FOFA compliance to cost millions warns FSC
The Financial Services Council (FSC) has added its weight to calls for the Federal Government to provide an appropriate transition time for the implementation of the Future of Financial Advice (FOFA) legislation.
The FSC has also provided research adding to that which refutes the Government's position that the cost of opt-in would be $11 per client per year and, instead, suggests that when the fee disclosure elements are included, costs will range from between nearly $54 and $98 per client per year.
In a submission to the Parliamentary Joint Committee reviewing the FOFA bills, the FSC has warned that if the existing legislative timetable remains in place, the financial services industry will have less than six months to implement highly complex and expensive changes.
"On the current drafting of the legislation, the majority of measures within the FOFA package (excluding the provisions relating to life risk insurance) are due to commence from 1 July 2012," it said.
"The FSC is concerned that it is unlikely that the legislation will be passed before the first quarter of 2012. This gives the industry less than six months to develop and implement complex IT systems, compliance frameworks and monitoring processes and education and training programs to ensure that financial services licensees, employees and financial advisers are aware of and able to meet their statutory obligations.
"Additionally, the implementation of these reforms will require significant investment and impose costs upon financial services providers of all sizes including small businesses throughout Australia," the submission said.
"These costs should only be incurred once the final form of the legislation and obligations are known."
The submission pointed to the particular cost of the two-year opt-in, and the results of a survey within which FSC members had indicated that the cost to build the systems (compliance and information technology) to comply with the FOFA opt-in reforms "will range from $1million - $60million, depending on the size of the relevant organisation and the nature of their business activities".
"Ongoing costs range from $10,000 to $9million, again depending on the size and relevant nature of their business activities," it said. "The total implementing and ongoing costs of the opt-in reform differs significantly depending on the requirements on the business."
The submission said that if the information on the Fee Disclosure Statement was summary only and only applied prospectively, the cost of compliance would be 50 per cent (for the client) compared with the alternative that is currently required by the bill tabled by the Government.
It said that based on a survey of representative financial advice providers, the average cost per client with respect to a Summary Fee Disclosure Statement would be $53.97 (summary fee disclosure) and $97.86 for a retrospective application.
The FSC said it was also important to recognise that the FOFA reforms were being introduced at or around the same time as a number of other significant financial services regulatory changes, including the Basel III reforms, G-20 reforms (financial services and markets regulation), stronger superannuation reforms, consumer credit reforms, banking competition reforms, insurance capital regime changes, tax agent services reforms, and the US foreign account tax compliance law.
In addition, the FSC suggested a coordinated approach between FOFA and MySuper.
Recommended for you
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
Compliance professionals working in financial services are facing burnout risk as higher workloads, coupled with the ever-changing regulation, place notable strain on staff.
