There are mixed views on the proposed decoupling of ‘personal advice’ from the definition of ‘financial service’, according to submissions presented in a Australian Law Reform Commission’s (ALRC) Financial Services Legislation Inquiry background paper.
ALRC had proposed the amendment of Section 766A(1) of the Corporations Act 2001 to remove the term ‘financial product advice’ from the definition of ‘financial service’, substituting it with ‘general advice’.
Amongst those in support of the proposed reform were the Accounting Professional & Ethical Standards Board, arguing the proposal “will enhance and clarify the regulatory distinction between general advice and personal advice, the latter which is subject to more extensive requirements”.
Kit Legal also indicated their support for Proposal A14, on the basis that it “should be very clear which obligations apply to the relevant service provided”.
They agreed that it was worth considering “aggregating aspects of regulation that are specific to personal advice”, and considered that it was “currently not clear on the face of Chapter 7 that certain aspects are only applicable to personal, not general, advice”.
In expressing support for the proposed reforms, some submissions also called for substantive reconsideration of the existing connection between financial advice and ‘financial products’ in the regulatory framework.
The ALRC noted in Interim Report A that the proposed reforms could facilitate, though would not necessitate, more substantive changes to the regulation of financial advice.
By contrast, the Insurance Council of Australia said the proposal could “have the potential to increase, rather than reduce, complexity in relation to the operation of the advice provisions in the Corporations Act”.
University of New South Wales (UNSW) associate professor, Marina Nehme, agreed the proposed reforms might result in greater confusion, and suggested that the relative obligations of financial service providers when providing personal advice versus general advice could instead be clarified through the inclusion of a table setting out the different obligations in the statute.
Both UNSW professor, Pamela Hanrahan, and the Law Council of Australia queried whether ‘general advice’ should continue to be regulated as a financial service.
In their view, general advice was a ‘business communication’ that should therefore fall under consumer laws, whereas regulating it as a financial service created “an expectation that an agency, such as the Australian Securities and Investments Commission, is overseeing it for quality”.
MinterEllison also noted concerns with the proposal, because if only ‘general advice’ was “included in the definition of financial service, then that would suggest that general advice requires a licence but personal advice does not”.