Move by finance minister Mathias Cormann to scrap some advice regulations takes effect but the Senate can still disallow it

Senators have signalled they will block the removal of regulations aimed at loosening controls on financial advisers.

The finance minister, Mathias Cormann, removed certain regulations from the Future of Financial Advice (Fofa) on Monday. His move took effect on Tuesday without needing to go through parliament, but can be disallowed by the Senate.

The government has touted the removal of the regulations as cutting red tape, but consumer groups have criticised it as benefiting the big banks at the expense of customers.

Scrapping the regulations will stop financial planners having to restate their fees every two years, allow incentive payments for getting people to invest in certain things or sign up to certain financial plans, and remove a “catch-all” in the provision that advisers must act in investors’ interests.

But the changes to the regulations seem likely to be undone within weeks, with Labor, the Greens, Palmer United party (PUP) and at least two other Senate crossbenchers signalling opposition.

The PUP leader, Clive Palmer, said his party would oppose the removal of the regulations. PUP has three members in the new Senate and has a memorandum of understanding with Motoring Enthusiast Party senator Ricky Muir. The government needs six of the eight crossbenchers in the new Senate to pass legislation the Greens and Labor oppose.

“From this time on no investor can rely on any advice, they have to check it out for themselves. It’s a very harsh world, but I’m sure when the Senate comes back it will be disallowed so that people can be treated fairly,” Palmer said on the ABC on Tuesday morning.

Democratic Labour party senator John Madigan said he was going through the regulations line-by-line and was likely to vote to disallow their removal.

“There’s so much devastation out there [from financial scandals] I cannot understand why we would want to weaken laws,” he said. “If anything they’ve got to be more credible.”

Madigan said he received hundreds of letters a week about the regulation of the financial industry and it was an issue that had struck a chord with everyday investors.

The independent senator Nick Xenophon will also vote to disallow the removal of the regulations, calling them “ill-considered” in the Senate last week.

“The Future of Financial Advice reforms legislation under the previous Labor government was not perfect, but it was one I supported because it addressed some yawning gaps in protections for consumers of financial advice, gaps which turned into a chasm of financial disaster for too many Australians,” he said.

“...Who wants to go back to the bad old days which saw planners inherently conflicted between earning commissions and giving advice in the best interests of their clients?”

Last week a parliamentary committee released a damning report into the Australian Securities and Investments Commission (Asic) and banks, suggesting a royal commission into misconduct at the Commonwealth Bank.

Cormann dismissed suggestions he should have waited for the recommendations of the report before announcing which regulations would be removed.

“A lot has changed since then,” Cormann told Sky News on Monday. “The financial advice industry has worked very hard to lift professional, ethical and educational standards and that is work that must continue and the government will continue to engage with.

“The regulatory framework for financial advice has changed, it will continue to have changed as a result of the improvements that we are making. The important point here is that there has been a series of inquiries now into various failures in the financial services sector.”

The chief executive of Industry Super Australia, David Whitely, said the removal of the regulations would increase the risk of financial scandals and allow advisers and banks to take advantage of investors.

“It’s a creation of loopholes and fine print to allow banks to incentivise selling products, including super,” he said.

He said the grandfathering provisions the government was allowing would increase the ways advisers could continue to receive commissions from people’s superannuation without the investor realising.

The Financial Services Council (FSC) has argued otherwise. Its chief executive, John Brogden, said last week the changes still had a clear ban on commissions and kept in place a provision to ensure advisers always acted in the interests of the investor.

“The FSC also supports the government’s move to clarify in the law the ability of a

client and their adviser to agree on the advice the client seeks. By clarifying that scaled advice is possible, rather than amending the best interest duty, consumers can now be certain they will be able to access the advice that they want, which is in their best interests and is more affordable,” he said.

“It is time for the misinformation and scaremongering on the best interest duty to stop. Industry funds and other groups have been misleading consumers and scaring them unnecessarily.”

The opposition leader, Bill Shorten, stopped short of saying the opposition would vote to disallow the regulation windback but said Labor led the defence of consumers.

“It was Labor who led the changes to improve consumer protection, to professionalise the financial planning industry, to put confidence for consumers when they see financial planners,” he said.

“The government is winding them back. Our test is on any of these regulation changes they’re making, are the rights of consumers stronger or weaker? We will always vote for stronger rights for consumers when dealing with financial institutions.”

Fofa was legislated under the previous Labor government and Cormann said the government was concerned the extent of the reforms would reduce affordability and accessibility of financial advice. Cormann announced on 20 June the government would be removing some of the regulations and registered them 10 days later, on the last day of the financial year.