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Financial Services Reform - What's it all about ?

By Geoff Coy, Certified Practising Accountant

In this article, Accountant Geoff Coy looks at the changes that have been taking place over recent times to reform the financial services industry.

What financial services reform means to you
Reforms to the financial services industry have been slowly taking place since March 2002 and have changed how people or companies who provide financial services are licensed and how they give you information about their services and products.

In essence, the FSRA aims to:

• bring the Life, Superannuation, General and Securities industries under one licencing regime;
  
• propose a new disclosure regime for financial products (excluding offers of shares and debentures);
  
• introduce an amended market regulation regime; and
  
• impose standards of conduct for financial services providers dealing with retail clients.

The reforms introduced an Australian financial services (AFS) licence for all people or companies who provide financial services. This affects banks, building societies and credit unions; life and general insurance companies; insurance agents and brokers; managed investment scheme operators; superannuation funds; securities dealers; financial planners and financial advisers; futures brokers and advisers and foreign exchange dealers.

Some of the financial products affected by the changing legislation will include credit cards, loans and mortgages, all forms of insurance, superannuation, investments and financial planning advice.

Who needs to be licensed or authorised?

Basically a person needs an AFS licence or to be a representative of a licensee if they provide you with a financial service. Providing financial services is met under the Act if a person or firm is carrying out certain activities which include 'dealing or advising' in relation to financial products including securities.

Providing advice in relation to financial products including a recommendation, or statement of opinion or report that is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products, could reasonably be regarded as being intended to have such an influence.

A financial product is defined as facility through which a person does one or more of the following:

• makes a financial investment
  
• manages a financial risk
  
• makes non cash payments.

What are the new product disclosure requirements?

The financial services reforms also introduced new consistent requirements covering what you should be told about a financial product or service. These requirements will help you compare a range of similar financial products and make informed decisions about whether to buy or not.

What documents will you get from your financial services provider? After the new licencing and disclosure system applies to them, anyone advising you on or selling you financial products must give you certain documents about their services, advice and the products:

• What financial service you are getting;
  
• What financial advice you are getting'
  
• What financial product you are buying;
  
• What other rights you have.

Financial services providers also have other obligations to you regarding:

• handling your money when you apply for a financial product;
  
• resolving customer complaints;
  
• advertising for financial products;
  
• confirming transactions;
  
• cooling off periods for the return of certain financial products;
  
• Specific rules that control how salespeople can approach you when you have not actually asked for information.

Since the introduction and phasing in of the FSR the Australian Securities and Insurance Commission (ASIC) will now regulate the activities of firms who lend money to consumers and small businesses. This covers all forms of lending products (such as credit cards, business overdrafts, home loans, hire purchase agreements and guarantees) whether they are provided by banks, finance companies, credit unions, mortgage brokers or any other credit provider. Amongst other things, ASIC will be making sure that firms don't give misleading information about loans or other credit products when they advertise.

For further details on FSR you can contact ASIC on 1300 300 630.

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