Having already passed through the House of Representatives, the Australian Senate, last night, passed the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 (Bill) which amends the Corporations Act 2001 (Cth). The Bill which is now awaiting the Governor-General's assent before becoming law, reflects efforts by the Government and industry to reform and raise the professional, ethical and education standards for financial advisers.
Prior to this Bill, the professional standard for financial advisers in Australia was primarily set out in the Australian Securities and Investment Commission (ASIC)'s Regulatory Guide 146 which presented ASIC minimum expectations in terms of the knowledge, skill and education levels. Financial advisers had to hold a "Diploma" or "Certificate III" level qualification and satisfactory complete ASIC approved training courses depending on the type of financial advice they provide.
Parliament's passing of the Bill significantly changes the training and education requirements that financial advisers will need to comply with.
Key components of the Bill
The new legislation essentially means that the following obligations and requirements will be imposed on financial advisers:
- Compulsory education requirements for both new and existing financial advisers. Educational requirement, which requires advisers to complete a bachelor or higher degree, will commence on 1 January 2019, with existing advisers required to reach degree-equivalent status by 1 January 2024. New advisers will also need to undertake at least one professional year of work experience and training;
- Supervision requirements for new advisers;
- A code of ethics for the industry that will take effect from 1 January 2020;
- An exam requirement that will represent a common benchmark across the industry. This exam requirement is to commence on 1 January 2019 with existing advisers having until 1 January 2021 to pass the exam; and
- Ongoing professional development requirements commencing on 1 January 2019.
The use of the titles financial adviser and financial planner will now be restricted. Only relevant providers who have satisfied the new standards and are authorised to provide personal financial advise to retail clients can promote their business using these terms.
The legislation empowers the Government to set up a regulatory body in order to develop, implement and oversee these reforms.
Australian financial service licensees (Licensees) will also be responsible for ensuring that their representatives comply with the new standard. There may be sanctions on financial advisers and Licensees who fail to comply with the new obligations.
What this means for our clients?
This statutory change is very relevant to and may impact many of Baker McKenzie's clients who are Licensees and financial advisers. Many employees of our clients and potential financial service clients may need to be re-trained in order to meet the new standard.
If you would like more information about your compliance obligations under the new legislation, how this may potentially affect you and your staff, and transitionary initiatives that you can start implementing in your organisation to ensure future compliance, please contact us.