Finance Minister Mathias Cormann announced he would put a temporary freeze on the FOFA changes on Monday.
Mr Cormann assumed the duties of Senator Arthur Sinodinos last week after the Assistant Treasurer stood down in order to answer questions posed by the NSW Independent Commission Against Corruption.
The Finance Minister said pausing the process would allow him to “consult in good faith with all relevant stakeholders before pressing the ‘go’ button on [the] changes”.
But news of further delays to the amendment of the FOFA regime could cause headaches for ASIC, according to Henry Davis York partner Jon Ireland.
ASIC’s ‘facilitative approach’ to compliance with FOFA was only originally intended to last until 1 July 2014, he said.
“Consequently, if ASIC seeks to moderate its facilitative approach around this time the industry could be facing the increased likelihood of enforcement action around the same time as the FOFA changes are passed into law,” said Mr Ireland.
Further complicating matters, ASIC has also announced it will not take enforcement action in relation to the parts of FOFA the government intends to repeal.
Speaking at the ASIC Annual Forum in Sydney on Tuesday, ASIC deputy chairman Peter Kell said the regulator would not be taking a “heavy-handed” approach towards FOFA – at least until 1 July 2014.
“We are currently in discussions with the government to adapt any of our current messages to take into account this recent decision [to pause the amendment process],” said Mr Kell
“We will inform the market as we have to moderate our approach over the next few days, but otherwise it’s ‘steady-as-she-goes’,” he said.
Herbert Smith Freehills partner Michael Vrisakis said ASIC’s decision to not enforce provisions of FOFA that are up for repeal is “consistent with common sense”.
But now that Mr Cormann has paused the process ASIC is in “unusual territory”, said Mr Vrisakis.
“ASIC is in an equally difficult position as the industry, because we’re all trying to come up with a commonsense approach to this and there are a lot of moving parts,” he said.
While it makes sense for ASIC to continue its facilitative approach, it is important to distinguish the parts of FOFA the government intends to repeal from the ‘add-ons’, said Mr Vrisakis.
The exclusion of general advice from the conflicted remuneration rules is one such ‘add-on’ that financial services firms cannot assume ASIC will permit, he said. The ‘balanced scorecard’ approach to conflicted remuneration included in the FOFA amendments is another, said Mr Vrisakis.
But he was less concerned about the proposed removal of the final ‘catch-all’ provision of the best interests duty.
“I have a very strong view that it doesn’t really matter, because the best interests duty is not diluted by the removal of that step and therefore it does not make any difference in practice as to whether people work off a regime that’s got that catch-all step or doesn’t have it,” said Mr Vrisakis.
Senior representatives of ASIC are set to appear before the Parliamentary Joint Committee on Corporations and Financial Services in Canberra this afternoon.
