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This instrument prescribes requirements for written consent in relation to an ongoing fee arrangement.
Administered by: Treasury
Registered 24 Mar 2021
Tabling HistoryDate
Tabled HR25-Mar-2021
Tabled Senate11-May-2021

 

Australian Securities and Investments Commission

 

Explanatory Statement

 

ASIC Corporations (Consent to Deductions—Ongoing Fee Arrangements) Instrument 2021/124

This is the Explanatory Statement for the ASIC Corporations (Consent to Deductions—Ongoing Fee Arrangements) Instrument 2021/124 (Instrument).

The Explanatory Statement is approved by the Australian Securities and Investments Commission (ASIC).

Summary

1.       Fee recipients must obtain the client’s express written consent to deduct, arrange to deduct, or accept the deduction of, fees under an ongoing fee arrangement. These requirements apply to deductions from accounts that are not linked to a credit card or a basic deposit product (sections 962R and 962S of the Corporations Act 2001 (the Act)).

2.       Section 962T of the Act provides that ASIC may, by legislative instrument, determine the requirements for the giving of consent to deductions of fees from an account under an ongoing fee arrangement, including the specific form or form of words that must be used for giving consent and the information to be specified in the consent.

3.       This Instrument prescribes the requirements for the written consent that fee recipients must receive from clients before deducting, arranging to deduct, or accepting the deduction of, fees under an ongoing fee arrangement from a client’s account.

Purpose of the Instrument

4.       The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) identified problems with individuals being charged for financial advice services that have not been provided (known as ‘fees for no service’). These problems were found to be particularly acute for ongoing fee arrangements. 

5.       In light of these problems, the Royal Commission made the following recommendation to provide further protection against future fees for no service conduct (Recommendation 2.1):

 

Annual renewal and payment

The law should be amended to provide that ongoing fee arrangements (whenever made):

·         must be renewed annually by the client;

·         must record in writing each year the services that the client will be entitled to receive and the total of the fees that are to be charged; and

·         may neither permit nor require payment of fees from any account held for or on behalf of the client except on the client’s express written authority to the entity that conducts that account given at, or immediately after, the latest renewal of the ongoing fee arrangement.

6.       In line with Recommendation 2.1, Schedule 1 of the Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2021 amends the Act to require that fee recipients obtain a client’s express written consent to deduct, arrange to deduct, or accept the deduction of, fees under an ongoing fee arrangement. This is in addition to existing obligations that require fee recipients to give clients in ongoing fee arrangements an annual fee disclosure statement seeking the client’s consent to continue the arrangement.

7.       A ‘fee recipient’ is an Australian financial services (AFS) licensee or its representative who enters into an ongoing fee arrangement with a client or has been assigned the rights under an ongoing fee arrangement (section 962C of the Act).

8.       The amendments also provide that ASIC may determine the requirements for giving consent to deductions of fees under an ongoing fee arrangement. The Instrument prescribes the requirements for the giving of consent to deductions or arranging for deductions from an account under an ongoing fee arrangement.

9.       The written consent requirements prescribed in the Instrument will ensure that, consistent with the intent of Recommendation 2.1, the fees payable under an ongoing fee arrangement are made visible to the client.

10.     The Instrument will also ensure that there will be a consistent approach taken to written consents by fee recipients who must comply with the new obligations. The Instrument strikes a balance between adopting prescriptive standards and providing flexibility for fee recipients.

Consultation

11.     ASIC released Consultation Paper 329 Implementing the Royal Commission recommendations: Advice fee consents and independence disclosure (CP 329) on 10 March 2020, seeking feedback on ASIC’s proposed approach to implementing aspects of law reform arising from Royal Commission Recommendations 2.1, 2.2 and 3.3 relating to advice fee consents and independence. CP 329 was open for submissions for a period of four weeks. Submissions were also accepted after this time due the impacts of the COVID‑19 pandemic.  

12.     ASIC Report 687 Response to submissions on Consultation Paper 329: Implementing the Royal Commission recommendations: Advice fee consents and independence disclosure (Report 687) sets out the key issues that arose out of the submissions received on CP 329 and ASIC’s response to those issues.

13.     The Office of Best Practice Regulation has confirmed that the Government has undertaken a process equivalent to a Regulation Impact Statement in relation to the implementation of the Royal Commission recommendations, which also covers implementation by ASIC of recommendation 2.1 in the Instrument.

Operation of the Instrument

14.     Section 1317E of the Act provides that a failure to obtain written consent prior to deducting, arranging to deduct, or accepting a deduction of, fees under an ongoing fee arrangement is the subject of a civil penalty provision. For written consent to be valid for the purposes of meeting the obligations, it must meet any requirements set by ASIC in a legislative instrument (paragraphs 962R(2)(b) and 962S(3)(b) of the Act).

Part 1 – Preliminary

15.     Section 2 of the Instrument specifies that the Instrument commences on the later of 1 July 2021 and the day after the Instrument is registered on the Federal Register of Legislation.

16.     Section 3 of the Instrument provides that the instrument is made under section 962T of the Act. This section has been enacted and will come into operation on 1 July 2021. Even though the section that confers power on ASIC to make the Instrument has not yet come into operation, ASIC can make the instrument as if it had come into operation in reliance on subsection 4(1) of the Acts Interpretation Act 1901 (as in force on 1 January 2005).

17.     Section 4 defines key terms in the Instrument, including: ‘account holder’, ‘anniversary day’, ‘fee disclosure statement’ ‘fee recipient’, ‘ongoing fees’ and ‘ongoing fee arrangement’.

18.     The ‘account holder’ is the person(s) who holds an account with the fee recipient or third party from which ongoing fees will be deducted. This will typically be the client under an ongoing fee arrangement. However, there may be more than one account holder.

Part 2 – Determination

19.     Section 5 sets out the requirements for the written consent that is given by an account holder to permit the deduction of ongoing fees. For the avoidance of doubt, where the fee recipient is the provider of the account to be debited under an ongoing fee arrangement, the written consent requirements in the Instrument must be met before the ongoing fees are deducted from that account.

20.     A written consent is only effective if it complies with section 5 of the Instrument and is signed by an account holder, or otherwise agreed to by the account holder in writing (including electronically). For example, the written consent is effective if the account holder provides their electronic signature to a document that complies with section 5 of the Instrument. An account holder may also agree to the terms of the written consent in other ways. For example, the account holder could agree in writing by ticking a box on a webpage in response to a statement to the effect of: ‘By ticking the box, you consent to the charging of ongoing fees that are set out in this document’.

21.     The written consent must also bear the date indicating when the consent was given by the account holder. Where an account is held jointly, the written consent must state the date when each account holder gave the consent to the deduction of fees under the ongoing fee arrangement. To satisfy this requirement:

(a)     the written consent could be ‘time stamped’ for the date that the account holders have provided their electronic signatures to the document; or

(b)     the account holder could date a written consent with their physical signature to the document.

22.     The written consent must specify the name of the account holder who holds the account from which fees will be deducted under the ongoing fee arrangement. This will typically be the client under an ongoing fee arrangement and there may be more than one account holder. Where an account is held jointly, all joint holders must give the written consent. This is to make clear who is providing the consent.

23.     The written consent must include the name and contact details of the fee recipient. The written consent should at the very least include the phone number and email address of the fee recipient.

24.     The written consent must explain why the fee recipient is seeking the account holder’s consent. This is to ensure that the purpose of the consent is clear to the account holder. Only a brief explanation of why the fee recipient is seeking consent from the account holder is required. For example, the fee recipient could include the following statements in the consent document (where relevant):

(a) ‘I am seeking your consent so that I can deduct ongoing advice fees from your account’; or

(b) ‘I am seeking your consent so that I can arrange to deduct ongoing advice fees from your [insert name of account]’.

25.     In relation to an existing ongoing fee arrangement, the written consent must set out the frequency and amount of deduction of each ongoing fee that the account holder will pay during the upcoming year if the account holder were to renew the existing ongoing fee arrangement. In this situation, the upcoming year is a period of 12 months beginning on the next anniversary day for the ongoing fee arrangement.

26.     In relation to a new ongoing fee arrangement, the written consent must set out the frequency and amount of each ongoing fee the account holder will pay during the upcoming year if the account holder were to enter into a new ongoing fee arrangement. In this situation, the upcoming year is a period of 12 months beginning on a day that is no more than 30 days after the fee recipient gives or makes available to the account holder all of the information that subsection 5(3) of the Instrument requires to be included in a written consent.

27.     It is important that the fees payable under the ongoing fee arrangement are made clear to the account holder. For example, the consent document could include a statement such as:

(a) ‘You will pay $200 of ongoing fees monthly from your XYZ superannuation account’.

28.     If the amount of deduction of an ongoing fee the account holder will pay during the applicable period cannot be determined, the written consent can provide a reasonable estimate of the amount of this ongoing fee during this period. If a reasonable estimate is provided, the written consent must include an explanation of the method used by the fee recipient to work out the estimate.

29.     In practice, there may be circumstances where a fee recipient is unable to determine the amount of ongoing fees that will be deducted from a client’s account(s) for the first year of an ongoing fee arrangement. For example, where a fee recipient deducts ongoing fees as a percentage of funds under management, the fee recipient would be unable to determine the exact amount of fees that will be deducted over the next 12-month period if the client has yet to enter into the ongoing fee arrangement at the time of preparing the consent document and cannot establish when the next 12-month period commences for the purpose of calculating ongoing fees. A reasonable estimate of fees may be provided in these circumstances.

30.     The fee recipient should also make it clear to the account holder that an estimate of the ongoing fees payable under the ongoing fee arrangement has been provided. For example, the written consent could include a statement such as:

(a)     ‘This is an estimate only. It is based on ongoing fees that you paid in the previous year and your account balance at the time we prepared this consent’.

31.     The written consent must set out the details for each account from which the account holder will be paying ongoing fees (e.g. account name and number) and subject to paragraph 5(3)(f), the amount of each ongoing fee the account holder will pay from each account. For example, the written consent could include a statement such as:

(a)     ‘You will pay $200 of ongoing fees monthly from your XYZ superannuation account and $100 of ongoing fees monthly from your ZYX investment account’.

32.     The written consent must include a statement explaining when the account holder’s written consent will cease to have effect — that is, up to 150 days after the anniversary day. The written consent should include a statement that is appropriate to and easily comprehensible for the client base of a fee recipient. For example:

(a)     ‘Your consent will last until 150 days after [insert anniversary day]’.

(b)     ‘Your consent will last until [insert date that is 150 days after the anniversary day]’.

(c)     ‘You first entered into an ongoing fee arrangement with us on [insert date 1]. You have until [insert date which is one year and 150 days after date 1] to sign a new written consent for us to continue deducting ongoing fees from your account’.

33.     The written consent may include a statement explaining that once the written consent ceases to have effect, the fee recipient can no longer deduct ongoing fees from the client’s account and the account holder is no longer entitled to receive services under the ongoing fee arrangement. For example:

(a)     ‘We will no longer be able to deduct ongoing fees from your account or provide services under the ongoing fee arrangement after the date the consent ceases to have effect unless you provide a new consent to continue the deduction of ongoing fees from your account’.

(b)     ‘After the consent ceases to have effect, we are no longer able to deduct fees from your account in return for services under your ongoing fee arrangement unless you sign a new written consent’. 

34.     The written consent must state that the account holder can withdraw their consent or terminate or vary the ongoing fee arrangement at any time by notice in writing to the fee recipient. This is to ensure that the account holder is aware of their rights under sections 962U and 962V of the Act.

35.     The written consent must be worded and presented in a clear, concise and effective manner. This is the same as the requirement in relation to Statements of Advice, Financial Services Guides and Product Disclosure Statements in Parts 7.7 and 7.9 of the Act.

36.     To minimise duplication in information between a fee disclosure statement and a written consent where these two documents are combined, the written consent need not include the information specified in subsection 5(3) of the Instrument to the extent that all of the following are satisfied:

(a)    the written consent is combined with a fee disclosure statement given to the account holder;

(b)    the information that would otherwise be required to be included in the written consent is included in the fee disclosure statement; and

(c)    the fee disclosure statement is worded and presented in a clear, concise and effective manner. 

Legislative Authority

37.     This Instrument is made under section 962T of the Act and is a disallowable legislative instrument.

Incorporation by reference

38.     The Instrument does not incorporate any matter by reference for the purposes of section 14 of the Legislation Act 2003.

Statement of Compatibility with Human Rights

39.     The Explanatory Statement for a disallowable legislative instrument must contain a Statement of Compatibility with Human Rights under subsection 9(1) of the Human Rights (Parliamentary Scrutiny) Act 2011. A Statement of Compatibility with Human Rights is in the Attachment.


 

 

Attachment

Statement of Compatibility with Human Rights

This Statement of Compatibility with Human Rights is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.  

ASIC Corporations (Consent to Deductions—Ongoing Fee Arrangements) Instrument 2021/124

Overview

1.       ASIC Corporations (Consent to Deductions—Ongoing Fee Arrangements) Instrument 2021/124 determines requirements for the giving of consent to deductions of fees from an account in relation to ongoing fee arrangements.  

2.       The Instrument is to enable the implementation of Recommendation 2.1 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The intent of Recommendation 2.1 is to address problems with clients being charged for services that had not been provided, particularly in respect of ongoing fee arrangements.

Assessment of human rights implications

3.       This Instrument does not engage any of the applicable rights or freedoms.

Conclusion

4.       This Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.