Reform Looms

A MAJOR shake up is due to hit Australia’s financial services industry with the Financial Services Reform Bill (FSRB) tipped to become law on October 1.

While there will be a two-year roll-out of the legislation, some in the industry are angry because they are yet to see the proposed regulations, despite the fact that their implementation is just six weeks away.

When in place, the legislation will replace the current fragmented regulation with a harmonised regime that will ensure a consistent level of market integrity and consumer protection across the financial services industry.

The FSRB proposes three key reforms: a harmonised licensing, disclosure and conduct framework for all financial service providers; a consistent and comparable framework for financial product disclosure; and a streamlined regulatory regime for financial markets and clearing and settlement facilities.

The Bill proposes to substantially simplify licensing procedures and introduce the concept of corporate authorised representatives, allowing organisations to authorise an individual to perform specified services for a licensee.

There also will be significant changes to regulations concerning product disclosure. A retail client must receive a Product Disclosure Statement to assist in making an informed decision, and ongoing disclosure is required throughout the life of a product.

These changes have been introduced to help consumers understand and compare different financial products available from the industry.

The financial services industry has been receptive to the proposed reforms and many industry participants are keen for the new regime to start.

National Insurance Brokers Association (NIBA) chief executive officer Noel Pettersen said the FSRB was a good thing for the industry, as it would bring help harmonise the licensing requirements of all financial services providers. It also would everyone up to speed with exactly what was required of them.

“There will be some problems for those businesses that do not belong to NIBA as they have missed out on the comprehensive information and advice about the FSRB prepared by NIBA,” he said.

“There also will be an attrition of smaller companies, and this is a good thing for the industry as it will weed out the bad apples who will not be able to continue with the practices of the past.”

West Coast Risk Management general manager Kim Hanson agreed with these comments, suggesting a lot of smaller agencies would drop out of the market or sell out, as it would be too hard or too expensive for them to comply with the new legislation.

“This (the FSRB) is good for the industry as it will tighten it up dramatically. In business terms it will mean that you have to dot your Is and cross your Ts and ensure that you thoroughly explain and disclose everything to your customers,” Mr Hanson said.

The biggest problem associated with the introduction of the FSRB, according to Smith Coffey Insurance Brokers director Harry Lauren, was the increased costs facing businesses in order to meet the terms of the new compliance training requirements for disclosure.

“There will be a larger amount of paperwork required, with substantial staff compliance training needed to bring staff up to date, not with product but with disclosure of information and what is now required,” Mr Lauren said.

“It is an area where consumers were relatively well protected by legislation in the first place.”

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