The amendments in schedule 1 introduce a mandatory two-part prospectus for certain bond issuances to simplify the disclosure obligations. While the framework of the two-part prospectus will be contained in the act, the content and structure of it will be specified by regulations. Directors and proposed directors of a body making an offer have liability for any misstatement in or omission from the document where they are involved in a contravention of subsection 728(1). The amendments to the directors' liabilities have been designed to reduce the burden on directors when issuing corporate bonds to retail investors under the two-part prospectus.
The second schedule deals with issues that are a legacy of the 2009 inquiry into financial products and services in Australia by the Joint Committee of Corporations and Financial Services, which considered a variety of issues associated with corporate collapses, including Storm and Opes Prime. Schedule 2 seeks to amend the Corporations Act in order to restrict the use of the terms 'financial planner' and 'financial adviser' and terms of like import, taking effect from 1 July 2013. The government argues that by restricting these it will be able to provide consumers with certainty that a person using the term is authorised to do so under a licence.
The act defines and restricts the use of a number of other terms—for example, 'stockbroker', 'futures broker' and 'issuance broker'—however, there have been no specific restrictions on the terms 'financial planner' and 'financial adviser'. The government argues that restricting the use of terms 'financial planner' and 'financial adviser' enable the corporate regulator, ASIC, to take specific action against persons who hold themselves out to be either of those without being able to do so under a licence. The changes within schedule 2 make it an offence for a person to assume or use the terms or terms of similar importance unless they meet the statutory criteria of the bill.
The coalition is committed to striking the right balance between improving consumer protection on the one hand while keeping costly red tape to a minimum so that access to high-quality financial advice remains available and as affordable possible. The change to enshrine the definition of these terms in the legislation is unlikely to make much of a positive difference from the current position. The law already requires anyone providing financial advice to hold an appropriate Australian Financial Services Licence through ASIC. To provide advice without such an AFSL is already an offence.
The coalition cautions against the risk of further regulatory expansion of the regime from the platform of enshrinement of the terms 'financial planner' and 'financial adviser'. Other terms in the finance industry are not enshrined—terms like 'accountant' are not. Through the pursuit of high professional standards by various accounting bodies, the industry has effectively self-regulated and achieved public trust for that profession. Accountants use accreditation by industry bodies, such as the CPA or Chartered Accountants, to signal their professional standing or bona fides. At best the coalition considers enshrinement will make little difference. Clearly the dividing line in policy terms between what ought to be enshrined and what ought not to be is difficult to agree upon even within the industry. There was some evidence of that through some recent inquiries. I point out, in addition, the Association of Financial Advisers have argued for mandatory sign-plating. An example is for offices and business cards to also be a requirement of this legislation.
The legislation should not be the first step towards more red tape and complexity, with costs of business compliance being passed on to consumers for very little protection. I point that out because some in the industry are foreshadowing future changes. Indeed, in the FPA submission the Industry Super Network was quoted as saying that the legislation should include regulation-making powers to provide flexibility in the future to identify additional requirements which would need to be met in order to make use of the restricted terms and ensure it extends to the use of terms when providing advice and online tools.
The coalition will keep a watching brief on the implementation of this legislation and any flow-on consequences it may have, particularly for unnecessary regulatory burdens with minimal policy outcomes. The coalition will not be opposing the passage of this bill.