New adviser registration should not blur the obligations of the individual and the AFSL

“We urge the government to reshape some of the proposed measures, using them as the essential first steps towards broader regulatory reform for the advice sector. Doing so will align the financial advice sector with other professions — the broader policy objective,” SMSF Association CEO John Maroney said. 

“Individual registration of financial advisers and the inclusion of tax (financial) adviser registrations under one umbrella inside ASIC is one such step. These changes will incorporate a fit and proper person test on application and renewal.

“However, registration should be the responsibility of the individual and not their licensees as the draft legislation proposes. This makes it clear that these declarations are a statutory obligation and not a requirement of the licensee. For advisers, the lines between licensee policies and the law often become blurred.”

Mr Maroney said urgent consideration is needed for advisers who registered as tax (financial) advisers based upon specified experience with approved professional body memberships.

“Given the FASEA education standards must be completed by 1 January 2026, transitional measures will be required to ensure these advisers can renew their registrations after 1 January 2022 and continue to provide these services,” he said.

Distortion between advisers and ASFLs

In the SMSFA’s submission, Mr Maroney pointed to the fact that AFSLs have existing and increasing ongoing regulatory and reporting obligations, including the updated breach reporting obligations and non-compliance with CPD obligations. Further, he noted any change in an individual’s licensing with the AFSL is required to be actively reported to ASIC by the AFS and this will not change.

“The TPB’s internal processes identified deficiencies in individual declarations of varying degrees, with disciplinary action taken as appropriate in those circumstances. The onus should therefore fall back to the individual,” he said.

“Having the declaration made by the relevant provider (adviser) directly to ASIC reinforces the seriousness of that declaration and the consequences of making a false or misleading declaration.”

The proposed requirement for the AFSL to attend to the registration and renewal process also raises two key issues, according to Mr Maroney.

This includes a process that requires a third party to be responsible for the registration of the individual as a professional in the manner prescribed, which does not align with other industries or professions.

The registration of lawyers, doctors, accountants and the tax practitioners requires the individual to take responsibility for their own registration, ongoing obligations and registration renewal.

“The second issue is the lack of guidance available on what is required of AFSLs in discharging their duties when assessing a person as fit and proper,” Mr Maroney said.

“Section 921V(2)(b)(ii) requires the AFSL to provide a written declaration as to whether the licensee is aware of any reason why the relevant provider might not be a fit and proper person.

“Informal consultations seemed to be suggestive of the need for ongoing or regular checks of a relevant provider’s fitness or suitability to be registered by the AFSL. If this were to be required, this would place an unreasonable burden on AFSLs. Further, it would be out of step with other professions, where tests are applied at registration, regular attestations are made by the individual on renewal and issues addressed on an events basis.”

The exposure draft explanatory materials had stated at 1.182 that it is not intended to require the licensee to undertake additional investigation but is intended to be based on information already available to the licensee. 

However, Mr Maroney said further guidance is required on what regular checks, if any, the licensee would be expected to undertake to satisfy this requirement. Unless a matter is disclosed to the AFSL, it is unlikely that any further investigations or inquiries would be undertaken.

“This highlights a perpetual problem for the sector, where different components of the system do not adequately communicate with one another. Where an instrument has been issued by the FSCP, this would be a matter of record with ASIC. Therefore, what value is added, or advantage gained, by having a third-party report sanctions arising from ASIC’s own systems to have them reported back to itself?” he noted.

“This would be a matter already recorded within the system and, if serious enough, would be flagged at the time of application or renewal. It would be expected that the individual would make the appropriate disclosures on their renewal statement.

“A licensee can at any time make a commercial decision on whether to continue a relationship with an adviser authorised by them. Where a copy of a FSCP instrument is received for one of its advisers, this would likely trigger an internal risk and compliance review. A commercial decision on whether to continue that relationship, depending on the seriousness of the matter, would likely be made.”

This therefore also brings into question the benefit of the AFSL separately making a fit and proper person declaration as is proposed.

“Ironically, the system requires the individual adviser to be registered, yet what is proposed removes any individual control,” Mr Maroney continued.

“If a licensee for any reason fails or omits to register or renew an adviser’s registration, the registration will cease. Yet if the individual provides advice at a point in time when they are not registered, they are held personally liable. This is a distortion, particularly if the adviser has an expectation that their registration is continuing.”

Meanwhile, continued consideration should also be given to the streamlining of the registration of relevant providers (advisers). The SMSFA suggested that rather than a single registration commencement date applying to all advisers, the anniversary date of their current AFSL registration, or an alternative date as determined by the regulator, could be used.

“The staged registration methodology and associated time frames should be determined after consultation between ASIC and industry to ensure that the chosen model is suitable to stakeholders. The staggering of registrations will ensure a smoother transition through the active control and management of the load and pressures on ASIC’s information and technology services, infrastructure and resourcing,” Mr Maroney said.

“Individual registrations will ease the current administrative burden and cost structures that apply to licensees. Further, by placing this responsibility with licensees, ASIC is obviating its responsibility as the regulator in administering, reviewing and processing these applications and renewals. 

“It is essentially an outsourcing of an ASIC responsibility. Yet ASIC registration or renewal fees will still apply despite the light touch applied.

“The SMSF Association is aware of strong concerns among advisers as to what the additional cost for registration will be, particularly given the already substantial adviser levies imposed. Clear and transparent communication on the additional costs that will be incurred by relevant providers (advisers) is essential.”