House of Representatives

Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

Chapter 6 Transitional provisions for existing providers

Outline of chapter

6.1 Part 2 of Schedule 1 amends the Corporations Act to insert a new Part 10.23A which includes transitional provisions for persons who were relevant providers before 1 January 2019.

Summary of new law

6.2 Transitional arrangements apply to a person who provides personal advice to retail clients (in Australia or a foreign country) at any time between 1 January 2016 and 1 January 2019, and is not prohibited from providing advice on 1 January 2019. These persons are referred to as 'existing providers'.

6.3 By 1 January 2021, existing providers are required to have passed an exam approved by the body. By 1 January 2024 they must have completed the appropriate bridging course(s) to raise their qualifications to a bachelor degree level, or higher or equivalent qualification.

Comparison of key features of the new law and current law

New law Current law
Special transitional arrangements apply to existing providers, that is, persons who provide personal advice to retail clients at any time between 1 January 2016 and 1 January 2019, and are not prohibited from providing advice on 1 January 2019. These advisers:

·
have until 1 January 2024 to meet the first education requirement (obtain a degree, or higher or equivalent qualification);
·
may meet the first education requirement by completing bridging courses approved by the body;
·
have until 1 January 2021 to meet the second education requirement (pass the exam); and
·
do not need to complete a professional year.

No equivalent.
An existing adviser who does not pass the exam by 1 January 2021 or meet the degree requirement by 1 January 2024 ceases to be a relevant provider on that date. No equivalent.
An existing provider is, like new relevant providers, required to meet the CPD requirements from 1 January 2019. No equivalent.
An existing provider is, like new relevant providers, required to comply with the Code from 1 January 2020. No equivalent.

Detailed explanation of new law

6.4 An existing provider is a person who is:

·
a relevant provider at any time between 1 January 2016 and 1 January 2019 and who is not banned, disqualified or suspended on 1 January 2019; or
·
provides personal advice in a foreign country to retail clients at any time between 1 January 2016 and 1 January 2019 and is not prohibited under that country's law from providing advice on 1 January 2019.

[Schedule 1, Part 2, item 27, section 1546A]

6.5 A person who does not pass the prescribed exam by 1 January 2021, or does not meet the education requirement by 1 January 2024, ceases to be an existing provider from those dates. Such persons also cease to be relevant providers as of those dates and cannot take advantage of the transitional arrangements for existing providers (such as, the option of satisfying the new degree requirement by completing bridging courses). [Schedule 1, Part 2, item 27, section 1546A and subsections 1546B(3) to (5)]

Example 6.1 : Definition of an existing provider: advisers working in Australia Mary is a financial adviser but on 1 July 2016, she takes extended leave to complete further study. Her status on the Register is amended to show that she is not currently authorised to provide advice.As Mary was on the Register after 1 January 2016 and is not banned, disqualified or suspended on 1 January 2019, she is an existing provider.

Example 6.2 : Definition of an existing provider: advisers working overseas Mandy works as a financial adviser in France at all times between 1 January 2016 and 1 January 2019.Mandy is authorised to provide advice to retail clients under French law. France does not have a concept of 'personal advice', but the advice that Mandy is permitted to provide includes advice which takes into account her client's objectives, financial situation and needs. Mandy is not prohibited under French law from providing advice on 1 January 2019.Mandy is an existing provider.

6.6 Existing providers have a five year transition period from 1 January 2019 to 1 January 2024 to meet the new standards. This transition period is designed to give existing providers sufficient time to comply, and to ensure that prompt action is taken to raise the minimum standards and improve consumer confidence. [Schedule 1, Part 2, item 27, section 1546B]

6.7 Existing providers can comply with the first education standard in subsection 921B(2) (that is, completing a bachelor or higher degree or equivalent), in two ways:

·
if the existing adviser holds a relevant bachelor degree or higher or equivalent qualification (as approved by the body), the adviser does not need to undertake any further education [Schedule 1, Part 2, item 27, paragraph 1546B(1)(a)];
·
if the existing adviser does not have an approved bachelor degree or higher or equivalent qualification, then the adviser can complete bridging courses approved by the body [Schedule 1, Part 2, item 27, paragraph 1546B(1)(b)].

6.8 These provisions are designed to allow flexibility for existing providers, ensuring that they only need to undertake adequate study to bring their qualifications in line with the new standard. It is not expected that existing providers will be required to complete a three year degree.

6.9 For the avoidance of doubt, the new law explicitly states that courses undertaken before the new law commences must be taken into consideration. The body may take into account diploma or degree courses, licensee training courses or CPD. [Schedule 1, Part 2, item 27, subsection 1546B(2)]

6.10 An existing adviser who currently holds a diploma (AQF level 5) could, as an interim step, attempt to upgrade their qualifications to an advanced diploma or associate degree (AQF level 6) within three years of commencement of the education standards and then undertake further study to upskill to a degree (AQF level 7). Alternatively, an adviser may wish to advance their qualifications directly to a degree level (AQF level 7), without first obtaining an advanced diploma.

6.11 The length of time that the adviser has been in the industry is not itself a relevant consideration. The body may, however, take into account the fact that an adviser who has been in the industry for a longer period of time has completed more CPD courses.

6.12 Similarly, the designation that an adviser holds is not relevant. Instead, the body must consider the courses that the adviser completed to qualify for the designation.

6.13 As the education standard is a separate requirement to the exam, an existing provider who does not hold a degree will not be able to raise their education qualifications to the equivalent of a degree merely by sitting the exam. However, the body may decide that any courses undertaken to prepare for the exam can be taken into account.

Example 6.3 : Appropriate bridging courses Anastasia has been working as a relevant provider for over 20 years. Anastasia is a member of the Excellent Advisers Association and she holds the Excellent Advisers Designation. She has a bachelor degree in engineering and an advanced diploma in Financial Planning. She has also completed several CPD courses throughout her career.The body decides that an engineering degree does not meet the degree standard set for new financial advisers in new section 921B.When determining whether Anastasia needs to undertake a bridging course, the body may take into account all of the courses that she has already completed (that is, her bachelor degree in engineering, her advanced diploma and the CPD courses).The body may not take into account the fact that Anastasia has been in the industry for 20 years. Similarly, the mere fact that Anastasia holds the Excellent Advisers Designation is not in itself relevant. Instead, the body must consider the courses that Anastasia undertook to qualify for the designation.The body may decide that the mathematics units in Anastasia's bachelor degree, together with her advanced diploma and CPD courses, give her knowledge and skills equivalent to the standard. In this case, Anastasia would not need to undertake any further study. Alternatively, the body may decide that Anastasia needs to complete bridging courses before she meets the new requirements.

6.14 Existing providers are required to have passed an exam approved by the body before 1 January 2021. [Schedule 1, Part 2, item 27, subsection 1546B(3)]

6.15 An existing provider will be able to attempt the exam at any time before 1 January 2021 and may attempt the exam multiple times if required. The Register will not show failed attempts to pass the exam.

6.16 If an existing provider has not passed an approved exam by 1 January 2021, he or she will cease to be a relevant provider and an existing provider after that time. The same consequence will apply to an existing provider who fails to complete a bridging course or courses as required by 1 January 2024. [Schedule 1, Part 2, item 27, subsections 1546B(4) and (5)]

6.17 The consequence of existing providers ceasing to be existing and relevant providers because they did not pass an exam or complete a bridging course is that the provider:

·
will be shown as non-compliant on the Register; and
·
will not be permitted to give personal advice on relevant financial products to retail clients; but
·
may continue to give general advice or advice on products other than relevant financial products.

[Schedule 1, Part 2, item 27, subsections 1546C(2) and (3)]

6.18 An existing provider who does not meet the transitional arrangements and ceases to be a relevant provider on 1 January 2021 or 1 January 2024 may become authorised as a relevant provider at a later point in time. Before becoming authorised again, an existing provider would need to satisfy the degree, exam and professional year requirements in section 921B. It will not be sufficient for such a person to merely meet the transitional arrangements. [Schedule 1, Part 2, item 27, subsection 1546B(6)]

6.19 Existing providers are subject to the same requirements in relation to CPD and the Code as new relevant providers. That is, an existing provider is required to:

·
meet the requirements for CPD set by the body from 1 January 2019 [Schedule 1, Part 2, item 27, section 1546E]; and
·
comply with the Code from 1 January 2020 [Schedule 1, Part 2, item 27, section 1546F].

6.20 However, existing providers are not required to undertake a professional year as it is considered that such persons have already accrued practical experience working in the financial services industry. By the time the transition period ends, all existing advisers will have been in the industry for at least five years. [Schedule 1, Part 2, item 27, note 3 for subsection 1546B(3)]

Figure 6.2: Summary of transition arrangements for existing providers

Figure 6.2: Summary of transition arrangements for existing providers

* The Bill does not specify the date when the new body will be incorporated.

Example 6.4 : Relevant providers with a diploma John, Laura, Mitch, Nicola and Sara are existing financial advisers who only have a diploma.John, Laura, Mitch, Nicola and Sara can continue to give financial advice on relevant financial products to retail clients until 1 January 2021.If John, Laura, Mitch, Nicola and Sara wish to continue to give advice after 1 January 2021, they will need to pass the exam. They then need to complete a bridging course (not a three year degree) to raise their qualifications to those equivalent to a degree or higher before 1 January 2024 if they wish to continue giving advice after that date. They do not need to undertake a professional year.Sara wants to remain in the industry post 1 January 2021. She sits the exam on 13 April 2019 and passes. She can therefore continue working after 1 January 2021. In December 2022 she also completes a bridging course approved by the body which increases her education level to a degree equivalent.Sara's licensee advises ASIC that she has passed the exam and completed the bridging course. ASIC updates the Register.Sara can now continue to give personal advice to retail clients on relevant financial products.Laura plans to retire soon. Laura does not sit the exam or complete a bridging course. On 1 January 2021, Laura retires and the Register is updated to indicate that Laura is no longer authorised to give personal advice to retail clients on relevant financial products.Mitch wants to remain in the industry. He completes a bridging course but he does not pass the exam. After 1 January 2021, he cannot give personal advice to retail clients on relevant financial products. Mitch chooses to remain in the industry and only gives advice on basic banking products, general insurance products and consumer credit insurance products.Nicola passes the exam in March 2019 but fails to complete the required bridging course by 1 January 2024. She wants to continue her career as a financial adviser and decides to take leave to study for a degree approved by the body. Once she has obtained her degree Nicola must also undertake a professional year (albeit that the body may determine that the time Nicola previously spent in the industry satisfied the professional year requirement). Once all education requirements have been satisfied Nicola can return to work and provide personal advice on relevant financial products to retail clients.John fails to pass the exam by 1 January 2021. If he wishes to continue in the industry he will have to satisfy all the education standards, including completing a three year degree. He will not be able to take a bridging course as he did not pass the exam, and may also (like Nicola) be required to undertake a professional year.

Example 6.5 : Relevant providers with a degree Hamish is an existing provider with a relevant degree. Hamish wants to continue to give personal advice on relevant financial products to retail clients after 1 January 2024.Hamish sits the exam in December 2019 but does not pass. His failed attempt to pass the exam is not displayed on the Register.Hamish reattempts the exam in March 2020 and passes. His licensee advises ASIC.Hamish may now continue to give personal advice to retail clients on relevant financial products after 1 January 2021. As he has a degree, he can also continue to give advice after 1 January 2024.


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