With billions of dollars of fees and commissions at stake, it’s no surprise that the Government’s financial planning reforms have proven so divisive, writes FIONA REYNOLDS, CEO of the AIST.
Even as the first tranche of the draft Future of Financial Advice (FoFA) legislation nears completion, debate rages over critical elements of the reform package. Fortunately, there has been a lot less argy bargy and significantly more common ground when it comes to the reforms concerning the industry regulator, the Australian Securities and Investments Commission (ASIC). If nothing else, the corporate collapses of Trio, Westpoint and Storm Financial have ensured that proposed measures to boost ASIC’s powers have been, for the most part, well supported. In the aftermath of the Storm Financial collapse in November 2008, ASIC itself raised concerns that it was powerless to act, despite having suspicions that investors’ interests could be at risk.
If the regulator is to have a decent chance at preventing disasters of this nature, it is only logical that it be given the power to intervene early. The FoFA reforms aim to provide this power. Assuming the legislation has a safe passage through Parliament, ASIC will be given stronger powers to investigate and ban advisers it suspects of breaching rules or putting their clients at risk. This increase in powers will be backed by tougher penalties, with proposed fines of up to $1 million. ASIC will now be able to ban a person involved in rule breaches by its authorised licensee and ban individuals deemed not ‘fit and proper’ to continue providing financial advice. There will also be a change to the entry licensing requirements so that ASIC can refuse a licence if it thinks the applicant is ‘likely to contravene’ their obligations in the future. Under the current, higher threshold, ASIC can refuse the licence if it believes the licensee ‘will not comply’ with their obligations.
This subtle but significant change in wording seeks to overcome the difficulty ASIC currently experiences when trying to assess, before they have commenced practising, whether an applicant will comply with their obligations. As is the case with most other law enforcers, there is more to ASIC’s role than simply punishing bad behaviour. Education, providing guidance, and industry engagement are equally important activities for an effective regulator. As such, AIST believes it is important that ASIC is sufficiently resourced to conduct appropriate advice audits. ASIC has highlighted its own concerns with the current advice audit process, noting in a recent report that many licensees had notified their advisers of the files to be reviewed prior to the audit taking place.