Government ignored ASIC over LIC carve-out

Documents released under Freedom of Information laws reveal the government ignored ASIC's advice to not create a carve-out for LICs and LITs in the Future of Financial Advice conflicted commission ban.

According to documents published last week under a freedom of information request made by The Australian Financial Review, ASIC pleaded with the Coalition government not to expand the stamping fee carve-out in the FoFA laws in late 2013.

The expansion of the carve-out was designed to allow financial advisers to recommend clients invest in listed investment companies and trusts which pay conflicted commissions to advisers.

An internal email released under the FOI request airs ASIC's previously confidential consultation on the issue, including the regulator's correspondence with Treasury where it opposed the expansion of the carve-out.

In its email, ASIC said broadening the exemption would expand the scope for conflicted advice and "corresponding consumer detriment".

"It will also cause an undesirable market distortion by preventing conflicted advice in the secondary market (transfer acquisitions) but permitting conflicted advice for the whole primary market (issue acquisitions)," ASIC said at the time.

"From a consumer protection perspective, we do not see any policy rational for the distinction."

Additionally, the corporate regulator was also concerned any broadening of the exemption would "lead to arguments by other industry sectors that they have been put at a competitive disadvantage by the uneven playing field" the exemption would create.

"Subsequent relaxing of the FoFA reforms will inevitably lead to consumer detriment," ASIC said at the time.

Read more: LICASICGovernmentFreedom of InformationFuture of Financial AdviceAustralian Financial ReviewCoalitionFOITreasury
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