New Financial Year, New Changes

With the new financial year commencing, there are a raft of changes that your business needs to ensure it has in place to meet legislative requirements.  From changes to Fee Disclosure and Opt In, to new requirements to disclose lack of independence to new breach reporting requirements, and everything in between.

In this article, we will go through all of them.

Disclosure on lack of independence

Out of all of the changes, this one is probably, in my opinion, the easiest to implement for all financial planning licensees.

The Disclosure of Lack of Independence requires a statement to be included on the first substantive page of the financial services guide (“FSG”).

The first substantive page will be the second page of the FSG after the title page.  In ASIC’s guidance, it will be directly following the services the AFSL provides.

The statement must contain the following where relevant:

  • You are receiving commissions on the sale of life insurance products that are not rebated in full to clients.
  • You are wholly owned by an issuer of the financial products that you give personal advice on to retail clients.
  • Your AFSL, or another authorised representative that is authorised by your AFSL, receives commissions, volume-based payments or other gifts or benefits.

The statement MUST be in a box on that page and be the same font size as all other text in the FSG.  It is important to note that it CANNOT be a footnote.

For guidance and sample wording on what is expected, click here.

New Fee Disclosure and Opt-In requirements

For those who have been in the industry since 1 July 2013, you have become used to sending Fee Disclosure Statements every year and Renewal Notices (or Opt-In Notices) every two years.

The written consent must include the following:

  • The client/s’ name
  • Your name and contact details (the fee recipient)
  • an explanation of why you are seeking the client’s consent
  • information about either:
    • the amount of ongoing fees the client will pay during the upcoming year, or
    • if you cannot determine the exact amount, a reasonable estimate of the ongoing fee and the method you used to calculate the estimate
  • information about the frequency of ongoing fee deductions that the client will pay during the upcoming year
  • details about what accounts the fees will be deducted from and how much will be deducted out of each account
  • a statement about how long the consent will last
  • a statement to the effect that the client can vary or withdraw their written consent at any time, and
  • a date indicating when the consent was given by the client.

Unlike previous Renewal Notice requirements, the new written consent requirements are annual.

Click here for frequently asked questions regarding fee arrangements.

Breach Reporting

From the 1st of October 2021, enhanced breach reporting requirements will commence.  Under these new requirements, the following three circumstances require automatic reporting obligations:

Conduct constituting gross negligence or serious fraud

Breach or likely breach of a core obligation that is deemed significant

The definition of ‘core obligation’ largely reflects the existing list of obligations in section 912(1)(a) of the Corporations Act 2001 (Cth) and equivalent provision in the National Consumer Credit Protection Act 2009 (Cth).

The Act goes further and provides that several of those statutory obligations will now be taken to be ‘significant’, and therefore reportable, irrespective of the circumstances.

This includes a breach of any ‘obligation’ that:

  1. is subject to a penalty that includes imprisonment for a maximum period of three months or more (for dishonesty offences) or 12 months or more (in all other cases);
  2. constitutes a contravention of a civil penalty provision;
  3. constitutes a contravention of the prohibitions on misleading or deceptive conduct in the Corporations Act or ASIC Act 2001 (Cth); or
  4. results, or is likely to result, in material loss or damage to clients.

The range of breaches that will now automatically be considered ‘significant’ for reporting purposes is substantial.

Further, the scope for conduct to be considered misleading and deceptive (and therefore deemed significant) is wide and may encompass trivial misdescriptions that have no client impact.

An investigation into a breach or likely breach of a core obligation, and that investigation has continued for more than 30 days

If an investigation has continued for more than 30 days, it will become a reportable situation on Day 31. This will lead to a further reporting obligation once that investigation is concluded. The timing of when an investigation is found to have started and concluded will therefore be of critical importance for reporting purposes, and the Regulator has made it clear that it will be a matter of fact not for subjective determination by a licensee.

As is usually the case, an important term, being ‘investigation’ will be fact specific, and while undefined by the Act, it is acknowledged that it will vary depending on the size of the licensee’s business, their internal systems and processes, and the type of breach.

Complaints Handling

From the 5th of October 2021, you must be adhering to new Internal Dispute Resolution procedures.  These procedures, which were released in July 2020, outline how Financial Services Licensees must handle complaints.

RG271 sets out the following:

  • Reduced timeframes for responding to complaints (from 45 days to 30 days).  Please note that RG271 specifically states that it is CALENDAR DAYS and not business days.
  • What information is required in written response to allow consumers to decide whether to escalate their complaint.
  • Gives guidance about how firms can deal with representatives who are not acting in the client’s best interests.

It is also worth noting that under the new RG271 requirements, firms can no longer request additional time to respond to a complaint and, at the end of the IDR timeframe, must refer the complaint to AFCA.

Within your business planning and regular compliance committee meetings, it is important that you have implemented the requirements due from the 1st of July and have a plan in place to implement the additional changes.

If you need us to review your current IDR and Breach Management, please let us know.