Explanatory Memorandum(Circulated by authority of the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)
General outline and financial impact
The Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 (Bill) makes amendments to the Corporations Act 2001 (Corporations Act) to raise the education, training and ethical standards of financial advisers by requiring relevant providers (that is, financial advisers providing personal advice to retail clients on more complex financial products) to hold a degree (or higher or equivalent) qualification, undertake a professional year, pass an exam, undertake continuous professional development (CPD) and comply with a Code of Ethics (Code).
Transitional arrangements will apply to 'existing providers' (that is, those advisers who are relevant providers before the new requirements come into effect). A restriction on the use of the titles 'financial adviser' and 'financial planner' will also be introduced so that they can only be used by a person who is authorised to provide personal advice to retail clients on relevant financial products.
Date of effect: The substantive provisions in Schedule 1 commence on the earlier of a date set by proclamation or six months after the day the Bill receives Royal Assent. This is designed to ensure that the Bill commences at the same time as the Corporations Legislation Amendment (Professional Standards of Financial Advisers) Regulation 2017.
The preliminary sections commence from the date of Royal Assent.
Proposal announced: The proposal was announced by the Treasurer as part of the Government's response to the Financial System Inquiry (FSI) on 20 October 2015.
Human rights implications: This Bill does not raise any human rights issues. See Chapter 8, Statement of Compatibility with Human Rights.
Compliance cost impact: The compliance costs associated with this Bill are $165.1 million.
Summary of regulation impact statement
Regulation impact on business
Impact: The reforms to raise the professional, ethical and education standards of financial advisers will have regulatory impacts on licensees, financial advisers and consumers.
- The Government has been informed of the regulatory impacts of various reform options by the findings of two independent reviews - the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into proposals to lift the professional, ethical and education standards of financial advisers (PJC Inquiry) and the FSI - as well as through consultation with industry stakeholders.
- Recent examples of unethical behaviour and inappropriate financial advice have contributed to decreased trust and confidence in the financial services sector.
- A range of options for raising professional standards in the financial services industry were developed through the independent reviews and consultation in relation to the relevant educational and ethical standards, establishment of the standards body, and transitional arrangements for existing advisers.
- A review of the professional standards reforms will need to commence by 31 December 2026 and consider whether the new industry arrangements have provided better outcomes for consumers.