Labor and minor parties vote down FOFA regulations

Yesterday evening, the Senate voted by a 32-30 margin to disallow the government's recent amendments that watered down the FoFA laws on the regulation of financial advice.

The vote to disallow the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 in effect ends the current coalition government's campaign to modify the FoFA rules introduced under Labor. Last night's disallowance motion removes all the amendments made in June, including the new exceptions to the rules on conflicted remuneration .  

It means the reinstatement of Labor's FoFA rules that were designed to give far more levels of protection to consumers receiving financial advice, including stringent measures to ensure advisers act in the best interests of clients, fee-disclosure requirements, and the 'opt-in' requirement that advisers obtain written consent from clients every two years  to continue ongoing fee arrangements. The government singled out these rules as unnecessary red tape.

The reversal came about after rebel Palmer United Party senator Jacqui Lambie and allied Motoring Enthusiasts Party senator Ricky Muir changed their votes in the wake of what independent senator Nick Xenophon called a "gruelling" Senate estimates hearing last week into the Timbercorp collapse.

Those two senators' votes (added to those of John Madigan and all Greens senators) gave Labor the numbers to undo the recent deal done between Clive Palmer and finance minister Mathias Cormann that had been standing in the way of the attempt to return to tighter regulation of financial advisors.


Regardless of whether the current outcome is a result of well-orchestrated timing or just plain luck, the national financial planning regulations are now more or less back to their pre-election status quo. This gives David Murray and his fellow inquiry panellists clear space to release their recommendations on how to run the sector more effectively over decades, rather than one election cycle.  

The result has met with a mixed reaction. Maurice Blackburn Lawyers welcomed the support of crossbench senators, saying the move was an important step in ensuring greater protection for Australian consumers.

"The proposed measures before the Senate to water down the Future of Financial Advice laws have always been a backwards step for consumers, and we are relieved Senate crossbenchers have now also seen this and are taking action to stand up in demanding better standards," said Maurice Blackburn partner John Berrill.

"The Government's proposed amendments to the FoFA laws completely undermine basic consumer protections and we have long called for a rethink of these changes."

The Financial Planning Association, on the other hand, said the disallowance would "continue five years of uncertainty for financial planners and their clients which commenced when the FOFA process began under the Labor Government."

"This will have a catastrophic effect across the entirety of the financial services industry, one of the largest employers of people in Australia," said FPA chief executive Mark Rantall.

The body charged with implementing the rules, whichever way they are passed, is ASIC. The corporate regulator said in a media statement last night that it would take "a practical and measured approach to administering the law as it now stands," following the disallowance of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014.

ASIC acknowledged that many Australian financial services licensees will now need to make systems changes for items such as fee disclosure statements and remuneration arrangements.

"We will work with Australian financial services licensees, taking a facilitative approach until 1 July 2015," ASIC stated in its release.