Financial Services Council (FSC) members have indicated the cost to build compliance and IT capabilities to comply with the federal government’s opt-in reforms could top $60 million for some companies.
In the FSC’s submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the corporations amendment of the Future of Financial Advice (FOFA) bill and the FOFA measures bill, council members said costs of becoming opt-in ready would range from $1 million to $60 million.
The range depended on the size of the relevant organisation and the nature of their business activities, a member opt-in survey, contained in the submission, said.
“Ongoing costs range from $10,000 to $9 million, again depending on the size and relevant nature of their business activities,” the FSC submission said.
It said the total implementing and ongoing costs of the opt-in reform differed significantly depending on the requirements on the business.
“If the information on the fee disclosure statement is summary only (not detailed as per Bill 1) and only applied prospectively, the cost of compliance is 50 per cent cheaper (for the client) than the alternative which is currently required by Bill 1,” the submission said.
The FSC supports the government’s stance that the opt-in renewal notice requirements are to apply every two years rather than annually, however, the council believes elements of the reform could be more efficient.
“Specifically we recommend that the new fee disclosure statement be a prospective requirement and amended to provide retail clients with a pertinent summary of the fees and services noting that retail clients already receive the disclosure this measure is attempting to address,” the FSC said.
In regards to the FOFA reforms as a whole, it said transitional arrangements were necessary in order to enable the industry appropriate time to implement final reform measures.
“All major financial services reforms have been accompanied by an appropriate transition period – reflecting the need for the industry to undertake major information technology/systems, business process, compliance procedure, (competency) training, disclosure documentation changes and in some cases, amendments to licensing requirements,” it said.
“These reforms are no different and in our view represent at least as significant a change to the operation of the financial services industry as those introduced by the Financial Services Reform Act 2001. Those reforms commenced on 10 March 2002 and included a two-year transition period, ending on 10 March 2004.”
It said it was concerned that it was unlikely the legislation would be passed before the first quarter of 2012.
“This gives the industry less than six months to develop and implement complex IT systems, compliance frameworks and monitoring processes and education and training programs to ensure that financial services licensees, employees and advisers are aware of and able to meet their statutory obligations,” it said.
“Additionally, the implementation of these reforms will require significant investment and impose costs upon financial services providers of all sizes, including small businesses throughout Australia. These costs should only be incurred once the final form of the legislation and obligations are known.”
