Government acknowledges FSR flaws

By Craig Phillips

The Federal Government has acknowledged inherent flaws within the new Financial Services Reform (FSR) regime are largely due to the legislation being principle-based rather than specifically prescribing the nature of compliance.

“We recognise that there is excessive disclosure and that it is over-egged… However, there is no question that there were areas where we needed to shine the light of transparency in instances where there have been cases of deliberate profiteering or gouging that grows out of the exploitation of the ignorance of your average punter,” the Parliamentary Secretary to the Treasurer, Senator Ross Cameron, told a Financial Planning Association Sydney-chapter meeting last week.

Cameron said individuals he talks to in the industry unequivocally agree with the rationale, principles and objectives of FSR, and that objections only relate to the execution and application of these principles.

“The most acute questions have been in the area of issuing statements of advice… Frankly there is not really any dispute by the Government that the current levels of documentation and of complexity particularly in the area of statements of advice are too great, too cumbersome, too complex and too unfriendly to consumers.

“In that area I would run the white flag up the flagpole and say ‘we have an outcome that was not anticipated and is not supported’,” he said.

Cameron added that rather than ban or specifically dictate how businesses should conduct themselves, the Government instead opted for a principle-based approach.

“We would call it a light touch principles-based approach, where we didn’t say you can’t earn a particular revenue or commission, we just said that it must be disclosed to the client at the point of sale.

“The law doesn’t require you to provide a massive cumbersome telephone book’s worth of disclosure. The law of Financial Services Reform only requires that disclosure take place in a manner that is clear, concise and effective.

“[However] when faced with the risk to reputation of being the first one to get pinged by ASIC, companies err on the side of more disclosure rather than less, and the lawyers then load it up with all the bells and braces as everybody up and down the food chain cover their positions and the only sucker at the end of all this is the consumer,” Cameron says.

Going forward, Cameron says the Government intends the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) to tweak the legislation into a more workable format.

“They [ASIC and APRA] can give greater direction policy wise as to what is a compliant document. It’s not their job to offer legal advice but they can give policy direction that will provide encouragement and reassurance to individuals and companies.”