One year to go: the End of Grandfathered Conflicted Remuneration is on its Way

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From 1 January 2021, the grandfathering arrangements for conflicted remuneration in relation to financial advice provided to retail clients found in the Corporations Act 2001 will be removed. Amendments will also enable the regulations to create a scheme whereby amounts that would otherwise have been paid as conflicted remuneration must be rebated to affected customers after 1 January 2021.

What Does this Mean for Your Business?

AFS Licensees should use 2020 to:

  • actively take steps to ensure they have processes in place to stop receiving grandfathered commissions and be prepared to coordinate the payment of any rebates to affected clients; and
  • conduct a review of their income sources and identify any grandfathered commissions which will need to be ceased in light of the amendments to the Corporations Act.

New entities seeking to obtain an AFS Licence should also be aware that ASIC is looking at the status of grandfathered commissions that new AFS Licence applicants declare in their financial statements submitted to ASIC (if any) and will require additional information on the AFS Licence applicant’s processes to stop receiving conflicted remuneration.

ASIC’s Next Steps

ASIC will monitor and report on the extent to which AFS Licensees are acting to end the grandfathering of conflicted remuneration. AFS Licensees known to pay grandfathered conflicted remuneration will be contacted by ASIC to provide information in relation to the paid conflicted remuneration under notice. Refer to ASIC’s Media Release for further details.

What is Conflicted Remuneration?

The Corporations Act provides that conflicted remuneration and certain other remuneration in relation to financial advice provided to retail clients has been banned since 1 July 2013. Banned remuneration includes benefits which have the potential to influence the advice provided, volume based shelf-space fees, and asset-based fees in relation to borrowed amounts.

Exemptions

There are currently exemptions to these provisions for ‘grandfathered arrangements’ which will be removed from 1 January 2021. Under the current grandfathering provisions:

  • the bans on accepting and giving conflicted remuneration do not apply to benefits paid under arrangements entered into before 1 July 2013 except with respect to benefits given by a platform operator;
  • the ban on charging volume-based shelf space fees does not apply to benefits given under arrangements entered into before 1 July 2013; and
  • the ban on charging asset-based fees to retail clients on borrowed amounts only applies to the extent that the borrowed amounts are used or are to be used to acquire financial products on or after 1 July 2013.

Background

The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 (“the Act”) received Royal Assent on 28 October 2019.

The Act implements the Government’s response to recommendation 2.4 of the Final Report of the Royal Commission. The Royal Commission recommended that the grandfathering arrangements for conflicted remuneration in relation to financial advice provided to retail clients should be removed as soon as is reasonably practicable.

The carve outs from conflicted remuneration under s963B Corporations Act, and detailed in RG246 Table 6, will still apply.

Further Reading

Should you have any questions about how these changes could affect your business or would like to discuss the processes you have in place, please contact us.

About The Author

Amanda Christie

Amanda works with the Compliance and Legal Team with a focus on compliance and legal services. Amanda assists the compliance team in implementing ongoing compliance support, updating procedural documentation and assisting clients with the preparation of AFSL and ACL applications, variations and also assists in the implementation of compliance reviews. She also assists in the preparation of legal documentation and legal research.

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