ASIC ends no-action positions for advisers’ FDS obligations in relation to Pre-FOFA customers

ASIC released an updated Regulatory Guide 245 Fee disclosure statements (RG 245) on 22 February 2017. 

RG 245 provides guidance on how ASIC will administer the requirement for financial advisers who provide personal advice to retail clients under an ongoing fee arrangement (OFA) to prepare and give a fee disclosure statement (FDS).

In summary, ASIC has updated RG 245 to clarify that it will no longer take no-action positions in respect of breaches of the FDS obligations to prepare and give an FDS to a customer who received personal advice before 1 July 2013 (now called a Pre-FOFA customer).

Previously, ASIC stated in RG 245 that it would take no action for FDS obligation breaches in three specific scenarios.

The first scenario was where a fee recipient was unable to fulfil its FDS content obligations in relation to a Pre-FOFA customer because the fee recipient was unable to obtain essential information from the assignor of the OFA.

The second scenario was where a fee recipient failed to provide an FDS to a Pre-FOFA customer within 30 days of the first disclosure day because it was impossible or unreasonably onerous for the fee recipient to determine the day that an OFA was originally entered into.

In relation to the first two scenarios, ASIC’s rationale for ending its no-action positions is that compliance with the FDS obligations has been mandatory since 1 July 2013. By now, all fee recipients should meet the FDS content and distribution obligations and should already have measures put in place to ensure they are able to meet FDS obligations before being assigned rights under an OFA.

This signals an end to the transition period that allowed AFS licensees and their authorised representatives to smoothly adopt the FDS obligations in relation to their Pre-FOFA customers.

As a result of the new RG 245, it will be very important that fee recipients ensure that they obtain appropriate details from the assignor of an OFA before the assignment occurs.

The third scenario in which ASIC will no longer take a no-action position is where a fee recipient breaches its FDS obligations solely because it provides an FDS earlier than the disclosure day.

ASIC no longer needs to take a no-action position in this scenario because providing an FDS earlier than the disclosure day no longer amounts to a breach of a fee recipient’s FDS obligations. Since March 2016, an FDS may be given to a pre-existing customer at any time before 60 days after the disclosure day. This is a result of a 2016 legislative amendment to the previous obligation, which had required the fee recipient to give an FDS to the pre-existing customer within 30 days of the disclosure day.

Please contact a member of the Herbert Smith Freehills team to better understand how these changes may affect your business.

This article was written by Ganur Maynard, Legal Intern, Sydney.