THE LEGAL profession last week breathed a sigh of relief when the Federal Government heeded calls to ensure lawyers remain exempt from holding licenses under the soon-to-be-introduced Financial Services Reform (FSR) regime.
But rather than grant an all encompassing exemption via the legislation's governing body, the Australian Securities and Investments Commission (ASIC), Treasury instead widened the exemption by regulation.
The prescriptive approach has led some lawyers to doubt whether they will still be protected come 11 March 2004, the proposed date of FSR implementation.
Released last week in the wake of a meeting between senior Law Council of Australia (LCA) officials and the Treasurer’s parliamentary secretary, Ross Cameron, the draft regulation (below) highlights areas of everyday legal practice that may have required a license.
Essentially, the original FSR legislation only exempted financial product advice supplied by lawyers. But, as argued by the LCA in a number of submissions to ASIC over the past months, lawyers providing ordinary legal advice may go beyond the scope of product advice and may need to provide other financial services, widely referred to as dealings.
Including activities such as holding money on trust, negotiating a share transfer and organizing insurance cover notes following a property conveyance, common dealings carried out by lawyers weren’t exempted by the legislation in the first instance.
The LCA was extremely concerned that the unintended oversight could see lawyers performing everyday duties illegally if they did not possess a license. In its submissions to government and ASIC, the peak body said several professional indemnity insurers were nervous about a potentially catastrophic scenario.
As Lawyers Weekly went to print, the LCA’s specially convened FSR working group was yet to formally consider the draft. President Bob Gotterson, who attended last week's meeting with Cameron, told Lawyers Weekly that a “wholesale” exemption was the LCA’s first priority.
However, he believed Treasury opted for a regulation as a remedy to “compliment the [advice] exemption already made".
“Hopefully the two exemptions will cover everything side by side and we’ll be going through the draft regulation with a fine toothed comb to ensure that, together, they cover every conceivable activity a lawyer may engage in,” said Gotterson, who did not rule out applying for one-size-fits-all style exemption if the loopholes persisted.
According to Michael Vrisakis, finance partner with Blake Dawson Waldron, the draft covers a number of “much needed” areas, but a wholesale approach would have nevertheless been preferable.
“Unfortunately, the legislators have not taken the tack of casting a general exempting net which will exempt activities generally so long as they are part of the normal concept of legal practice,” he said. “This approach is bound to be problematic as the reach of FSR is very wide and it is not always possible to identify all legal activities likely to be caught at the inception of the Act.”
Vrisakis felt a more general approach would avoid “the major pitfall of [the exemption] being too narrow in operation.” For example, holding property on trust, other than cash trust interests, would arguably be caught unless another unrelated exemption could be harnessed, he said.