Explanatory Statement

Issued by authority of the Minister for Financial Services and Superannuation

Corporations Amendment (Intra-fund Advice Fees) Regulation 2013

Corporations Act 2001

The Corporations Act 2001 (the Act) provides for the regulation of corporations, financial markets, products and services, including in relation to licensing, conduct, financial product advice and disclosure.

Subsection 1364(1) of the Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The Corporations Amendment (Intra-fund Advice Fees) Regulation 2013makesseveral amendments to the Corporations Regulations 2001 (the Principal Regulations). The amendments are in respect of the provisions relating to financial services licensees and representatives charging ongoing fees to clients as introduced by the Corporations Amendment (Future of Financial Advice) Act 2012.

Specifically, the amendments to the Principal Regulations rearrange existing Regulations that exempt 'product fees' from the definition of an 'ongoing fee arrangement', and further define a 'product fee' to include a fee for personal advice that may be collectively charged to members of a regulated superannuation fund under the Superannuation Industry (Supervision) Act 1993 (the SIS Act).

A draft of the Regulation was published on the Future of Financial Advice website on 19 April 2013, for a two week public consultation period.

Two formal submissions were received from stakeholders (from the Financial Services Council and the Association of Financial Advisers). The submissions commented on the policy intent behind the Regulation and provided technical comments on the draft Regulation.

In addition to formal submissions, two stakeholders also provided comments on the draft Regulation. One was on the policy intent, the other provided comments on technical drafting issues.

Several minor technical changes were made to the draft Regulation in response to stakeholder feedback. For example, changes were made to the draft Regulation to ensure that, where the draft Regulation referenced the SIS Act, the framing of the reference was consistent with the negative framing of the relevant provision of the SIS Act.

Details of the Regulation are set out in Attachment A. A statement of the Regulation's compatibility with human rights is set out in Attachment B.

The Regulation is 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 Regulation may be exercised.

The Regulation commences on the day after it is registered.

ATTACHMENT A

Details of the Corporations Amendment (Intra-fund Advice Fees) Regulation 2013

Section 1 - Name of Regulation

This section specifies the name of the Regulation as the Corporations Amendment (Intra-fund Advice Fees) Regulation 2013(the Regulation).

Section 2 - Commencement

This section specifies that the Regulation commences the day after registration.

Section3 - Authority

This section provides that the authority for making the Regulation is the Corporations Act 2001(the Act).

Section 4 - Schedule(s)

This section provides that Schedule 1 amends the Corporations Regulations 2001 (the Principal Regulations).

Schedule 1 - Amendments of the Corporations Regulations 2001

Item 1 prescribes the kinds of arrangements that are not 'ongoing fee arrangements' for the purposes of subsection 962A(5) of the Act. Existing subregulation 7.7A.10(2) provides that an arrangement is not an 'ongoing fee arrangement' to the extent the fee payable under the arrangement is a 'product fee' (as defined in subregulation 7.7A.10(3)). For the purposes of rearranging the subregulations and further defining a 'product fee', existing subregulations 7.7A.10(2) and (3) are repealed and replaced with new subregulations 7.7A.10(2) and (3).

Subregulation 7.7A.10(2) specifies that an arrangement that is described in subsection 962A(1) or (2) of the Act is not an 'ongoing fee arrangement' to the extent that the fee under the arrangement is a 'product fee'.

Subregulation 7.7A.10(3) defines a 'product fee' as:

•

a fee charged by a product issuer to a retail client for the administration, management and operation of a financial product. For example, a monthly administration or investment fee, charged by the trustee of a superannuation fund or the responsible entity of a managed investment scheme, or a monthly account keeping fee, charged by the provider of a basic deposit product; and

•

a fee that is a cost of providing financial product advice that is not prohibited from being passed on to a member of a regulated superannuation fund under section 99F of the Superannuation Industry (Supervision) Act 1993 (the SIS Act).

Subregulation 7.7A.10(3) is not intended to exempt fees charged for the administration, management or operation of a financial product in circumstances where these fees are used to subsidise the provision of personal financial advice, other than the type not prohibited under section 99F of the SIS Act (commonly referred to as intra-fund advice).

As product fees are not ongoing fee arrangements, they are exempt from the requirements in Division 3 of Part 7.7A of the Act (which relates to charging ongoing fees to retail clients).

ATTACHMENT B

Statement of Compatibility with Human Rights

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

Corporations Amendment (Intra-fund Advice Fees) Regulation 2013

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

The Regulation rearranges existing Regulations that exempt 'product fees' from the definition of an 'ongoing fee arrangement', and further defines a 'product fee' to include a cost that is not prohibited from being passed on to a member of a regulated superannuation fund under the Superannuation Industry (Supervision) Act 1993.

Human rights implications

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

Conclusion

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