

Details of the Regulations are set out in the Attachment.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Act does not specify any conditions that need to be satisfied before the power to make the Regulations may be exercised.

The Regulations were released for targeted consultation with consumer groups, professional associations, regulators, financial services and banking associations from 4 April 2016. This was the group of stakeholders who had been actively involved in the public consultation on the Professional Standards Act. The formal consultation period closed on 15 April 2016 but Treasury continued to receive comments after this date. Stakeholders did not raise any concerns with the Regulations.

The Regulations commence on the later of the day after they are registered and the day when the Professional Standards Act commences.

ATTACHMENT

Details of the Corporations Legislation Amendment (Professional Standards of Financial Advisers) Regulations 2017

Section 1 - Name of the Regulations

This section provides that the name of the Regulations is the Corporations Legislation Amendment (Professional Standards of Financial Advisers) Regulations 2017.

Section 2 - Commencement

The Regulations commence on the later of the day after it is registered and the day when the Professional Standards Act commences.

This ensures that the regulations relating to the Register are not repealed or amended until the commencement of the new provisions relating to the Register in the Professional Standards Act.

Section 3 - Authority

The Regulations are made under the Act and the Fees Act.

Section 4 - Schedules

Item 1

Item 1 updates subregulation 9A(1) of the Fees Regulations so that fees are imposed for the new notice provisions relating to ongoing professional development in subsection 922HB(1) of the Professional Standards Act and failures to comply with the Code of Ethics in subsection 922HD(1) of the Act.

The new subregulation 9A(1) imposes fees for notices about:

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authorisations of representatives under subsection 916F(1) of the Act;

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changes in the details of an authorised representative under subsection 916F(3) of the Act;

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revocations of authorisations under subsection 916F(3) of the Act;

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persons who become relevant providers under subsection 922D(1);

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changes in the details for relevant providers under subsection 922H(1);

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a relevant provider's failure to comply with the continuous professional development requirements in subsection 922HB(1); and

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breaches of the Code of Ethics and the sanctions imposed in subsection 922HD(1).

Item 2

Item 2 amends the note so that it explains that only some of the notice provisions can be combined into a single notice.

Notices lodged under subsection 922HB(1) (failure to comply with the continuous professional development requirements) cannot generally be combined with another notice because they need to be submitted at a different time, namely, within 30 business days of the end of the licensee's continuous professional development (CPD) year, rather than within 30 business days of the relevant event.

Similarly, notices lodged under subsection 922HD(1) (failure to comply with the Code of Ethics) cannot be combined with another notice because they are submitted at a different time and must be submitted by a different entity (the monitoring body, rather than the licensee).

Item 3

Item 3 makes it explicit that there is no fee payable for a licensee to initially notify ASIC of its CPD year under section 1546X of the Professional Standards Act.

Item 4

Item 4 amends the definition of "prescribed amount" in subregulation 9A(5) of the Fees Regulations so that it includes the new notice provisions in subsections 922HB(1) (relating to continuous professional development) and 922HD(1) (relating to failures to comply with the Code of Ethics).

The fees for lodging notices under these sections are the same as the existing fees for lodging notices about changes in the details of a relevant provider under subsection 922H(1) of the Act.

Item 5

Item 5 amends the definition of "relevant number of persons" in subregulation 9A(5) of the Fees Regulations so that it includes the new notice provisions in subsections 922HB(1) (relating to continuous professional development) and 922HD(1) (relating to failures to comply with the Code of Ethics).

This amendment ensures that the number of relevant providers listed on the notice is taken into account in determining the applicable fee for the new notice provisions, as is currently the case with the other notice provisions.

Item 6

The Professional Standards Act moves the definition of a relevant provider from section 922C to section 910A of the Act so that it is in the same section as the other definitions for terms used in the Corporations Act. Item 6 amends subregulation 9A(5) of the Fees Regulations by replacing the reference to section 922C of the Act with section 910A of the Act.

Item 7

Item 7 introduces late fees for licensees who failed to lodge a notice under the new notice provisions within the lodgement periods. These lodgement periods are set out in new section 922L of the Professional Standards Act. They are:

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for notices relating to a relevant provider's failure to comply with the CPD requirement under subsection 922HB(1), 30 business days from the end of the licensee's CPD year; and

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for notices relating to breaches and sanctions under subsection 922HD(1), 30 business days from the date when the breach of the Code of Ethics occurred or the sanction was imposed.

The late fee is calculated in the same way as for other notices that relate to relevant providers.

The amount of the late fee depends on:

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the number of relevant providers to which the notice relates; and

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whether the notice is more or less than one month late.

A lower penalty (the "lower amount") applies to notices that are less than one month late and a higher penalty ("the higher amount") applies to notices that are more than one month late.

The amount of the late fee is calculated by multiplying the relevant amount (the "lower amount" or "higher amount") by the number of relevant providers to which the notice relates.

Item 8

The Professional Standards Act and items 15-20 of the Regulations move the provisions relating to the Register from the Corporations Regulations to the Act. This item removes a note which refers to the former location of the Register provisions.

Items 9-10

Items 9 and 10 insert the references to the new notice provisions (subsections 922HB(1) and 922HD(1)) into the definitions of "relevant number for the higher amount" and "relevant number for the lower amount" in paragraph 9B(5)(b) of the Fees Regulations. These amendments to the definitions ensure that the late fees for the new notices are calculated in the same way as for the notices that are already lodged.

Item 11

Item 11 repeals Division 2 of Part 3 of the Fees Regulations. This division contained transitional provisions relating to the payment of fees before 1 October 2015 and its operation is now spent.

Item 12

Item 12 corrects an incorrect reference in item 31A of the table in Schedule 1 of the Fees Regulations.

Item 13

Item 13 updates the reference in column 2, paragraph (d) of table item 31A of Schedule 1 so that it refers to the new location for the section listing the contents on the Register in section 922Q of the Act.

Item 14

Item 14 inserts a fee of $250 in Schedule 1 to the Fees Regulations for a notice lodged under new subsection 922HA(2) in the Professional Standards Act which allows a licensee to change the start date of its CPD year subject to lodging a notice informing ASIC of the new start date. A notice must also be lodged under new subsection 922HA(1) by a newly licensed licensee informing ASIC of the start date of its CPD year, but this notice does not attract a lodgement fee.

Item 15

Item 15 repeals regulations 7.6.02AI, 7.6.06A and 7.6.06B of the Corporations Regulations. These regulations impose an obligation on licensees to provide information about relevant providers to ASIC, require ASIC to assign a unique number to all relevant providers and require ASIC to establish and maintain the Register.

The Professional Standards Act inserts equivalent obligations in Division 9 of Part 7.6 of the Corporations Act.

Item 16

Item 16 deletes the reference to the Register in regulation 7.6.06C of the Corporations Regulations which grants ASIC the power to correct any error or omission from certain named registers.

The reference to the Register is no longer required as the Professional Standards Act amends the Corporations Act to grant ASIC the power to amend the Register in new section 922S.

Items 17-18

Items 17 and 18 update the references in paragraph 9.1.01(q) and paragraph 9.1.02(q) of the Corporations Regulations so that they refer to the new location of the relevant provisions.

Items 19-20

Items 19 and 20 repeal Part 10.20 and Schedule 8D because the Professional Standards Act moves these provisions to the Corporations Act.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Corporations Legislation Amendment (Professional Standards of Financial Advisers) Regulations 2017

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

This Legislative Instrument is part of the reforms to raise the professional standards of financial advisers by requiring advisers to hold a degree, pass an exam, complete a professional year, undertake ongoing professional development and comply with a Code of Ethics.

The Legislative Instrument amends the Corporations Regulations 2001 by repealing the provisions relating to the Register of Financial Advisers. These provisions are being moved to the Corporations Act 2001 by the Professional Standards of Financial Advisers Act 2016.

The Instrument also amends the Corporations (Fees) Regulations 2001 so that fees are charged for notices relating to compliance with the new ongoing professional development and the Code of Ethics requirements.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.

It does not infringe the right to protection from arbitrary or unlawful interference with privacy. While information about a relevant provider's date and place of birth must be notified to ASIC, this information is not displayed on the Register and cannot be inspected by the public.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.