Industry braces for financial services reform

THE far-reaching provisions of the Financial Services Reform Act will hit a wide range of targets, from financial planners and insurance providers through to real estate agents and lawyers, when it becomes law on March 11 next year.

Touted by experts as “bigger than the GST”, the FSR Act will introduce a degree of regulation not previously experienced by the financial services industry.

And professionals in other industries also are set to have their ability to give advice and suggestions on financial products curtailed.

The legislation is designed to provide a single, streamlined licensing and regulatory regime and will require any professionals who provide a financial service to obtain an Australian Financial Services licence or become an authorised representative of a licence-holder.

There is still some confusion over who exactly will be caught by the FSR Act and Australian Securities and Investments Commission WA commissioner Michael Gething suggested businesses review their practises and seek advice now to see whether they would be touched by the provisions.

Hardest hit by the legislation is the insurance industry, which will be coming under a regulatory regime for the first time.

Clayton Utz financial services director Karen Den-Toll said the FSR Act impact would not be as great on the financial planning area.

“The financial planning industry has been regulated under the Corporations Act for some time, so for them the FSR Bill is more of an evolution, rather than a revolution,” Ms Den-Toll said.

And while other professionals may not consider being caught by the FSR Act, Ms Den-Toll said certain activities of accountants, lawyers and stockbrokers now would be regulated.

“Stockbrokers have new obligations under the FSR Bill, which will affect the way they advise in securities and they are saying the new written disclosure requirements won’t work for them because they will prevent them working at the speed they are used to,” she said.

“Standard accounting activities are not in the provisions, so accountants have some relief … unless they start giving clients advice in relation to buying a financial product.

“Lawyers have a slightly wider range when talking about a financial product in the scope of the law, but they may need a licence if they start telling clients about superannuation and other financial products.”

Real estate agents who recommend home and contents insurance and travel agents who recommend travel insurance also may have to look at obtaining a licence or becoming an authorised representative.

The FSR Act is promoting a new level of openness and transparency in the financial services industry, asking all financial service provides to supply their clients with a series of disclosure documents.

A Financial Services Guide is needed to inform consumers about the licensee or authorised representative, a Product Disclosure Statement tells consumers about the product and any other relevant information, and the Statement of Advice is a written document of the advice given.

These new disclosure requirements presented fresh problems for insurance, multi-agents and brokers, according to Insurance Agents Association of Australia WA representative Ned Schepis , as these businesses now would be forced to tell customers how much commission they earned from selling a particular product.

“I can’t see any argument that shows any advantage or gain for consumers or businesses by disclosing commissions, the premiums do not change whether commission is paid or not,” Mr Schepis said.

Mr Gething said the new requirements were simply taking the best disclosure practises from existing professions, noting the FSG was not dissimilar to Advisory Services Guides already used under some current regimes.

The PDS also was similar to the Key Feature Statements and Customer Information Brochures already provided by some financial services.

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