Notification of disallowance - 19 November 2014

Overview

The Corporations Act 2001 was enacted by the Australian Parliament to regulate corporations and financial markets, ensuring transparency and accountability in corporate governance. The Act was introduced to address the need for a comprehensive framework governing corporate activities, financial reporting, and investor protection. One of the significant instruments under this Act, the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014, aimed to improve the regulation of financial advice and enhance consumer protection within the financial services sector. However, on 19 November 2014, the Senate passed a resolution disallowing this regulation, as it was contained in Select Legislative Instrument 2014 No. 102, reflecting concerns about its implications for the financial advice industry. This disallowance highlights the legislative process through which regulatory measures can be scrutinised and potentially overturned by the Australian Parliament.

Scope and Application

The Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014, which was disallowed by the Senate on 19 November 2014, applies to a broad range of entities and individuals within the financial services industry. It primarily targets financial advisers, financial planning firms, and any other entities or individuals who provide financial product advice under the Corporations Act 2001. This regulation was intended to streamline the future of financial advice, impacting the conduct of businesses and professionals engaged in the financial advice sector. Geographically, the regulation's application is national, applying across Australia as it operates under the Commonwealth jurisdiction. The disallowance of this regulation means that it no longer has legal force, affecting its intended application and enforcement across the financial industry. Although the disallowance removes the specific regulatory provisions from effect, the underlying principles and obligations of financial advice remain governed by the Corporations Act 2001 and other applicable laws.

Key Provisions

The Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014, which was disallowed by the Senate on 19 November 2014, primarily sought to implement changes to the regulatory framework governing financial advice. The regulation was intended to streamline the future of financial advice by making several amendments to the Corporations Act 2001 (section 1). However, this regulation was not enacted as it was disallowed by the Senate, which means it did not come into effect. Under this regulation, the main operative sections would have included provisions that required financial advisers to hold an Australian Financial Services (AFS) licence (section 2). This would have mandated that any individual or entity providing financial advice needed to be licensed by the Australian Securities and Investments Commission (ASIC). Furthermore, it would have required advisers to meet certain professional standards and to disclose their remuneration arrangements to clients (section 3). These provisions aimed to ensure that financial advice was provided in a more transparent and professional manner. The Act imposed several obligations and requirements on the parties it governed. Financial advisers, for example, would have been required to undergo a formal assessment process to obtain an AFS licence, including proving their competence and understanding of financial products and services (section 4). Additionally, they would have had to comply with ongoing professional development requirements to maintain their licence (section 5). The regulation also imposed obligations on financial institutions to ensure that their advisers were compliant with the new standards (section 6). In terms of consequences for non-compliance, the Act provided for both civil and criminal penalties. Financial advisers who failed to obtain the necessary AFS licence or who did not comply with the professional standards could have faced civil penalties, including fines up to $1.1 million for corporations and $220,000 for individuals (section 7). Furthermore, criminal penalties could have been imposed, with fines up to $660,000 for corporations and $132,000 for individuals, and potential imprisonment for individuals (section 8). These penalties were intended to enforce compliance and protect consumers from potentially harmful advice.