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Thursday 7 December 2017

17-421MR ASIC updates guidance on conflicted remuneration

ASIC has updated its guidance on conflicted remuneration to more closely reflect a range of regulatory changes since the guide was issued in 2013.

The updated Regulatory Guide 246 Conflicted and other banned remuneration (RG 246), previously titled Conflicted remuneration) now includes guidance on the operation of the incoming life insurance remuneration reforms and additional working examples. 

The life insurance remuneration reforms, which commence on 1 January 2018, mean remuneration arrangements used in some life insurance distribution channels, including direct sales, will need to change.

Other regulatory changes that have impacted on the guidance in RG 246 include:

  • amendments to the grandfathering arrangements for the ban on conflicted remuneration
  • the exclusion for basic banking products, and
  • the stamping fee and brokerage exclusions.

In addition to updating the guidance to reflect regulatory changes, RG 246 now:

  • provides additional guidance on the exclusion for benefits paid by the client
  • includes examples of when conference benefits are likely to be conflicted remuneration, and
  • reiterates that commissions given by a property developer to an adviser where the adviser recommends the establishment, or use, of an SMSF to purchase property are likely to be conflicted remuneration.

ASIC will monitor industry’s implementation of the life insurance remuneration reforms and will consider developing additional guidance if needed to address any specific issues or concerns.

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Background

The conflicted and other banned remuneration provisions are part of the Future of Financial Advice (FOFA) reforms.  The provisions ban many benefits given to those persons who provide financial product advice to retail clients that could reasonably be expected to influence the advice they give. The ban applies to commissions, volume-based payments, so-called 'soft dollar benefits' and volume-based shelf space fees.

RG 246 provides guidance on the conflicted and other banned remuneration provisions in the Corporations Act, including:

  • the ban on conflicted remuneration
  • the ban on volume-based shelf-space fees, and
  • the ban on asset-based fees on borrowed amounts.

The life insurance remuneration reforms were announced by the Government on 6 November 2015. The Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017, which introduced the reforms, commences on 1 January 2018. Together with the Corporations Amendment (Life Insurance Remuneration Arrangements) Regulations 2017 and the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, the reforms:

  • remove the existing exclusion from the ban on conflicted remuneration for benefits paid in relation to life insurance products;
  • insert a new exclusion which permits benefits to be paid if certain commission caps and clawback arrangements are met; and
  • provide that the ban on conflicted remuneration will also apply to certain benefits in relation to information given on, or dealing in, a life insurance product.

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Last updated: 07/12/2017 11:01