Representatives from Treasury have been feeling the heat at this week’s Parliamentary Joint Committee (PJC) hearing into the Future of Financial Advice (FoFA) reforms.
Key members of the team responsible for the FoFA legislation were questioned in detail about the drafting process, including the availability of Regulatory Impact Assessments and whether the Government had failed its own best practice guidelines for the drafting of legislation.
Specifically, Treasury was asked to explain why the legislation had been split into two Bills, released within a few weeks of one another, and why the second Bill contained revisions to the terms in the first. In response, Treasury said it had been under pressure to deliver the legislation to Parliament as soon as possible, and that this was “a matter for the Minister” to discuss further.
Clarification was also sought by the PJC on certain areas of the reforms, in particular the best interest duty and opt-in.
Treasury Executive Director Markets Group, Jim Murphy, said it was not possible to provide “concrete certainty” as to the way legislation would be applied in the Bills and accompanying Explanatory Memorandums.
By way of example, Mr Murphy referred to the debate over the wording of the best interest duty which had been highlighted in submissions to the PJC. The industry has raised concerns over a section of the Explanatory Memorandum relating to the second FoFA Bill, which states that to act in the best interest of the client the provider ‘must take into account the client’s overall circumstances’. This has been interpreted by some in the industry as preventing a provider from being able to give scaled advice.
Mr Murphy said he felt that industry representatives who had earlier appeared before the PJC had taken a very strong view of this terminology, particularly the word ‘overall’. “Clients should be able to agree the scale of advice provided. I’d read ‘overall’ down,” Mr Murphy said. After further discussion, Mr Murphy conceded that the wording needed to be reviewed. “I think it would be relevant to clarify this,” he said.
In relation to the opt-in requirements and the late inclusion of the annual fee disclosure statement in the Bill, Mr Murphy said it was “… not a big step in logic” to expect that such a provision would be required, given compromises were made in other areas.
Mr Murphy added that he did not think the opt-in arrangements were unworkable, citing the insurance industry as an example.
However, when pressed, Treasury was forced to admit that it could not name any other professions where a client is unable to enter a contract for service for more than two years.
Click here to see our related story on this week’s hearings.
