CORPORATIONS AMENDMENT (FUTURE OF FINANCIAL ADVICE) BILL 2011

i Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011

Contents

1 Short

title

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2 Commencement

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3 Schedule(s)

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Schedule 1--Amendments

Corporations Act 2001

Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011 1

A Bill for an Act to amend the law in relation to

financial advice, and for related purposes

The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Corporations Amendment (Future of

Financial Advice) Act 2011.

2 Commencement

(1) Each provision of this Act specified in column 1 of the table

commences, or is taken to have commenced, in accordance with

column 2 of the table. Any other statement in column 2 has effect

according to its terms.

2 Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011

Commencement information

Column 1

Column 2

Column 3

Provision(s)

Commencement

Date/Details

1. Sections 1 to 3

and anything in

this Act not

elsewhere covered

by this table

The day this Act receives the Royal Assent.

2. Schedule 1

1 July 2012.

1 July 2012

Note:

This table relates only to the provisions of this Act as originally

enacted. It will not be amended to deal with any later amendments of

this Act.

(2) Any information in column 3 of the table is not part of this Act.

Information may be inserted in this column, or information in it

may be edited, in any published version of this Act.

3 Schedule(s)

Each Act that is specified in a Schedule to this Act is amended or

repealed as set out in the applicable items in the Schedule

concerned, and any other item in a Schedule to this Act has effect

according to its terms.

Amendments Schedule 1

Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011 3

Schedule 1--Amendments

Corporations Act 2001

1 Section 760B (after table item 7)

Insert:

7A 7.7A best

interests

obligations

charging ongoing fees to clients

ban on conflicted remuneration and other remuneration

2 Paragraph 913B(1)(b)

Repeal the paragraph, substitute:

(b) ASIC has no reason to believe that the applicant is likely to

contravene the obligations that will apply under section 912A

if the licence is granted; and

3 Paragraph 913B(4)(a)

Repeal the paragraph, substitute:

(a) any conviction of the person, within 10 years before the

application was made, for an offence that involves dishonesty

and is punishable by imprisonment for at least 3 months; and

4 Paragraph 915C(1)(aa)

Repeal the paragraph, substitute:

(aa) ASIC has reason to believe that the licensee is likely to

contravene their obligations under section 912A;

5 Paragraph 920A(1)(ba)

Repeal the paragraph, substitute:

(ba) ASIC has reason to believe that the person is likely to

contravene their obligations under section 912A; or

6 After paragraph 920A(1)(c)

Insert:

(d) ASIC has reason to believe that the person is not of good

fame or character; or

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4 Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011

(da) ASIC has reason to believe that the person is not adequately

trained, or is not competent, to provide a financial service or

financial services; or

7 Paragraph 920A(1)(f)

Repeal the paragraph, substitute:

(f) ASIC has reason to believe that the person is likely to

contravene a financial services law; or

8 At the end of subsection 920A(1)

Add:

(g) the person has been involved in the contravention of a

financial services law by another person; or

(h) ASIC has reason to believe that the person is likely to

become involved in the contravention of a financial services

law by another person.

9 After subsection 920A(1)

Insert:

(1A) In considering whether, at a particular time, there is reason to

believe that a person is not of good fame or character, ASIC must

(subject to Part VIIC of the Crimes Act 1914) have regard to:

(a) any conviction of the person, within 10 years before that

time, for an offence that involves dishonesty and is

punishable by imprisonment for at least 3 months; and

(b) whether the person has held an Australian financial services

licence that was suspended or cancelled; and

Division 8 has previously been made against the person; and

(d) any other matter ASIC considers relevant.

Note:

Part VIIC of the Crimes Act 1914 includes provisions that, in certain

circumstances, relieve persons from the requirement to disclose spent

convictions and require persons aware of such convictions to disregard

them.

(1B) To avoid doubt, a person contravenes a financial services law if a

person fails to comply with a duty imposed under that law, even if

the provision imposing the duty is not an offence provision or a

civil penalty provision.

Amendments Schedule 1

Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011 5

10 After Part 7.7

Insert:

Part 7.7A--Best interests obligations and

remuneration

Division 1--Preliminary

960 Definitions

In this Part:

disclosure day has the meaning given by section 962J.

fee disclosure statement has the meaning given by subsection

962H(1).

fee recipient has the meaning given by section 962C.

ongoing fee has the meaning given by section 962B.

ongoing fee arrangement has the meaning given by section 962A.

renewal notice has the meaning given by subsection 962K(2).

renewal notice day has the meaning given by subsection 962L(1).

renewal period has the meaning given by subsection 962L(2).

representative of a financial services licensee has the same

meaning as in Part 7.6 (see section 910A).

960A No contracting out

A condition of a contract or other arrangement is void if it provides

that a party to the contract is required or bound to waive any right

under this Part, or waive the compliance with any requirement of

this Part.

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6 Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011

Division 3--Charging ongoing fees to clients

Subdivision A--Preliminary

962 Application of this Division

(1) This Division applies in a case where:

(a) a financial services licensee, or a representative of a financial

services licensee, enters into an ongoing fee arrangement

with another person (the client); and

(b) the arrangement has not terminated for any reason.

(2) This Division also applies in a case where:

(a) the rights of a financial services licensee, or a representative

of a financial services licensee, under an ongoing fee

arrangement are assigned to another person; and

(b) the arrangement has not terminated for any reason.

962A Ongoing fee arrangements

Ongoing fee arrangements

(1)

If:

(a) a financial services licensee gives personal advice to a person

as a retail client; and

(b) that person enters into an arrangement with the financial

services licensee, or a representative of the financial services

licensee; and

or structured) is to be paid during a period of 12 months or

more;

the arrangement is an ongoing fee arrangement.

(2)

If:

(a) a representative of a financial services licensee gives

personal advice to a person as a retail client; and

(b) that person enters into an arrangement with the representative

or the financial services licensee; and

or structured) is to be paid during a period of 12 months or

more;

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Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011 7

the arrangement is an ongoing fee arrangement.

Paying for advice by instalments

(3) Despite subsections (1) and (2), an arrangement is not an ongoing

fee arrangement if each of the following is satisfied:

(a) the total of the fees payable under the terms of the

arrangement is fixed at the time the arrangement is entered

into;

(b) the total of the fees payable under the terms of the

arrangement is specified in the arrangement;

paid by instalments over a fixed period specified in the

arrangement;

(d) the fees payable under the terms of the arrangement can

reasonably be characterised as relating to personal advice

given to the person before the arrangement is entered into;

(e) under the terms of the arrangement, there is no fee payment

of which, or the amount of which, is dependent on the

amount invested by the person, or the amount in relation to

which personal advice is given;

(f) the person cannot opt out of payment of any of the fees

payable under the terms of the arrangement.

Insurance premiums

(4) Despite subsections (1) and (2), an arrangement is not an ongoing

fee arrangement if the only fee payable under the arrangement is

an insurance premium.

Other prescribed arrangements

(5) Despite subsections (1) and (2), an arrangement is not an ongoing

fee arrangement if it is an arrangement of a prescribed kind that

relates to a fee that is prescribed as a product fee.

962B Ongoing fees

A fee that is payable under an ongoing fee arrangement is referred

to in this Division as an ongoing fee.

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8 Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011

962C Fee recipients

(1)

Where:

(a) a financial services licensee enters into an ongoing fee

arrangement; and

(b) the rights of the licensee under the arrangement have not

been assigned to another person;

the licensee is the fee recipient in relation to the arrangement.

(2)

Where:

(a) a representative of a financial services licensee enters into an

ongoing fee arrangement; and

(b) the rights of the representative under the arrangement have

not been assigned to another person;

the representative is the fee recipient in relation to the

arrangement.

(3) Where the rights of a financial services licensee, or a representative

of a financial services licensee, under an ongoing fee arrangement

have been assigned to another person, the person who currently

holds those rights is the fee recipient in relation to the

arrangement.

Subdivision B--Termination, disclosure and renewal

962D Application of this Subdivision

(1) This Subdivision only applies where:

(a) the client has not been provided with personal advice as a

retail client before the commencing day by:

(i) in a case where the client has entered into an ongoing

fee arrangement with a financial services licensee--the

financial services licensee or a representative of the

financial services licensee; or

(ii) in a case where the client has entered into an ongoing

fee arrangement with a representative of a financial

services licensee--the representative or the financial

services licensee; and

(b) the client enters into the ongoing fee arrangement on or after

the commencing day.

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Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011 9

(2) In this section, the commencing day is the day on which this Part

commences.

962E Client may terminate arrangement at any time

(1) It is a condition of the ongoing fee arrangement that the client may

terminate the arrangement at any time.

(2) Any condition of the ongoing fee arrangement, or any other

arrangement, that requires the client to pay an amount on

terminating the ongoing fee arrangement is void to the extent that

the amount exceeds the sum of:

(a) any liability that the client has accrued but not satisfied under

the ongoing fee arrangement before the termination; and

(b) the costs of the current fee recipient incurred solely and

directly because of the termination.

962F Arrangement terminates if this Subdivision not complied with

(1) It is a condition of the ongoing fee arrangement that the

arrangement terminates if section 962G (the disclosure obligation)

or section 962K (the renewal notice obligation) has not been

complied with in relation the arrangement, whether by the current

or a previous fee recipient.

(2) The client is not taken to have waived the client's rights under the

condition (subject to subsection (3)), or to have entered into a new

ongoing fee arrangement, if the client makes a payment of an

ongoing fee after a failure to comply with section 962G or

section 962K in relation to the ongoing fee arrangement.

(3) However, if the client makes a payment of an ongoing fee after a

failure to comply with section 962G or section 962K in relation to

the ongoing fee arrangement, the fee recipient is not obliged to

refund the payment.

Note:

A Court may order that the fee recipient refund the amount (see

section 1317GA).

962G Fee recipient must give fee disclosure statement

(1) The current fee recipient in relation to an ongoing fee arrangement

must, within a period of 30 days beginning on the disclosure day

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10 Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011

for the arrangement, give the client a fee disclosure statement in

relation to the arrangement.

(2) The regulations may provide that subsection (1) does not apply in a

particular situation.

962H Fee disclosure statements

(1)

fee disclosure statement, in relation to an ongoing fee

arrangement, is a statement in writing that includes the information

required under this section.

(2) The following information is required for a fee disclosure

statement in relation to an ongoing fee arrangement, subject to

subsection (3):

(a) the amount of each ongoing fee paid under the arrangement

by the client in the 12 months immediately preceding the

disclosure day, expressed in Australian dollars unless an

alternative is provided in the regulations;

(b) the amount of each ongoing fee that the current fee recipient

anticipates that the client will pay under the arrangement in

the 12 months beginning on the disclosure day, expressed in

Australian dollars unless an alternative is provided in the

regulations;

from the current and any previous fee recipient under the

arrangement during the 12 months immediately preceding the

disclosure day;

(d) details of the services that the client received from the current

and any previous fee recipient under the arrangement during

the 12 months immediately preceding the disclosure day;

(e) details of the services that the client is entitled to receive

from the current fee recipient under the arrangement during

the 12 months beginning on the disclosure day;

(f) details of the services that the current fee recipient anticipates

that the client will receive from that fee recipient under the

arrangement during the 12 months beginning on the

disclosure day;

(g) details of any other prescribed matters.

(3) The regulations may provide either or both of the following:

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Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011 11

(a) that particular information is not required for a fee disclosure

statement, either in a particular situation or generally;

(b) a more detailed statement of the information that is required

for a fee disclosure statement, either in a particular situation

or generally.

962J Disclosure day

The

disclosure day for an ongoing fee arrangement is:

(a) if no fee disclosure statement has been given to the client in

relation to the arrangement since the arrangement was

entered into--the anniversary of the day on which the

arrangement was entered into; and

(b) if a fee disclosure statement in relation to the arrangement

has been given to the client since the arrangement was

entered into--the anniversary of the day on which a

disclosure statement in relation to the arrangement was last

given to the client.

962K Fee recipient must give renewal notice

(1) The current fee recipient in relation to an ongoing fee arrangement

must, within a period of 30 days beginning on the renewal notice

day for the arrangement, send the client a renewal notice and a fee

disclosure statement in relation to the arrangement.

(2)

renewal notice, in relation to an ongoing fee arrangement, is a

notice in writing that includes:

(a) a statement that the client may renew the arrangement by

giving the current fee recipient notice in writing of the

election; and

(b) a statement that the arrangement will terminate, and no

further advice will be provided or fee charged under it, if the

client does not elect to renew the arrangement; and

renew the arrangement if the client does not give the current

fee recipient notice in writing of an election to renew before

the end of the renewal period; and

(d) a statement that the renewal period is a period of 30 days

beginning on the day on which the renewal notice and fee

disclosure statement is given to the client.

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12 Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011

(3) The regulations may provide that subsection (1) does not apply in a

particular situation.

962L Renewal notice day and renewal period

(1)

The

renewal notice day for an ongoing fee arrangement means:

(a) if the arrangement has not previously been renewed--the

second anniversary of the day on which the arrangement was

entered into; and

(b) if the arrangement has previously been renewed--the second

anniversary of the last day on which the arrangement was

renewed.

(2)

The

renewal period for an ongoing fee arrangement is a period of

30 days beginning on the day on which the current fee recipient in

relation to the arrangement gives the client a renewal notice and a

fee disclosure statement in relation to the arrangement.

962M If client notifies fee recipient that client does not wish to

renew

If the client notifies the current fee recipient in relation to the

ongoing fee arrangement in writing within the renewal period for

the arrangement that the client does not wish to renew the

arrangement, the arrangement terminates on the day on which the

notification is given.

962N If client does not notify fee recipient that client wishes to

renew

If the client does not notify the current fee recipient in relation to

the ongoing fee arrangement in writing within the renewal period

for the arrangement that the client wishes to renew the

arrangement, the arrangement terminates at the end of a further

period of 30 days after the end of the renewal period for the

arrangement.

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Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011 13

962P Civil penalty provision--charging ongoing fees after

arrangement terminated

If an ongoing fee arrangement terminates for any reason, the

current fee recipient in relation to the arrangement must not

continue to charge an ongoing fee.

Note:

This subsection is a civil penalty provision (see section 1317E).

962Q Effect of termination

To avoid doubt, if, under an ongoing fee arrangement, the

continued provision of a service to the client by the fee recipient in

relation to the arrangement is dependent on the continued payment

of an ongoing fee, on termination of the arrangement, the

obligation to continue to provide the service also terminates.

Subdivision C--Disclosure for arrangements to which

Subdivision B does not apply

962R Application of this Subdivision

This Subdivision applies to an ongoing fee arrangement to which

Subdivision B does not apply.

962S Fee recipient must give fee disclosure statement

(1) The current fee recipient in relation to the ongoing fee arrangement

must, within a period of 30 days beginning on the disclosure day

for the arrangement, give the client a fee disclosure statement in

relation to the arrangement.

Note:

This subsection is a civil penalty provision (see section 1317E).

(2) The regulations may provide that subsection (1) does not apply in a

particular situation.

Division 6--Anti-avoidance

965 Anti-avoidance

A person must not, either alone or together with one or more other

persons, enter into, begin to carry out or carry out a scheme if:

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14 Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011

(a) it would be concluded that the person, or any of the persons,

who entered into, began to carry out or carried out the

scheme or any part of the scheme did so for the sole or

dominant purpose of avoiding the application of any

provision of this Part in relation to any person or persons

(whether or not a person or persons who entered into, began

to carry out or carried out the scheme or any part of the

scheme); and

(b) the scheme or the part of the scheme has achieved, or apart

from this section, would achieve, that purpose.

Note:

This section is a civil penalty provision (see section 1317E).

11 Before paragraph 1317E(1)(jaa)

Insert:

(jaac) section 962P (charging ongoing fee after termination of

ongoing fee arrangement);

(jaad) section 962S (fee recipient must give fee disclosure

statement);

(jaae) section 965 (anti-avoidance of Part 7.7A provisions);

12 After subsection 1317G(1D)

Insert:

Best interests obligations and remuneration

(1E) A Court may order a person to pay the Commonwealth a pecuniary

penalty if:

(a) a declaration of contravention by the person has been made

under section 1317E; and

(b) the contravention is of one of the following provisions:

(i) section 962P (charging ongoing fee after termination of

ongoing fee arrangement);

(ii) section 962S (fee recipient must give fee disclosure

statement);

(iii) section 965 (anti-avoidance of Part 7.7A provisions).

(1F) The maximum amount that the Court may order the person to pay

for contravening a provision mentioned in subparagraph (1E)(b)(i)

or (ii) is:

(a) $50,000 for an individual; or

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Corporations Amendment (Future of Financial Advice) Bill 2011 No. , 2011 15

(b) $250,000 for a body corporate.

(1G) The maximum amount that the Court may order the person to pay

for contravening a provision mentioned in

subparagraph (1E)(b)(iii) is:

(a) $200,000 for an individual; or

(b) $1 million for a body corporate.

13 After section 1317G

Insert:

1317GA Refund orders--contravention of section 962P

(1) A Court may order that a person (the fee recipient) refund a fee

paid to the fee recipient by another person (the client) if the Court

is satisfied that:

(a) the fee recipient knowingly or recklessly contravened

section 962P in charging the client the fee (charging ongoing

fee after termination of ongoing fee arrangement); and

(b) it is reasonable in all the circumstances to make the order.

Note:

An order may be made under this subsection whether or not a

declaration of contravention has been made under section 1317E.

Applications for order

(2) The Court may make the order under this section:

(a) on its own initiative, during proceedings before the Court; or

(b) on application by ASIC; or

When order may be made

(3) The Court must not make an order under this section in relation to

fees paid more than 6 years before the proceedings for the order are

commenced.

Recovery of amount as a debt

(4) If the Court makes an order that the fee recipient refund an amount

specified in the order to the client, the client may recover the

amount as a debt due to the client.

Commonwealth of Australia Bills

CORPORATIONS AMENDMENT (FUTURE OF FINANCIAL ADVICE) BILL 2011