FSLAA overachievers 'could be collateral damage'

A delayed start for the Financial Services Legislation Amendment Act regime is the right thing to do – but it could be a problem for proactive advice providers who had already started to move their businesses towards licensing, one financial services law expert says.

The Government has announced that the regime will now not take effect until at least March, giving advisers another nine months to complete their transitional licence application.

David Ireland, a partner at Dentons, said the delay would mean people applying for a financial advice provider (FAP) licence would have time to revisit their plans and make sure all was in order.

“While most will welcome the delay, those who had prepared themselves to go early may need to unwind things.”

He said there were a number of ways that businesses might now feel they had jumped too soon.

“Delaying FSLAA is the right thing to do but there is collateral damage at two or three different levels.”

He said some current RFAs might have decided that the new regime was one regulatory reform too many.

“They might have decided they don’t want to work in the FSLAA world and [will] exit the business, sold their client base because they are getting out, committed to getting out this quarter.

“Now they find actually they could have operated under the old model and have generated income for another nine months. Given what’s happened, having trail commission coming in for nine months would have been quite good as opposed to offloading that now.”

Some advisers might have already “hitched their wagon to a particular provider train,” planning to come under their FAP because of the time pressure, he said, when they might have made a different decision with a bit more breathing room.

Many providers may also have sunk a lot of time and cost into getting systems set up that were intended to meet new requirements but would now have to be adjusted, he said.

Some had designed new platforms and processes, working on the basis that disclosure regulations would look like the drafts circulated – but it was likely that those would change between now and March as the Government had more time to finesse its requirements and consider feedback, he said.

“Organisations were starting to make decisions based on best guesses at the disclosure framework.”

Many had had to adjust their systems or build new ones that could automate some of those requirements and the investment could end up having been wasted, he said.

“Organisations in that position had to be going hell for leather to ensure they were able to comply with the new environment on June 29. They will now not be the best build to support FSLAA when it comes in at the earliest in March next year.

“People who made decisions with the best of intentions could end up with some wasted expenditure and wasted anxiety and effort.”

He said it would be important that people did not lose momentum through this period. Adviser business should not wait until the end of the year to think about progressing their licence applications, he said.

Full licensing will now not take effect until 2023.

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