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Treasury refutes FOFA myths

A regulatory impact statement penned by Treasury flies in the face of criticism of the government’s FOFA amendments, finding no adverse effect on consumers.

In an options-stage regulatory impact statement dated November 2013 and made public this week, the Department of Treasury lays out the practical impacts of the amendments to FOFA both for industry and the broader public, concluding the proposed changes will not water down the reforms.

“The proposed amendments are deregulatory and will represent a move towards a more efficient system whilst maintaining the core protections introduced by FOFA,” the document states.

The document also anticipates that some stakeholders such as “consumer groups” are unlikely to support the amendments due to a perceived dilution of the consumer protection elements, but says these concerns are unfounded.

“Despite these concerns, many of the measures which were originally introduced by FOFA will remain, including an amended best interests duty and the ban on conflicted remuneration,” the impact statement says.

In addition, the paper confirms estimated cost savings to the industry of approximately $190 million per year, with one-off implementation savings of approximately $90 million – signifying savings of just over half of the $375 million in initial estimated costs of FOFA compliance.

The bulk of this saving is expected to come from the removal of opt-in, which is estimated to provide cost savings of $76.9 million.

On the contentious issue of the best interests duty, the paper argues that the proposal to remove the catch-all provision will “make the best interests duty more objective and ensure that section 961B(2) functions as a true safe harbour”.

The document was released not long before Opposition leader Bill Shorten tweeted that “under the Abbott Govt’s new rules, financial planners won’t be required to “act in their clients’ best interests” – a proposition not supported by the Treasury impact statement.

Moreover, the document argues there will be broad economic benefits for the economy since “small businesses are likely to be able to spend more time on their core business of providing financial advice to consumers and less time on compliance-related activities”, which should result in “revenue growth opportunities” and a more competitive financial services sector.