New advice disciplinary body welcomed but extra costs, ASIC role a great concern
The formation of a new single advice disciplinary body is an important step in simplifying the financial advice sector, but there are concerns around the supporting role ASIC will play and the increasing cost burdens that could be levied on advisers when it comes to the implementation, according to the SMSF Association.
Last month, the Morrison government released consultation draft legislation and explanatory material to implement recommendation 2.10 of the financial services royal commission and establish a new disciplinary system for financial advisers.
In a recent submission to the Treasury, the SMSF Association said it supported the policy intent to simplify the regulatory environment for financial advisers. The proposed changes will aid in the removal in some of the additional layers of complexity around multiple registrations, regulatory bodies and codes.
SMSF Association CEO John Maroney said the SMSFA also views this as an opportunity to improve the efficiency of the current systems with an important step in providing consistency and simplification with the use of a single body — the Financial Services and Credit Panel (FSCP) within ASIC. Its role is to monitor, review and, where necessary, discipline the sector.
The SMSF Association stated that post-implementation, there is a need for a transparent and consistent governance framework to be documented and implemented to address panel size and composition requirements based upon the nature, complexity and/or severity of a matter (or matters).
This includes an efficient and timely review, grading and processing of complaints and matters along with streamlined processing of minor infringements and simple matters. ASIC takes on the role of complaint receiver and investigator, and when the FSCP itself becomes operational, other matters may arise that would need to be similarly addressed.
However, Mr Maroney noted that there are no time frames with regard to how long it will take ASIC to process, investigate, prepare a file to then refer a matter to the FSCP, for the panel to then review, rule upon and issue a notice to the adviser.
“It is in the best interests of the adviser, consumers, and the public to ensure that an appropriate and expedient process is put in place,” Mr Maroney stated.
“It is understood that no time frames have been proposed in the draft legislation to allow for the necessary flexibility, with the time required to be determined and occur naturally based upon the nature, size and complexity of a particular matter.
“Of concern, however, is whether this will see investigation times become protracted, with matters lingering or mired as a result. Without a clear framework, there is limited accountability.
“Efficiency, particularly in the processing of simple or minor matters, will be essential in containing costs incurred in processing, assessing, investigating, referring and then addressing matters before the FSCP.”
Role of ASIC and operational costs
While the association supports the introduction of FSCP, Mr Maroney said there are concerns around the pressure of the operational costs of the FSCP and the supporting role played by ASIC will place on the sector.
In particular, how this will impact the fees, levies and other charges extended already to advisers.
“The current advisers levy already functions on a distorted cost recovery model, which needs review,” Mr Maroney said.
“Any significant increase in costs levied on advisers correlates to an increase in the costs of providing advice to consumers.”
Adequate resourcing will also be a critical factor. The SMSF Association had found that the pressures on ASIC resourcing are expected to significantly increase, with ASIC stating in its own media release on breach reporting 21-080MR that it “expects a significant increase in the volume of reports received as a wider range of entities will be required to report and a wider range of breaches will be subject to reporting”.
Mr Maroney said the breach reporting mechanism is intended to compel an Australian financial services licensee (AFSL) to report significant breaches.
“However, this bill allows for the reporting and issue of sanctions against the adviser on a broader range of matters. We understand that the policy intent is not to broaden the penalty regime; however, its reach is considerably wider,” he said.
While the breach reporting regime is designed for the early reporting of significant non-compliant behaviours, and there is a process for the reporting of non-compliance with the CPD requirements, it is also not clear how matters outside of this framework will ultimately be reported to ASIC.
“The processes or channels need to be considered or provisioned for, including client or consumer complaints processes and how professional bodies will engage with this process. Similarly, what are the types or quantum of matters that need to be channelled through this process?” Mr Maroney said.
It is important that similar provisions are made in the proposed legislation for the replacement model under ASIC, according to Mr Maroney. This means a clear framework is essential to ensure that an appropriate complaints process is put in place, given that ASIC and then the FSCP will be responsible to review matters that will also include the administration of the Financial Planners and Advisers Code of Ethics 2019.
The framework needs to also contemplate how the ASIC complaints process and FSCP are separately distinguishable to the role played by the Australian Financial Complaints Authority (AFCA). This will be particularly important for consumers.
Mr Maroney said: “We understand the need to broadly include the Code of Ethics and to hold advisers accountable to the standards therein. However, given the catch-all provision that arises from the Financial Planners and Advisers Code of Ethics 2019 Standard 1, there is a need for ASIC to issue clear guidance on complaints reporting and the nature and type of matters that are to be referred to the FSCP.
“Without such guidance, there is a risk of ASIC, and potentially the FSCP, being inundated with matters that were perhaps not intended by the measures in this bill.”
Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.
Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.