June 30, 2014
Mandatory university degrees for financial advisers, and the enshrinement of the terms ‘financial planner/adviser’ in legislation, are among the 61 recommendations put forward by the Senate Inquiry into the performance of the Australian Securities and Investments Commission (ASIC).
The inquiry was undertaken by the Senate Economics References Committee (SERC), after concerns were raised by Senator John Williams that ASIC had failed to act appropriately when informed of the inappropriate conduct of some advisers within the Commonwealth Financial Planning (CFPL) network.
After a 12-month investigation, the SERC handed down its report, saying it underlined the critical importance of ensuring that Australia has a robust corporate regulatory system under the stewardship of a strong and effective regulator.
The report contains 61 recommendations to be considered by the Government, ASIC and other related parties. The following is a summary of the recommendations that are of particular relevance to financial advisers…
Financial adviser requirements
The report highlighted the level of trust that consumers put in advisers and financial institutions to do the right thing, saying such trust was open to abuse.
Specific recommendations relating to the conduct of financial advisers, and the education and registration requirements that should be adopted to raise the professionalism of those working in the industry, have been set out by the report. They include the introduction of:
- A national examination for all those giving personal advice on Tier 1 financial products. The exam should be developed and conducted by relevant industry associations.
- A minimum level education standard for financial advisers, which would include a relevant university degree and three years’ experience over five years, and continuing professional development requirements
- Mandatory reference checking procedures for all those in the advice industry
- A register of employee representatives providing personal advice on Tier 1 financial products
The SERC also recommended that the terms ‘financial planner/financial adviser’ be legislated under the Corporations Act. In order to hold themselves out as a financial planner/adviser, the law would require that the person:
- Be appropriately licensed to provide personal financial advice, and
- Be a member of a regulator-prescribed professional association and adhere to the association’s professional obligations
The Committee also recommended that the Parliamentary Joint Committee on Corporations and Financial Services inquire into the various proposals which call for a lifting of professional, ethical and educational standards in the financial services industry.
The SERC devoted a number of recommendations to measures designed to improve consumer financial literacy. They include:
- The development of a multi-pronged campaign to educate customers on the care they need to take when entering a financial transaction, and where to go to resolve issues and/or report unscrupulous conduct
- Improved public communication about ASIC investigations via its website, annual report and other publications such as media releases
- ASIC to give consideration to the introduction of a Consumer Advisory Panel similar to the United Kingdom’s Financial Services Consumer Panel
- Upskilling of ASIC staff to better deal with consumer complaints
- A redesign of ASIC’s website to better assist consumers looking for help from the regulator
Working with industry
In order to improve the knowledge and skills of ASIC staff, the SERC recommended that ASIC establish a pool of approved independent experts (described by the SERC as ‘retired experienced and hardened business people with extensive knowledge of compliance’) to draw on when concerns emerge.
In addition, the SERC called on ASIC to step up its surveillance of financial advice businesses that have recently been a source of concern, such as Macquarie Private Wealth, to ensure there are no other compliance deficiencies.
Recommendation 18 suggested ASIC establish a dedicated channel for complaints from professional and industry bodies, consumer groups and financial advisers.
Improved ‘whistleblower’ arrangements
The SERC wants ASIC to introduce an improved ‘whistleblower’ framework, to protect those who seek to report misconduct. The measures proposed include a review of Australia’s current corporate whistleblower protection framework, legislative changes to align corporate whistleblower protections with those afforded to whistleblowers in the public sector, and reward-based incentives for whistleblowers.
The report contains a range of recommendations in relation to increased penalties, and improved monitoring of enforceable undertakings (EUs). They include:
- Infringement notices for AFSLs who fail to loge reports of significant breaches within the required time
- Improved monitoring of ongoing compliance with EUs, and a default requirement of the appointment of an independent expert to supervise the EU
- An Auditor-General performance audit of ASIC’s use of EUs
- ASIC’s annual report to include details of EUs that have been implemented and how they have led to improved compliance
- A Government inquiry into the range of criminal and civil penalties available to ASIC
- Increasing ASIC’s powers to allow the regulator to prevent banned persons from managing or holding a position of influence in a financial services company
- Increasing ASIC’s powers to allow it to immediately suspend an adviser if they suspect they have engaged in misconduct
The report stated that it would be unrealistic to expect that ASIC could be funded at a level where all breaches or allegations of misconduct were pursued, but acknowledged that the regulator’s current funding model is flawed.
In order to address funding concerns, a ‘user-pays’ model is proposed, which would see different levies imposed on various regulated populations and a requirement that investigations of suspected compliance failings be funded by the company in question.
The SERC recommended the Government commence a consultation process on the design of the new funding model ‘as soon as possible’.