Treasury has released ASIC’s report ‘Ending Grandfathered Conflicted Remuneration’ which sets out ASIC’s findings as to the steps taken by industry participants from 1 July 2019 to 31 December 2020 to:

• End the payment of grandfathered conflicted remuneration ahead of the legal requirement to end these arrangements; and
• Pass previously grandfathered benefits on to product holders.

Background

The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 amended the Corporations Act to end GCR arrangements from 1 January 2021. Consequently, previously grandfathered benefits that are given from 1 January 2021 are subject to the ban on conflicted and other banned remuneration in Divs 4 and 5 of Pt 7.7A of the Corporations Act, including where the legal obligation to pass the benefits on to product holders accrued before 1 January 2021.

ASIC found that

• during the review period, product issuers fully terminated 96% of GCR arrangements (1,227
  products). Product issuers did not fully terminate 4% of GCR arrangements (46 products)
• for GCR arrangements terminated in the review period, product issuers took steps to rebate
  product holders in relation to 755 products
• product issuers estimated that $266.7 million was rebated to product holders over the review
  period, mostly through fee reductions. During the review period, there was no mandatory
  requirement to rebate to product holders
• financial advisers changed the way they charged clients over the review period. Where
  appropriate, they moved clients to other fee arrangements – for example, charging an
  ongoing fee, an hourly rate, a fixed price or an asset-based fee
• eight product issuers had arrangements in place as at 1 January 2021 that require them to
  rebate previously grandfathered benefits on 46 products. All eight product issuers plan to rebate product holders an amount equal in value to the amount of GCR the issuer would
  have otherwise paid. This amount is estimated to be $24.4 million.

ASIC says that it will contact the eight product issuers that have arrangements in place that require them to rebate previously grandfathered benefits from 1 January 2021 to ensure that they understand their legal obligations. They must ensure that:
› rebates are provided no later than one year after the date by which they are legally obliged
(but for the ban on conflicted remuneration) to give the conflicted remuneration to another
person; and
› rebates to product holders are just and equitable in the circumstances.

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