Thank you for inviting me to speak with you today on the progress of the Financial Services Reform Bill.
I am particularly pleased to be invited to Ballarat and to have the opportunity to meet financial service intermediaries who are providing hands-on financial services to individual and small business clients.
Your role is a critical one in helping everyday Australians manage their financial affairs and provide for their future economic well being.
And that role is becoming increasingly important as the range of financial products and services available to consumers is expanding and the imperatives for saving become stronger.
And you are offering these services in a time of rapid development, a time when we all face both the challenges and rewards of operating in a global community.
Some may fear the changes arising from technological development and globalisation I prefer to see these as challenges that offer all Australians the potential for reward.
This is a great time for Australia economically and socially we are riding a high. We should all be proud of our successes in the Olympics, both for our sporting achievements and in our ability to utilise Australia's people and technological skills to stage the biggest event in the history of the planet,
The success of the Olympics showed that Australia has strengths beyond the natural resources we mine and the agricultural products we grow.
Australia's recent success has not, however, been limited to the sporting field.
The Australian economy has also been recording gold-medal performances over the past few years, thanks in part to economic reforms that have kept us at the cutting edge.
But this success has not come about by chance.
It is the product of wide-ranging reform measures, including fiscal reform, sound and independent monetary policy and broad financial sector reforms.
The Financial Services Reform Bill is a key part in ensuring our success continues and that the Australian financial services industry is not just world-class, but leading-edge.
Today, I would like to give you a snap shot of developments in some of the key areas of the FSR Bill that will impact on your business.
First, timing. As you'll be aware, the Government is keen to get the FSR Bill into Parliament and passed and the reforms under way. This has, however, been delayed due to the issues raised by the Hughes case.
However, the Commonwealth and the States have agreed on a way forward and I'm confident that by the end of this year we'll have in place a new system of corporate regulation that will provide commercial and regulatory certainty.
Despite the best efforts of all concerned the Government is unlikely to introduce and pass the FSR Bill by 1 January 2001.
I remain committed, however, to introduction of the Bill as soon as possible, certainly before the end of this year.
To ensure that existing participants in the financial services industry have adequate time to move across to the FSR regime once it starts, transitional provisions will apply from the start of the new regime.
These will include up to 2 years for existing licensees to obtain a financial services licence if that is the way they choose to operate.
The Bill will provide for a streamlined, fast-track mechanism for existing securities dealers, investment advisers and futures brokers to be licensed under the new regime.
This approach will enable existing licensees to make self-declarations about compliance with the relevant licensing criteria.
Treasury and ASIC are currently finalising the detail of this approach to ensure it delivers both efficiency for industry and ASIC while preserving the integrity of the licensing regime.
The Government is also keen to ensure that existing players do not suffer adverse capital gains tax consequences merely because they obtain a new licence under the FSR regime.
To this end the Government will consider the appropriateness of providing CGT relief.
We have also been consulting extensively with industry to fine tune the Bill to ensure it's commercially responsive and that the regulatory intensity is appropriate to the different products and services that come within the regime.
I would like to thank the FPA for its valuable contribution to the consultation process. Your association has provided timely and constructive feedback on the proposals in the draft Bill and has been of great help to Government.
Changes have been made to a range of provisions in the Bill to make sure they will be workable in practice and to make sure business imperatives and consumer protection objectives can be achieved together.
These changes include refinement of the definition of retail client to more closely align it with the definition in the Corporations Law; changes to the prohibition on sub-authorisation by corporate authorised representatives.
We have also refined the definition of financial product advice to distinguish between mere factual information (which is not financial advice) and recommendations and statements of opinion which are defined to be financial advice.
On the topic of competency, there still appears to be some concerns or uncertainty about the Bill's competency requirements for representatives.
In essence, licensees must ensure their representatives are adequately trained and competent to provide the services they offer no more and no less.
Representatives only have to be competent to provide the services they actually provide.
So, for example a representative who only deals in a single class of financial product and does not provide advice will not be required to show the same level of competence as a fully fledged financial planner who advises on a range of products.
ASIC will be revising its policy statement on competencies in consultation with the financial sector to reflect the scope of activities and products covered by the final FSR legislation.
This will require industry and ASIC to revisit current Policy Statement 146 and to amend it to ensure it is flexible enough to cover the activities of all representatives covered by the new regime.
One area of the Bill which I'm sure you will be interested in is the declared professional body mechanism for coming within the licensing regime.
The draft Bill included a mechanism for professional bodies, whose members in the course of carrying on their profession give financial services advice, to come within the licensing regime via a mechanism referred to as the "declared professional body".
This mechanism recognises that some industry participants such as accountants, lawyers and actuaries are already subject to a range of strict professional requirements including competence and ethical standards and face discipline if they breach those standards.
The views expressed in submissions on this mechanism ranged from very strong support through to concern. Some felt it would undermine the integrity of the licensing regime because in some way it was a 'soft option'.
Let me make it very clear that this is not a soft option and that in granting a declaration, ASIC will need to be satisfied that those operating under a declaration will provide the same standard of consumer protection as financial services licensees.
This is not intended to be a carte blanche exemption for all professionals.
To clarify this intent, small changes have been made to the final legislation to facilitate the operation of the declared professional body mechanism and ensure comparable consumer outcomes.
The final Bill will more closely align this mechanism with the outcomes achieved via the single licensing regime.
Turning to a different subject, I had lunch with the Board of the FPA this week during which they raised their concerns about the proposed alienation of personal income measures.
While this is not directly within my area of responsibility, I am keen to ensure that this issue is fully examined.
To this end my office and Senator Kemp's office will be arranging a meeting with the FPA, Treasury and ATO representatives to discuss your concerns with these measures.
You have also asked me to comment on ASIC's report on the financial advising activities of real estate agents.
You may be aware that as a result of a recommendation in the Financial Sector Inquiry, ASIC completed a review of the financial advice activities of real estate agents in February this year.
The purpose of the review was to assess the adequacy of the current arrangements for regulating real estate agents who promote negatively-geared investment packages and to determine whether an advice framework similar to that applying to other investment advisers was required.
The review focussed on: authorisation standards, disclosure obligations, conduct standards, complaints resolution and consumer remedies; and disciplinary procedures.
The review concluded that the existing regulatory regime for real estate agents had not been designed with financial advice in mind.
However, the review recognised that to some extent these activities and the general activities of real estate agents and the sale of property are currently regulated by the State and Territory licensing of real estate agents and were also regulated under the Uniform Consumer Credit Code.
It acknowledged that any intervention by the Commonwealth in this area could result in duplication of regulation and that the States and Territories were well placed to implement any necessary changes through their existing real estate regulatory regimes.
In response to these findings, I have written to the relevant State and Territory ministers drawing ASIC's findings to their attention.
Of course, to the extent that real estate agents provide advice on financial products caught by the Financial Services Reform Bill, they, like other financial advisers, will be subject to the FSR licensing, conduct and disclosure obligations.
For example, real estate agents who provide advice on managed investments must either be licensees or authorised representatives.
In summary, I believe that the new regulatory regime will equip Australia for the challenges of the global financial market. It will ensure that Australians consumers have access to a range of financial services and products offered by competent and professional service providers.
It will encourage new ways of doing business and help develop an industry where technological developments, globalisation and growing consumer sophistication can be capitalised upon for the benefit of industry, consumers and Australia as a whole.