Corporations Amendment (Intra-fund Advice Fees) Regulation 2013

Administered by Department of the Treasury

Legislation au F2013L00906 Regulations Not in force Legislative Instrument

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EXPLANATORY STATEMENT

 

Select Legislative Instrument 2013 No. 102

Issued by authority of the Minister for Financial Services and Superannuation

Corporations Act 2001

Corporations Amendment (Intra-fund Advice Fees) Regulation 2013

The Corporations Act 2001 (the Act) provides for the regulation of corporations, financial markets, products and services, including in relation to licensing, conduct, financial product advice and disclosure.

Subsection 1364(1) of the Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The Corporations Amendment (Intra-fund Advice Fees) Regulation 2013 makes several amendments to the Corporations Regulations 2001 (the Principal Regulations).  The amendments are in respect of the provisions relating to financial services licensees and representatives charging ongoing fees to clients as introduced by the Corporations Amendment (Future of Financial Advice) Act 2012.

Specifically, the amendments to the Principal Regulations rearrange existing Regulations that exempt ‘product fees’ from the definition of an ‘ongoing fee arrangement’, and further define a ‘product fee’ to include a fee for personal advice that may be collectively charged to members of a regulated superannuation fund under the Superannuation Industry (Supervision) Act 1993 (the SIS Act). 

A draft of the Regulation was published on the Future of Financial Advice website on 19 April 2013, for a two week public consultation period. 

Two formal submissions were received from stakeholders (from the Financial Services Council and the Association of Financial Advisers).  The submissions commented on the policy intent behind the Regulation and provided technical comments on the draft Regulation. 

In addition to formal submissions, two stakeholders also provided comments on the draft Regulation.  One was on the policy intent, the other provided comments on technical drafting issues.

Several minor technical changes were made to the draft Regulation in response to stakeholder feedback.  For example, changes were made to the draft Regulation to ensure that, where the draft Regulation referenced the SIS Act, the framing of the reference was consistent with the negative framing of the relevant provision of the SIS Act.

Details of the Regulation are set out in Attachment A.  A statement of the Regulation’s compatibility with human rights is set out in Attachment B.

The Regulation is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Act does not specify any conditions that need to be satisfied before the power to make the Regulation may be exercised.

The Regulation commences on the day after it is registered.

ATTACHMENT A

Details of the Corporations Amendment (Intra-fund Advice Fees) Regulation 2013

Section 1 – Name of Regulation

This section specifies the name of the Regulation as the Corporations Amendment (Intra-fund Advice Fees) Regulation 2013 (the Regulation).

Section 2 – Commencement

This section specifies that the Regulation commences the day after registration.

Section 3 – Authority

This section provides that the authority for making the Regulation is the Corporations Act 2001 (the Act).

Section 4 – Schedule(s)

This section provides that Schedule 1 amends the Corporations Regulations 2001 (the Principal Regulations).

Schedule 1 – Amendments of the Corporations Regulations 2001

Item 1 prescribes the kinds of arrangements that are not ‘ongoing fee arrangements’ for the purposes of subsection 962A(5) of the Act.  Existing subregulation 7.7A.10(2) provides that an arrangement is not an ‘ongoing fee arrangement’ to the extent the fee payable under the arrangement is a ‘product fee’ (as defined in subregulation 7.7A.10(3)).  For the purposes of rearranging the subregulations and further defining a ‘product fee’, existing subregulations 7.7A.10(2) and (3) are repealed and replaced with new subregulations 7.7A.10(2) and (3).

Subregulation 7.7A.10(2) specifies that an arrangement that is described in subsection 962A(1) or (2) of the Act is not an ‘ongoing fee arrangement’ to the extent that the fee under the arrangement is a ‘product fee’.

Subregulation 7.7A.10(3) defines a ‘product fee’ as:

•                 a fee charged by a product issuer to a retail client for the administration, management and operation of a financial product.  For example, a monthly administration or investment fee, charged by the trustee of a superannuation fund or the responsible entity of a managed investment scheme, or a monthly account keeping fee, charged by the provider of a basic deposit product; and

•                 a fee that is a cost of providing financial product advice that is not prohibited from being passed on to a member of a regulated superannuation fund under section 99F of the Superannuation Industry (Supervision) Act 1993 (the SIS Act). 

Subregulation 7.7A.10(3) is not intended to exempt fees charged for the administration, management or operation of a financial product in circumstances where these fees are used to subsidise the provision of personal financial advice, other than the type not prohibited under section 99F of the SIS Act (commonly referred to as intra-fund advice).

As product fees are not ongoing fee arrangements, they are exempt from the requirements in Division 3 of Part 7.7A of the Act (which relates to charging ongoing fees to retail clients).  

ATTACHMENT B

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Corporations Amendment (Intra-fund Advice Fees) Regulation 2013

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

The Regulation rearranges existing Regulations that exempt ‘product fees’ from the definition of an ‘ongoing fee arrangement’, and further defines a ‘product fee’ to include a cost that is not prohibited from being passed on to a member of a regulated superannuation fund under the Superannuation Industry (Supervision) Act 1993. 

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

Overview

The Corporations Amendment (Intra-fund Advice Fees) Regulation 2013, issued under the authority of the Minister for Financial Services and Superannuation, is a legislative instrument that amends the Corporations Regulations 2001. Enacted to address issues arising from the Corporations Amendment (Future of Financial Advice) Act 2012, this Regulation clarifies and expands the definition of "product fees" to ensure they are properly distinguished from "ongoing fee arrangements." This distinction exempts product fees from certain regulatory requirements pertaining to ongoing fees charged to clients. The regulation was developed in consultation with stakeholders and underwent minor technical adjustments based on their feedback. It aims to ensure consistency and clarity in the application of fees within regulated superannuation funds, aligning with the broader objectives of the Corporations Act 2001 in regulating financial markets and services.

Scope and Application

The Corporations Amendment (Intra-fund Advice Fees) Regulation 2013 amends the Corporations Regulations 2001 to address the issue of ongoing fees charged by financial services licensees and representatives to clients. These regulations pertain to the fees charged for the administration, management, and operation of financial products, as well as fees related to the provision of financial product advice. The amendments redefine what constitutes a 'product fee' and clarify that such fees are exempt from being classified as 'ongoing fee arrangements' under the Corporations Act 2001. This exemption relieves these fees from certain regulatory requirements that apply to ongoing fees charged to retail clients. The Regulation is applicable nationally across Australia, with its scope extending to all entities that fall under the purview of the Corporations Act 2001, including financial services licensees and representatives. There are no specific exclusions or thresholds mentioned in the Regulation, but it specifically excludes fees used to subsidise the provision of personal financial advice prohibited under the Superannuation Industry (Supervision) Act 1993. The Regulation is a legislative instrument made under the authority of the Corporations Act 2001, and it commences on the day after its registration.

Key Provisions

The Corporations Amendment (Intra-fund Advice Fees) Regulation 2013 (Regulation) amends the Corporations Regulations 2001 (Principal Regulations) to adjust the scope of what constitutes a "product fee" and to clarify which fee arrangements are exempt from being classified as "ongoing fee arrangements" (section 4). Specifically, the Regulation introduces new subregulations 7.7A.10(2) and (3) to define a "product fee" and to specify which fee arrangements are not considered "ongoing fee arrangements." This amendment ensures that fees charged for the administration, management, and operation of a financial product, as well as fees for financial product advice that are not prohibited from being passed on to members of a regulated superannuation fund, are treated as product fees and thus exempt from the ongoing fee requirements (section 4, Schedule 1, Item 1). The Regulation imposes obligations on financial services licensees and representatives to ensure that fees charged to clients are accurately classified and that ongoing fee arrangements comply with the Act's requirements (section 4, Schedule 1, Item 1). Financial services licensees must ensure that any fees they charge are properly defined as either "product fees" or otherwise, in accordance with the amended regulations. This includes reviewing and adjusting fee structures to avoid misclassifying fees that should be considered ongoing fee arrangements. Representatives of financial services licensees must also be aware of these classifications and ensure that their fee arrangements comply with the prescribed definitions. Failure to comply with the Regulation's provisions may result in regulatory action against the financial services licensee or representative. While the Regulation itself does not explicitly state penalties, violations of the Corporations Act 2001, including non-compliance with regulations, can lead to civil penalties, criminal penalties, or both, depending on the severity of the breach. Civil penalties can include fines up to $222,000 for individuals and significantly higher amounts for corporations, while criminal penalties can include fines up to $222,000 for individuals and $1,110,000 for corporations, along with potential imprisonment terms (section 1317E of the Act). These penalties underscore the importance of adhering to the Regulation's requirements to avoid legal repercussions.

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Corporate Law & Governance
Financial Services Regulation
Instrument
Regulation
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Definitions & Interpretation
Regulatory Standards
Licensing & Registration
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