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ASIC updates RG 246

Chris Hamblin, Editor, London, 14 December 2020

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The Australian Securities and Investments Commission has updated Regulatory Guide 246 which lays out its policy to tackle 'conflicted and other banned remuneration,' underpinned by the changing law on the subject. The provisions apply to advice that financiers give to retail customers about financial products and certain benefits that occur in relation to 'life risk insurance' products.

"Conflicted remuneration" is a benefit given to an Australian financial services licensee, or his representative, who provides advice to clients that could reasonably be expected to influence: (i) the choice of financial product recommended to clients by the licensee or its representative; or (ii) the advice given to clients by the licensee or its representative. In addition, the benefit must not be excluded from being "conflicted remuneration" by the Corporations Act or Corporations Regulations conflicted and other banned remuneration provisions. The law on conflicted remuneration and other banned remuneration is to be found in Divs 4 and 5 Pt 7.7A Corporations Act and in Div 4 Pt 7.7A Corporations Regulations.

Latest updates to RG 246 call for:

  • the end of the "grandfathering" of (i.e. regulatory forfearance towards) conflicted remuneration for financial product advice from 1 January 2021 onwards; and
  • the extension of a ban on conflicted remuneration to stamping fees paid in relation to listed investment companies and listed investment trusts (excluding real estate investment trusts) that took effect on 1 July 2020.

The ban on conflicted remuneration for financial product advice applies to all benefits given on or after 1 January 2021. Product issuers are required to provide rebates to clients for all previously "grandfathered" benefits that they remain legally obliged to pay on or after 1 January 2021.

The law does not prescribe a timeframe for repaying commissions that are being clawed back in cases where life insurance policies have been cancelled or reduced in their first two years.

The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 commenced on 28 October 2019 and amended the Corporations Act 2001 (Corporations Act) to ban the grandfathering of conflicted remuneration paid to financial advisers from 1 January 2021 onwards. It also drew up rules for rebating previously grandfathered benefits to affected clients.

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