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Chapter 7
Conclusion: Recommendations for reform
7.1
During the course of its inquiry, the committee has received and considered
evidence from a broad range of sources, including investors (clients of
financial advisers), banks and other financiers, individual advisers, advisory
groups, product providers, industry bodies, consumer action groups, legal firms,
regulatory bodies and government departments.
7.2
The committee's terms of reference for the inquiry identified the collapses
of Storm Financial, Opes Prime and other similar collapses as being of
particular concern, and many of the submissions made to the committee provided
detailed information on the circumstances leading up to and after these
collapses.
7.3
As expressed elsewhere in this report, it is important to emphasise that
the committee is not a judicial body and has no power to make criminal findings
or to make judgements in relation to individual claims that have been brought
to its attention. It has also not been possible for the committee to resolve
all the contradictions in the evidence put before it.
7.4
Furthermore, it should be noted that the committee's terms of reference
focused on financial products and services. The committee's overall role,
having regard to what it has learnt through the examination of these corporate
collapses and all the other evidence put before it, is to make any necessary
recommendations for legislative change or regulatory improvement to help guard
against the occurrence of similar collapses in the future and improve the quality
of financial advice Australian consumers receive. The committee's deliberations
around the need for regulatory or legislative change in Australia's financial
products and services sector have been discussed in detail in the preceding
chapters of this report.
7.5
The committee acknowledges that it is not necessarily appropriate to
recommend reform in response to a particular collapse or event. Isolated
corporate failures are not necessarily indicative of, or caused by, regulatory
failure. However, the committee believes that over the course of its inquiry it
has collected sufficiently broad and consistent evidence to justify making a
series of carefully considered recommendations which are designed to enhance
professionalism within the financial advice sector and enhance consumer
confidence and protection.
7.6
The committee notes that, during the course of its inquiry, some key
legislation has been considered by the Australian Parliament. The expected
passage of the National Consumer Credit Protection legislation will mean that,
from 1 July 2010, consumer credit will be regulated under a single federal law
for the first time. Under Financial Services Modernisation reforms that have
already passed through the parliament, margin loans (and products with a
similar character, including products like those sold to customers of Opes
Prime) will be defined as financial products for the purposes of Chapter 7 of
the Corporations Act 2001. These legislative changes will provide
important protections that purchasers of certain financial instruments have not
had previously.
7.7
Also during the inquiry time frame, the government announced its
intention to transfer responsibility for supervision of real-time trading on
Australia's domestic licensed markets from the ASX to ASIC. Pending the passage
of necessary legislation during the first part of 2010, ASIC will be
responsible for both supervision and enforcement of the laws against misconduct
on Australia's financial markets.
7.8
The committee believes that these reforms will have a substantial impact
on many of the matters discussed in this report. In particular, there will be
regulation in place to protect future purchasers of margin loan and securities
lending facilities—protection that was not available to the clients of Opes
Prime or Storm Financial.
7.9
The committee has resisted making further recommendations for change in
this area until there has been an opportunity to examine the practical
consequences of the new legislation. Through its regular oversight hearings
with ASIC, the committee will monitor the implementation and success of this
legislation and may revisit this subject at a later date.
7.10
Having regard to all the evidence put before it, the material discussed
in previous chapters of this report, and the legislation discussed above, the
committee therefore reiterates its eleven recommendations for reform in this
sector. It is the view of the committee that, if implemented, these changes
will act in synergy to provide better outcomes and protections for consumers of
financial products and services.
Recommendation 1
The committee recommends that the Corporations Act be
amended to explicitly include a fiduciary duty for financial advisers operating
under an AFSL, requiring them to place their clients' interests ahead of their
own.
Recommendation 2
The committee recommends that the government ensure ASIC is appropriately
resourced to perform effective risk-based surveillance of the advice provided
by licensees and their authorised representatives. ASIC should also conduct
financial advice shadow shopping exercises annually.
Recommendation 3
The committee recommends that the Corporations Act be
amended to require advisers to disclose more prominently in marketing material
restrictions on the advice they are able to provide consumers and any potential
conflicts of interest.
Recommendation 4
The committee recommends that the government consult with and
support industry in developing the most appropriate mechanism by which to cease
payments from product manufacturers to financial advisers.
Recommendation 5
The committee recommends that the government consider the
implications of making the cost of financial advice tax deductible for
consumers as part of its response to the Treasury review into the tax system.
Recommendation 6
The committee recommends that section 920A of the
Corporations Act be amended to provide extended powers for ASIC to ban
individuals from the financial services industry.
Recommendation 7
The committee recommends that, as part of their licence
conditions, ASIC require agribusiness MIS licensees to demonstrate they have
sufficient working capital to meet current obligations.
Recommendation 8
The committee recommends that sections 913B and 915C of the
Corporations Act be amended to allow ASIC to deny an application, or suspend or
cancel a licence, where there is a reasonable belief that the licensee 'may not
comply' with their obligations under the licence.
Recommendation 9
The committee recommends that ASIC immediately begin
consultation with the financial services industry on the establishment of an
independent, industry‑based professional standards board to oversee nomenclature,
and competency and conduct standards for financial advisers.
Recommendation 10
The committee recommends that the government investigate the
costs and benefits of different models of a statutory last resort compensation
fund for investors.
Recommendation 11
The committee recommends that ASIC develop and deliver more
effective education activities targeted to groups in the community who are
likely to be seeking financial advice for the first time.
Mr Bernie Ripoll MP
Chairman
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