Welcome relief for investors

Red tape reductions will lessen the FSR paper trail, according to Hynes Lawyers partner Glenn Vassallo and lawyer Olivia Smith

PROVIDERS of financial products and services will no doubt welcome the changes proposed in the package of Corporations Amendment Regulations, recently released by the Parliamentary Secretary to the Treasurer, Mr Chris Pearce, for public consultation.

The package, which the Government says will reduce red tape in the financial services industry, proposes a number of changes, many of which will lighten the load on the investor's mailbox.

For most of us, culling the daily influx of unwanted 'paper' that finds its way into our mailboxes is an everyday occurrence. This article looks at some of the proposed reforms which will ease the burden of the paper trail that financial service providers are currently forced to produce, whether investors want it or not!

Culling the paper trail

Investor protection has been the impetus for the evolution of financial services regulation, bringing about tighter and greater regulatory and disclosure requirements for industry participants and leaving investors swamped with
what can sometimes be unwanted disclosure documents.

The proposed reforms seek to simplify the regime by paying greater attention to situations where overproduction of paperwork is unlikely to be beneficial to financial services clients. The proposed reforms seek to ease the burden of the paper trail by relaxing current regulatory requirements in the following ways:

· A later Statement of Advice (SOA) will not need to repeat information that has already been provided in an earlier SOA. (Reducing unnecessary duplication of information, including where the information can be incorporated by reference to other sources);

· Disclosure documents, such as SOAs and a Financial Services Guide (FSG) will not need to be provided where a client has clearly rejected the product or advice offered. (In these cases, it's not likely the client will read or consider the documentation, with disclosure of little benefit);

· Allowing FSGs and disclosure documents to be combined into a single document where the product and service issuer is the same person.
(Mirroring the current regulations which allow an FSG to be combined with a Product Disclosure Statement);

· An FSG will not need to be updated unless changes are materially adverse, provided that clients are told how to access updated information.
(Extending currently available ASIC Class Order relief and putting clients in control of what information they will seek and when);

· Allowing 'community banks' (that are corporate authorised representatives of banking licensees operating under a franchise arrangement) and individuals who are sub-authorised representatives to use a standard FSG instead of requiring FSGs to be individualised to the community branch or individual. (Formalising and extending already available exemptions. This also recognises the nature of franchise relationships in the financial services industry to create further efficiencies and unlock economies of scale for franchise groups); and

· Allowing information to be incorporated into disclosure documents by reference to other sources and documents.(Again, reducing unnecessary repetition of information to produce a lighter and more cost-effective paper trail).

A new way to look at retail Vs wholesale clients

The reform package also seeks to lessen the stranglehold of investor protections set up under the current regime by redefining the division between retail and wholesale client categories.

By shifting some of the definitional markers and adopting regulations that deem clients to be, or enable them to be treated, as wholesale clients where they otherwise would not have been, smooths the way for licensees to have relationships with those clients - without the need to comply with burdensome requirements needed to protect the less savvy retail, mum-and-dad type investor.

Considering the Australian financial services industry's contribution to our economy is superior to the mining industry's, it's not surprising the Government has an interest in delivering reforms to remove hurdles to this industry reaching its full growth potential.

Proposed amendments include:

· Allowing super fund trustees that administer more than one fund to aggregate funds for the purpose of satisfying the wholesale investor test;

· Employers operating medium to large businesses may be treated as wholesale clients when receiving financial services relating to superannuation products; and

· Bundled general insurance products containing both retail and wholesale elements, will be treated as being provided to a wholesale client, if the bundled product predominantly provides insurance cover to that person as a wholesale client.

Wrap up

The Government is still considering the scope, application and conditions to apply to the proposed reforms. While there are still some unknowns, there is one thing we can all be sure of - investors, financial service providers and their advisers will all be pleased to see a reduction in paperwork, unnecessary or repetitive disclosure and increased efficiency in a flourishing industry.