FOFA Bandwagon Takes Unexpected U-Turn as Advisors Brace for Compliance Quagmire
by
George Tchetvertakov
With regulators in the process of reforming financial regulation worldwide, the Australian Senate gets involved by voting to repeal previous regulation designed to protect retail investors. Political games in economic circles.
In an unexpected U-turn, Australian policy-makers have decided to reject the repealing of the just recently deployed Future of Financial Advice (FOFA) rules applying to all Australian financial advisers, intended to protect retail investors in the advisory and discretionary broking space.
Parliamentary debate came to a crescendo in an a rarely seen late evening sitting, where a 32-30 vote ensured currently active government changes would be scrapped. The vote effectively means financial planners will have to contact their customers and obtain permission/authorisation for trading activity to be legitimate.
The incumbent Liberal government was aiming to repeal the FOFA regulations and make financial advisory services more 'laissez-faire', or in other words, operate under less bureaucracy. However, such intentions have attracted unscrupulous market operators seeking to take advantage of looser disclosure measures.
Regardless of the political reasoning behind this most economic of issues, the fact remains that the advisory industry in Australia now faces a scramble to comply with the roundabout turn embarked upon by MPs.
Crossbench Senators Jacqui Lambie and Ricky Muir have removed their previous support for the federal government's wind back of FOFA reforms first introduced by the Labor Party. That has sparked widespread praise from consumer advocates but also concerns from some in the sector that vast swaths of the industry could effectively be operating outside the law.
The decision has divided public opinion in the financial services community, with brokers and advisers feeling hard done by and retail investors broadly welcoming the move.
Ms. Lambie was one of the biggest supporters of FOFA guidelines, “I will not allow the Liberal Party and their supporters to wind back consumer protection at a time when the financial advice industry has been shown to act in a scandalous manner."
Financial Services Council (FSC) Chief Executive, John Brodgen, criticised the change as it would cause unnecessary uncertainty, "The industry has been working under the current FOFA arrangements since July 1st. To turn around and just throw them out is irresponsible." Adding, "This disallowance motion will create a legal quagmire that will lead to disruption and unnecessary costs and will reduce affordability and accessibility of financial advice."
If the government's regulations are disallowed, previous legislation passed by the Gillard government would come into force. These laws include a requirement for clients who signed up after July 2013 to 'opt-in' every two years, a broader duty for advisers to act in the client's best interests and tougher restrictions on referral/affiliate Payments from financial intermediaries to advisors.
In addition, advisers would have to provide retrospective fee disclosure statements to all clients who initiated a broker-client relationship before July 2013.
In an emergency statement published in the late evening hours , the Australian Securities and Investments Commission (ASIC) acknowledged the disallowance by stating, “ASIC will take a practical and measured approach to administering the law as it now stands following the disallowance of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014."
In an ominous statement the regulator added, “…many Australian financial services (AFS) licensees will now need to make systems changes. We will work with Australian financial services licensees, taking a facilitative approach until 1st of July, 2015."
In an unexpected U-turn, Australian policy-makers have decided to reject the repealing of the just recently deployed Future of Financial Advice (FOFA) rules applying to all Australian financial advisers, intended to protect retail investors in the advisory and discretionary broking space.
Parliamentary debate came to a crescendo in an a rarely seen late evening sitting, where a 32-30 vote ensured currently active government changes would be scrapped. The vote effectively means financial planners will have to contact their customers and obtain permission/authorisation for trading activity to be legitimate.
The incumbent Liberal government was aiming to repeal the FOFA regulations and make financial advisory services more 'laissez-faire', or in other words, operate under less bureaucracy. However, such intentions have attracted unscrupulous market operators seeking to take advantage of looser disclosure measures.
Regardless of the political reasoning behind this most economic of issues, the fact remains that the advisory industry in Australia now faces a scramble to comply with the roundabout turn embarked upon by MPs.
Crossbench Senators Jacqui Lambie and Ricky Muir have removed their previous support for the federal government's wind back of FOFA reforms first introduced by the Labor Party. That has sparked widespread praise from consumer advocates but also concerns from some in the sector that vast swaths of the industry could effectively be operating outside the law.
The decision has divided public opinion in the financial services community, with brokers and advisers feeling hard done by and retail investors broadly welcoming the move.
Ms. Lambie was one of the biggest supporters of FOFA guidelines, “I will not allow the Liberal Party and their supporters to wind back consumer protection at a time when the financial advice industry has been shown to act in a scandalous manner."
Financial Services Council (FSC) Chief Executive, John Brodgen, criticised the change as it would cause unnecessary uncertainty, "The industry has been working under the current FOFA arrangements since July 1st. To turn around and just throw them out is irresponsible." Adding, "This disallowance motion will create a legal quagmire that will lead to disruption and unnecessary costs and will reduce affordability and accessibility of financial advice."
If the government's regulations are disallowed, previous legislation passed by the Gillard government would come into force. These laws include a requirement for clients who signed up after July 2013 to 'opt-in' every two years, a broader duty for advisers to act in the client's best interests and tougher restrictions on referral/affiliate Payments from financial intermediaries to advisors.
In addition, advisers would have to provide retrospective fee disclosure statements to all clients who initiated a broker-client relationship before July 2013.
In an emergency statement published in the late evening hours , the Australian Securities and Investments Commission (ASIC) acknowledged the disallowance by stating, “ASIC will take a practical and measured approach to administering the law as it now stands following the disallowance of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014."
In an ominous statement the regulator added, “…many Australian financial services (AFS) licensees will now need to make systems changes. We will work with Australian financial services licensees, taking a facilitative approach until 1st of July, 2015."
Interactive Brokers Expands Offerings with Daily Options on French Stocks
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
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Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
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