AFSL legislation updates & what you need to know

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Topics: Responsible Manager CPD 

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While many of us were counting down the days to the end of an unprecedented year, December 2020 represented a busy time in Parliament; legislation implementing some of the key recommendations from the Financial Services Royal Commission was introduced (and has now passed). In this article, we look at the key regulatory items contained within the government’s latest financial services reform bills and what your organisation needs to do to prepare.

Disclosure of lack of independence

What’s in the Bill?

‘Independence’ and ‘independent’ are already restricted terms under subsection 923A(1) of the Corporations Act, meaning that they can only be used to describe financial advice services if the provider meets the criteria. Moving forward, providers who are not independent must explicitly declare this to potential customers.

What it means for you

If your licensee does not meet the classification of ‘independent’, then your Financial Services Guide must include a statement that declares this (ie: that the providing entity is not independent, impartial or unbiased in relation to the provision of personal advice) and explains the reasons why. If this change is required, you may wish to consider what other forthcoming updates need to be made to your FSG and make them all at once.

Date of effect: 1 July 2021

Ongoing fee arrangements

What’s in the Bill?

The new legislation extends the requirement to provide fee disclosures and obtain written consent from the client for all ongoing fee arrangements. This has been amended to an annual process and takes into account all clients, not just those who entered into an arrangement prior to 1 July 2013. Similarly, the client must provide written consent every year.

What it means for you

The legislation sets out a number of key items that must be included in the Fee Disclosure Statement, as well as requiring it to be issued at the same time every year. Although the legislation removes the need for the provision of a ‘renewal notice’, there are still a lot of procedural changes that will need to be made to accommodate the annual arrangements. Your organisation should definitely be on the front foot in terms of ensuring all responsible managers and representatives are aware of the new requirements and how this will impact the provision of advice services to existing clients.

Date of effect: 1 July 2021

Breach reporting

What’s in the Bill?

AFS licensees are currently required to notify ASIC if they (or their representatives) breach their license obligations. From October 2021, a new set of rules relating to reporting incidents will take effect.

The legislation reclassifies the types of incidents that must be reported to ASIC, which will be known as ‘reportable situations’. They include situations where a significant breach has already occurred as well as investigations that may be undertaken by a licensee to determine whether a significant breach has or will occur. Other reportable situations include conduct that constitutes gross negligence or fraud, misleading or deceptive conduct and serious compliance concerns.
Another key change is that licensees must now report on concerns that they have in relation to a representative (a financial adviser or broker) who is operating under another licensee.

What it means for you

While breach reporting is not a new concept, you will need to be very clear about their new obligations, in particular what constitutes a reportable situation. There are also changes to timeframes and processes which will need to be inserted into existing procedures. Similarly, the addition of the requirement to report on misconduct by representatives working for other licensees will need to be handled carefully, as guided by the licensee’s compliance framework.

Date of effect: 1 October 2021

Reference checking and information sharing

What’s in the Bill?

Another measure intended to prevent misconduct by individuals acting as representatives of a licensee is the extension of specific reference checking and information sharing protocols in relation to the employment of representatives to include credit licensees and mortgage brokers. Failure to comply may result in civil penalties for the licensee.

What it means for you

The amendment aims to ensure that there is consistent practice throughout the industry, and that employment information will be available about all financial advisers and mortgage brokers. This means that any past misconduct conducted by a representative that is moving from one industry to another (for example, a financial planner who then seeks to become a broker) can be ascertained more readily.

Date of effect: 1 October 2021

Anti-hawking Provisions

What’s in the Bill?

Anti-hawking provisions now apply to all financial products. Essentially, licensees and their representatives cannot make unsolicited contact with a consumer in order to sell or issue a financial product. For a consumer to consent to contact, they must make a positive, voluntary and clear request to be contacted about the financial product, before the contact is initiated. Consumers also have the power to withdraw consent at any time.

What it means for you

It is important to review your consumer engagement processes and, if necessary, implement a mechanism to capture consent. General advertising is still acceptable, as well as responding to contact from a potential customer, but it is important that all members of your team are aware of the actions that may constitute hawking.

Date of effect: 5 October 2021

Claims handling

What’s in the Bill?

From 1 January 2022, if you carry on a business in Australia of providing claims handling and settling services, you must hold an AFS licence authorising you to provide such services (a ‘claims handling authorisation’).

What it means for you

There is some debate as to whether this license variation is required for financial advice providers (such as risk specialist advisers who help clients with life insurance claims). ASIC has issued a draft information sheet which RMs should review, however, it may be savvy to delay the application for such a license until there is clear confirmation about who is/isn’t covered.

Date of effect: 1 January 2022

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