Last year, the government passed legislation to give the Financial Services and Credit Panel (FSCP) its own statutory functions and powers.
The powers of the FSCP under the act include the power to direct financial advisers to undertake specified training, counselling or supervision and to report certain matters to ASIC.
The FSCP may also suspend or cancel a financial adviser’s registration, issue infringement notices in specified circumstances, recommend that ASIC commence civil penalty proceedings and enter into enforceable undertakings with financial advisers.
ASIC has now released Consultation Paper 358 Update to RG 263 Financial Services and Credit Panel (CP 359). This consultation paper sets out ASIC’s proposals to update Regulatory Guide 263 Financial Services and Credit Panel (RG 263) to reflect legislative changes in the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (Better Advice Act).
ASIC is seeking feedback on CP 359 from the industry and other interested parties.
One of the areas ASIC is seeking feedback on is its proposed approach to deciding when to convene a sitting panel, determining whether loss or damage to a client or benefit to an adviser is material and assessing a financial adviser’s fitness and propriety.
Under s139(1) of the ASIC Act, ASIC has a broad discretionary power to convene a sitting panel to consider misconduct by financial advisers.
“In determining whether ASIC will convene a sitting panel using this power, we propose to consider the regulatory benefit that may be derived from referring a matter to a sitting panel. For example, whether misconduct is widespread or part of a growing trend, and whether referring the matter to a sitting panel will send an effective and deterrent message to industry,” the corporate regulator stated.
“We consider that targeting misconduct that is widespread or part of a growing trend and matters that, if considered by a sitting panel, will send an effective and deterrent message to industry, is likely to result in regulatory benefit.”
ASIC explained that there are certain circumstances where ASIC must convene a sitting panel. These circumstances are where:
(a) a financial adviser has contravened, or been involved in the contravention of a financial services law (see reg 12N(2)(e) and (f) of the ASIC Regulations); and
(b) the financial adviser has, at least twice, been linked to a refusal or failure to give effect to certain determinations made by the Australian Financial Complaints Authority (AFCA) (see reg 12N(3) of the ASIC Regulations).
In assessing whether these convening circumstances exist, ASIC said it would determine whether the loss or damage to a client or a benefit to an adviser is material.
“When assessing whether loss or damage to a client is material, we will likely have regard to the broad circumstances of the client including their financial circumstances. This may include considering several factors such as the client’s assets, income, liabilities and ongoing commitments, insurance arrangements, employment security and expected retirement age,” it stated.
“Similarly, when we assess whether a benefit to a financial adviser is material, we will likely have regard to the broad circumstances of the financial adviser and the benefit itself. This may include assessing the size of the benefit relative to typical industry remuneration and the benefit the financial adviser would have received if they had not recommended the client take a particular course of action.”
In terms of assessing a financial adviser’s fitness and propriety, ASIC proposes that it will consider whether the financial adviser is competent to provide personal advice to retail clients on the relevant financial products they are authorised to provide personal advice on.
It will also consider whether the adviser has the attributes of good character, diligence, honesty, integrity and judgement.
ASIC also noted that financial advisers would be able to apply to ASIC for a variation or revocation of a direction or order made by a sitting panel.
ASIC stated that it plans to provide a non-exhaustive list of matters as set out in draft RG 263.37 that ASIC may consider when deciding whether to convene a sitting panel to consider a variation or revocation application.
These include the seriousness of the circumstances that resulted in the direction or order and the period that has elapsed since the direction or order was made and whether the person applying for the variation or revocation continues to pose a risk to consumers or to confidence in the financial system.
ASIC will also consider any action taken by the applicant to remedy any misconduct or the cause of the misconduct and any information that, if it had been known to the sitting panel at the time, may have been relevant to its decision to give the direction or order.
