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Our industry’s understanding of the Code of Ethics (The Code) continues to evolve as we settle into the fact that The Code is here to stay.
Since the commencement of The Code, Financial Adviser Standards and Ethics Authority (FASEA) has provided various forms of guidance as they help the industry better understand The Code.
More recently, the Government has released draft legislation on the Single Disciplinary Body (SDB). This will see the disbandment of FASEA on 31 December 2021 and introduction of the SDB.
FASEA has committed to another round of consultation on Standard 3 before its disbandment on 31st December 2021. Standard 3, relating to conflicts of interest, is one of the most debated topics introduced by The Code and could have a significant impact on the financial advice industry.
It is proposed that the SDB would be operated by the Australian Securities and Investment Commissions (ASICs) existing Financial Services and Credit Panel (FSCP). ASIC will receive complaints and reports of breaches from AFCA, industry bodies, consumers, Australian Financial Services Licensees (AFSLs) or their own monitoring and surveillance.
If ASIC reasonably believes that a financial adviser has failed to comply with The Code they will refer the matter to the FSCP to assess if there is a breach, and whether a penalty should apply.
During the assessment, the FSCP may also consider whether the adviser has breached financial services law, an FSCP order, or education and training standards. The list of possible breaches extends to 12 items in total. An FSCP is expected to comprise of at least two industry participants, which ASIC must select from a list of eligible persons (appointed by the Minister). However, the FSCP will be chaired by an ASIC staff member.
An FSCP may issue an infringement notice, impose an administrative sanction, or both. The bill proposes that new powers are conveyed to the FSCP, in the form of administrative sanctions. The types of administrative sanctions that an FSCP can impose are warnings or reprimands, directions to undertake specified training, supervision, counselling or reporting and orders suspending or cancelling an adviser’s registration. An FSCP may also recommend that ASIC seek a civil penalty for certain breaches of the financial services law.
Before an infringement notice or administrative sanction is issued, the panel will provide the financial adviser being investigated with details of the breach, the proposed sanctions and the adviser’s right to request a hearing or make a submission to the panel.
Whilst nothing to do with FASEA, let’s not overlook the proposed annual registration system, which is included in the bill. A new annual Code of Ethics registration system is proposed for financial advisers. Interestingly, the obligation to register a financial adviser sits with the AFSL.
The application for the registration of an adviser must be submitted to ASIC in the approved form and include:
Although this new obligation is proposed, the Government has also proposed that registration with the Tax Practitioners Board will no longer be required for tax (financial) advisers. An additional fee is likely for the annual registration system and will be confirmed after consultation with the industry.
In June and August 2021, FASEA issued media releases which contained several interesting statistics on the FASEA adviser exam and those completing their professional year:
* Figures from FASEA media release 3 August 2021
** Figures from FASEA media release 3 June 2021
Regulatory reform continues to be a hot item in the financial advice industry. With FASEA having another go at standard 3, transferring functions to Treasury and ASIC, and the proposed start-up of the Single Disciplinary Body in 2022, there isn’t much relief from more changes soon.