On this date, the Financial Services Reform Act 2001 (FSRA) came into effect, outlining a new set of rules and regulation for the industry.
The result of financial services reform (FSR) followed a government-driven review of Australia's financial regulatory system in the form of the Financial System Inquiry, which bore the Wallis report.
The Wallis inquiry, headed by Stan Wallis, concluded that efficiency, choice and quality in Australia's financial sector had improved since the major deregulation measures of the 1980s.
On 2 September 1997, then treasurer Peter Costello announced a comprehensive set of financial system reforms in response to the recommendations of the Wallis report.
"The proposals I am announcing today will help obtain for Australian consumers and industry the potential benefits of new technologies and world's best practice in the financial system, and at the same time maximise the international competitiveness of our financial services industries," Costello said at the time.
"[The reforms will] better focus regulation according to its underlying objectives and ensure that it applies in a competitively neutral way across the newly emerging market structures; and promote greater competition, and through it the achievement of greater efficiency, across the spectrum of financial and payments services.
"At the same time, the reforms that I am announcing today build on the advantages of the existing arrangements, preserving the basic goals of safety and stability."
The key changes proposed for the reform of Australia's financial system were a new organisational framework for the regulation of the financial system and a variety of measures to improve efficiency and contestability in financial markets and the payments system.
Three years later, on 2 May 2005, the parliamentary secretary to the treasurer released a proposals paper relating to aspects of the practical operation of the changes brought about by the FSRA.
In its submission to the inquiry, the FPA - then led by Kerrie Kelly - made comments on the refinement proposals in the paper released by the then parliamentary secretary for financial services, Chris Pearce, as having the potential to redress the imbalance in the financial services regulatory regime between disclosure and the burden of compliance. "As explained in Treasury's consultations with FPA members, we believe that the draft regulations released for public consultation are inconsistent in a number of areas with the outcomes projected in the FSR Refinement Proposals Paper," the FPA submission said.
"This is especially the case with the SOA [statement of advice] proposals, which could result in minimal changes in compliance costs and a confusing array of disclosure formats.
"FPA appreciates the spirit of cooperation and willingness to consult which the government and Treasury have shown throughout the FSR refinement process.
"FPA is hopeful that a continuation of this constructive dialogue will result in a regulatory outcome to the long-term benefit of all parties."
At the time, the Securities Institute quoted the Treasury as stating the new regulations encourage the production of disclosure documents that have "less duplicated information and are more directly relevant to consumers' needs". "[They] also provide for more simple oral disclosure and streamlined disclosure in relation to basic deposit products and general insurance products," it said.
For advisers at the coalface, FSR costs took a toll on the profitability of small practices, a Business Health study released in 2005 found.
Smaller practices, with annual revenue of less than $750,000 a year, had taken the biggest hit, Business Health principal Terry Bell said at the time.
"They have not yet been able to pass on the FSR cost and as a result their profitability has dropped," Bell said.
In early 2006, ASIC issued guidance information in relation to its stance on compliance in an effort to help the financial services industry implement the new regulations.
"ASIC is providing guidance so that financial service providers have a clear and early view of our approach to compliance with the new regulations,' ASIC executive director of regulation Malcolm Rodgers said at the time.
"At this stage, we don't plan to issue formal, detailed guidance on the new regulations. The government made the new regulations after extensive consultation with industry, and the explanatory material that accompanies these regulations provides a quite detailed explanation of how they are meant to work.
"We expect that financial service providers will make a genuine effort to comply with them. We will, however, continue to monitor developments, and if experience shows there is a need to provide guidance at a later stage, we will do so."
For advisers, the key impact of the amendments occurred in relation to the disclosures they are required to make, the Securities Institute said.
"One of the more obvious changes will be that licensees and authorised representatives can now tailor their FSGs (financial services guides) to only include information on the services they are likely to provide to a client rather than all the services they are licensed to provide," the institute said.
"In addition, where a PDS (product disclosure statement) and an FSG are provided at the same time, the service provider does not need to provide a complete FSG if certain requirements are met.
"Also, FSGs will only require brief, generic information about remuneration and conflicts of interest. In addition, the five-day period for giving FSGs, SOAs and PDSs if they cannot be given immediately has been extended to five business days."
