Financial advisers and planners
As indicated by the Commonwealth Financial Planning Limited (CFPL) case
study outlined earlier in the report, issues related to financial advice
featured prominently during this inquiry. This was recognised by ASIC, which
advised that it 'has long been concerned about the quality of financial advice
provided to consumers and about conflicts of interest in the financial advice
ASIC's concerns were not limited to a few 'bad apples' in the
industry, or even a few bad firms. Instead, they reflected broad systemic
problems with the financial advice industry, driven by conflicted remuneration
structures and compounded by weaknesses in the regulatory system.
ASIC informed the committee that it continues to have concerns about the
sector, which others also share. The 2013 survey of ASIC's stakeholders found
that only 23 per cent of respondents agreed that financial advisers act with
integrity. In ASIC's view, although the Future of Financial Advice (FOFA)
reforms 'should go
a considerable way in improving the long-term quality of advice provided to
investors', there were still some regulatory gaps that limited ASIC's ability
to promote high standards in the industry and fulfil its statutory objectives.
In its main submission, ASIC outlined certain recommendations that it
considered would address these regulatory gaps. This chapter considers these
recommendations and other issues related to the regulation of the financial
advice industry. The committee's findings are outlined at the end of the
Proposal for a national financial adviser examination
ASIC argued that the current system for training and assessing advisers
is inadequate and that standards need to be lifted. ASIC advised that the Corporations Act
requires Australian financial services (AFS) licensees to ensure that their
representatives are adequately trained and are competent to provide financial
services, and that ASIC publishes regulatory guidance on minimum training
standards in Regulatory Guide 146 Licensing: Training of financial product
advisers (RG 146). Despite this, ASIC reported that its surveillances 'have
consistently found that many advisers are not adequately trained or competent
to deliver financial advice to investors'.
The training standards outlined in ASIC's RG 146 specify different
requirements depending on whether the adviser gives general or personal advice
and the products on which advice is given. RG 146 proceeds on the basis that advisers
who provide advice on Tier 1 products (which are, broadly speaking, more
complex products) must meet the standards at a different educational level from
those advisers who provide advice on Tier 2 products (simpler products).
Despite this framework, ASIC advised that there:
...are numerous and fragmented approaches to interpreting and
implementing the requirements in RG 146 and training courses vary significantly
in terms of content and quality. There is no consistent measure of adviser
To help address this issue of competence, ASIC proposed a new framework
for the assessment and professional development of advisers based on a national
examination. ASIC argued that a national examination would be 'the most
transparent and effective' way to demonstrate whether an adviser had met a
minimum standard of competency.
A national exam was first proposed by ASIC in 2011. At a public hearing,
Mr Medcraft indicated that the idea was informed by his experience in the
United States. After returning to Australia, Mr Medcraft observed that:
...the training regime here...was really fragmented. Frankly, we
should not be micro-managing training. It should not be our job. My view is
that we should focus on outcomes...if you get through the national exam, whether
you have got there through no study or an e‑learning module, or some
training course, that is fine; at least you sat that exam. Everyone in America
has that confidence that you have sat the series 7 and you have passed a six‑hour
exam. I learnt more about muni securities than I ever wanted to, but it was
really important. You learnt about client account dealing et cetera. That
is really where I got the idea of proposing it. I proposed it about four or
five years ago. I have been endeavouring to socialise the idea because I do
think it is a far more efficient and a far more equitable system.
ASIC's deputy chairman commented that the national examination proposal
seeks to address two key issues regarding competency and educational levels:
One is: what is the level that needs to be set? The second
is: how do you test that? Our proposal, which we have been consulting on with
industry very extensively in the last few months, is that there should be a
requirement that anyone providing personal advice has a tertiary qualification
and that, in addition to that, to help ensure that you have demonstrated your
ability to do that, you would sit at a national exam. So there is the
level, which is a tertiary qualification, and the exam supporting that.
Some academics supported the proposal. Professor Dimity Kingsford Smith
remarked that the national exam was 'a very good example of a fine, well-thought-out
proposal as far as the regulator could do so without really any powers to push
that proposal forward—except in a policy proposal'. She remarked further that
for no good reason she could discover, the proposal 'came to nothing'. She added:
My very diligent students have assembled a table...which shows
you that every other respectable regulatory jurisdiction has a national exam
and some of them have, every three years or so, a renewal of the exam.
Industry groups did not support the proposal. The Financial Planning
Association (FPA) questioned the benefits that would flow from the exam:
We are not supportive of the proposal for the three-year
examination, mainly because we think it is overreach of a regulator to be
providing and certifying education which does not happen in any other
profession. ASIC's resources are already stretched. We are not sure that they
have the expertise or the resources to be able to deliver such an examination.
CPA Australia also argued against the proposal. Its chief executive
officer, Mr Alex Malley, noted that the proposal was based on the model
adopted in the US despite there being no evidence that the model 'had been a
In 2011 ASIC proposed a new national exam for all financial
planners. It was presented as a concept that would be introduced because
it had been adopted in the United States, a market that has not fared well
compared to our domestic economy. When quizzed about the reasoning, the process
to be followed and the communication plan to be laid out, it became evident
there was little substance behind the commentary. Needless to say, it has not
been implemented, and ASIC communication has paused for some time.
Mr Malley added that he has 'no issue in and of itself with exams; it is
those who perhaps have no qualification to set them or understand what they are
to achieve that I have an issue with'.
Although the FPA does not support the proposed national examination,
it submitted that planners 'should have to go through proper certification and
education and experience'. The FPA subsequently indicated that the minimum
education standards set by RG 146 are the problem:
Under RG146, a person can undertake a short course to gain 'generic
knowledge on products and markets' and be able to become an Authorised
Representative permitted to provide personal financial advice to consumers.
The minimum standards required under RG146 are inadequate for
the delivery of quality advice and therefore create a risk of consumers acting
on information provided by providers who are not appropriately or
professionally qualified, may not have the skills required to explain complex
concepts, and may pass on inappropriate advice without consideration of the
principles of financial planning.
The FPA has recently called for the introduction of a requirement that
financial advisers and planners must meet minimum education standards
consisting of a relevant university degree and three years' experience over a
five year period.
It also envisaged minimum continuing professional development requirements.
According to the FPA, it is unclear how ASIC's proposed national examination
would improve education in the absence of an enhanced education framework.
The FPA added that, if an examination was being considered for new entrants,
then the exam:
...should be left to the professions that have the practical
knowledge and know-how and are experienced at running educational programs to
ASIC was questioned about how a national examination would operate.
ASIC proposed that the examination would be 'industry-driven':
The questions are practical and really deal with issues that
you would face as an adviser. So it should be driven by the industry. It can be
delivered across the country in testing stations at $300 a head. That is what I
am envisaging. Frankly, I think it would really help a great deal. For $300, it
is well worth it for what we have in terms of the savings of our country.
Mr Medcraft suggested that a further benefit in introducing a national
examination would be in facilitating greater mutual recognition between the US
and Australia 'which would mean it would try and streamline that access between
two countries in terms of the US capital markets'.
Reference checking and employee adviser register
ASIC argued that there were currently insufficient controls on 'bad
apple' or problem advisers that have not otherwise come to ASIC's attention. Two
problems related to this were identified. The first stems from inadequate
reference checking—ASIC advised that problem advisers 'typically change
employment when they are identified, moving from one AFS licensee to another'. According
to ASIC, this is achieved because in many cases the new licensee either failed
to conduct a proper reference check or the former license did not provide
accurate and honest feedback.
The second problem related to practical difficulties ASIC experiences in
tracking problem advisers. ASIC argued that its current financial services
registers should include all individuals authorised to give personal advice on
Tier 1 products, not just AFS licensees and authorised representatives. The
following reasoning was provided:
Under the current financial services regulatory regime,
authorised representatives must be registered with ASIC; however, there is no
central register for employee representatives. This means that ASIC has no
direct oversight of employee adviser representatives, including those who
provide personal advice, and must rely on licensees to ensure the competence
and integrity of these representatives. This can result in very real
difficulties in ASIC's ability to locate and take action against bad apples in the
financial services industry...ASIC has had considerable practical difficulties in
tracking problem advisers, following the collapses of several financial
planning businesses. Where the advisers have moved to new financial planning
businesses as employee representatives, we are unable to track them because
they do not appear on our register.
ASIC also noted that the lack of such a register makes it difficult for
investors to ensure that that they are dealing with properly authorised
Given the complexities of the financial services industry, it
is important that ASIC can emphasise certain consumer messages. One of our
traditional messages has always been that investors should only obtain advice
from properly licensed or authorised advisers. Before the commencement of the Financial
Services Reform Act 2001, we could tell investors that before dealing with
a purported adviser, they should check the person's name on the licensees and
This simple message is no longer possible. Investors cannot
easily check whether someone holding themselves out as a financial adviser is
properly able to do so. They may be an employee of a licensee and the only
person that can verify that is the relevant licensee.
Mr Medcraft remarked that he believed 'industry very much welcomes the
idea of, say, having a national register of all employer representatives'.
Mr Medcraft added that the US equivalent provides an effective means of
tracking advisers and holding them accountable; he noted that the US register
receives 16 million hits a year from consumers and employees.
ASIC's evidence was generally supported by other witnesses. For example,
the CBA argued that ASIC and AFS licence holders should:
...have visibility at all times of where licensed financial
planners are practising. CFP believes there is a risk that financial planners
who do not adhere to appropriate standards of advice enter the industry, or
move within it between [AFS licence] holders, and for professional misconduct
not to be taken fully into account.
Recognition of financial advisers and planners
The FPA argued that the regulatory system should be designed 'to
encourage the establishment of professional bodies to impose appropriate and
enforceable professional standards that exceed the law, on financial product
providers, research houses, and other industries in the gatekeeper space'.
It noted that financial planners should be subject to 'a series of
inter-locking obligations' based on regulatory requirements, licensee
requirements and professional requirements. The FPA has binding professional
obligations through a code of conduct and rules of professional conduct,
supported by a public complaints system, an investigation process and an active
professional disciplinary panel.
Even so, it argued that:
Without formal recognition and encouragement of adherence to
professional obligations, there is a gap in the regulatory design as applied to
individual providers of financial services to consumers, and consumer
protection becomes reliant on the limitations of regulatory and licensee
Accordingly, the FPA maintained that the terms 'financial planner' and
'financial adviser' should be restricted to 'only those that have the highest
level of education, competency, ethics and standards, and are a member of a
regulator prescribed professional body'. It argued that this would strengthen
consumer protection and facilitate a more effective regulatory framework 'based
on cooperative co‑regulation'.
The FPA noted that a precedent for this exists, as the use of the terms
stockbroker, futures broker, insurance broker, general insurance broker, and
life insurance broker are currently restricted under section 923B of the
Corporations Act. In the FPA's view:
...it is unclear why some expressions are restricted by s923B
and not others. Why do such terms carry more weight under law than that of
financial planner/adviser considering the role financial planners play in
assisting consumers with vital financial matters?
The FPA provided additional reasoning to support its case for
legislative amendments to restrict the use of the terms financial planner and
The terms financial planner/advisers are increasingly being
used in marketing and promotional material by persons who provide
non-traditional ancillary services, such as realtors, property spruikers, sales
agents of various investment vehicles, and other unlicensed advisers. Consumers
are continuing to be influenced by advice provided by those outside the
Regulator's reach. This issue has become evident in the SMSF sector with many
property spruikers influencing the use of SMSFs to purchase property. It has
also been exacerbated by the commentary on financial matters provided by media
outlets who are exempt from licensing obligations under section 911A(2) of the
Corporations Act yet play a highly influencing role in consumer decision
A lack of restrictions on the use of the terms financial
planner/adviser is, among other things, a significant gap in consumer
protection. It leaves trusting consumers open to influence by individuals
incorrectly representing themselves to consumers as financial planners/advisers
without holding the specific competency, training, license, professional
standing required. This significantly erodes consumer protection. The lack of
constraint on individuals calling themselves financial planners puts consumers
at risk of receiving poor advice from incompetent providers. A key role of
effective regulatory design should be to enable consumers to be able to clearly
identify providers they can trust in the marketplace.
Further, the FPA noted that ASIC was already relying on professional
associations to improve training and competence in the sector, at least among
the members of these associations:
RG146 states that ASIC has 'set minimum training standards
only and encourage industry and professional associations to build on the
training standards. [ASIC] recognise[s] industry's important role in the
development and promotion of best practice relating to training and competence'.
The fact that ASIC's minimum standards are intended to drive the financial
sector to establish higher standards gives further support to the
recommendation to make membership of a professional body mandatory for
In 2013, the previous government introduced a bill that would have
restricted the use of these terms or terms of like import 'in relation to a
financial services business or a financial service, unless the person is able
under the licence regime
to provide personal financial advice on designated financial products'. The explanatory memorandum identified property spruikers who represent that
they are genuine providers of financial product advice as a group that would be
targeted by the amendments.
However, the bill lapsed at the end of the 43rd Parliament.
ASIC's licensing tests
A matter related to raising standards in the financial advice industry
is the licensing process. ASIC argued that one of the regulatory barriers or
gaps it faces were the tests currently in legislation for determining whether
an AFS licence or credit licence must be granted. As ASIC issues AFS and credit
licenses, it is understandable that the licensing powers should enable the
regulator to, as ASIC put it, 'prevent those that do not warrant [public] trust
from operating within the industry'. Licensing regimes will not prevent all
undesirable businesses or individuals from operating, particularly those that
demonstrate competence but 'go rogue'. However, in ASIC's view licensing
...provide an effective screening process to exclude persons
who do not have the appropriate skills, experience and qualifications to
provide services with honesty and integrity, or who are not of good character,
from operating within the financial services and credit industries.
During the 2009 Parliamentary Joint Committee on Corporations and
Financial Services (PJCCFS) inquiry into financial products and services, ASIC
raised concern about its ability to protect consumers by restricting or
removing from the industry participants who might cause or contribute to
investor losses. It informed the PJCCFS that once a licence was granted, ASIC
only had the power to suspend or cancel a licence in limited circumstances. At
that time, ASIC could only suspend
or cancel a licence immediately on application by the licensee or where the
licensee was insolvent, ceased to carry on the business, was convicted of
serious fraud, or was incapacitated. ASIC could suspend or cancel a licence
after a hearing where:
the licensee had not complied with its obligations;
ASIC had reason to believe the licensee would not comply with its
obligations in the future;
ASIC was no longer satisfied that the licensee was of good fame
a banning order was made against the licensee or a key
representative of the licensee; or
the application was materially false or misleading or omitted a
At that time, ASIC was of the view that the government should assess
whether the following modifications to ASIC's licensing and banning power would
enhance ASIC's ability to protect investors:
minor changes to the licensing threshold so that ASIC can refuse
a licence where a licensee may breach (rather than will breach) its obligations;
clarification that ASIC can ban individuals who are involved in a
breach of obligations by another person; and
'negative licensing' of individuals so that ASIC can ban
individuals who are not fit and proper and may not comply with the law.
The PJCCFS noted ASIC's concerns and recommended that:
section 920A of the Corporations Act be amended to provide
extended powers for ASIC to ban individuals from the financial services
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
a reasonable belief that the licensee 'may not comply' with their obligations
under the licence.
The then government supported both recommendations and in April 2010
indicated that it would introduce a reform package to strengthen ASIC's powers
in relation to the licensing and banning of individuals from the financial
services industry. In announcing proposed legislative changes, the then
In relation to licensing, ASIC will be able to take into
account a broader range of matters when determining whether to issue a licence,
or whether to cancel or suspend a licence. ASIC's powers to remove persons from
the industry will also be enhanced, as it will be able to take into account a
wider range of matters at the banning stage.
The legislation implementing this reform received the royal assent on
27 June 2012. In summary, the new law made the following amendments
to ASIC's licensing and banning powers:
the licensing threshold was changed so that ASIC can refuse or cancel/suspend
a licence where a person is likely to contravene (rather than will breach) its
the statutory tests were extended so that ASIC can ban a person
who is not of good fame and character or not adequately trained or competent to
provide financial services (in essence they are not a fit and proper person);
ASIC can now consider any conviction for an offence involving
dishonesty that is punishable by imprisonment for at least three months, in
a reason to believe a person is not of good fame and character for licensing
and banning decisions.
the banning threshold was changed so that ASIC can ban a person
if they are likely to (rather than will) contravene a financial services law;
it was clarified that ASIC can ban a person who is involved, or is
likely to be involved, in a contravention of obligations by another person.
It should be noted that ASIC's powers remain subject to:
...the broader principles of administrative law that would
underpin the exercise of its powers. This includes that the decision must be
within its power, and that only relevant considerations must be taken into
account. Further, the exercise of ASIC's powers must be for a proper purpose
and not in bad faith, with facts based on sufficient evidence, and any decision
taken by ASIC must be reasonable and with procedural fairness afforded.
The committee is aware that many of the cases contained in submissions
predate the enactment of the FOFA reforms that enhanced ASIC's banning powers.
While ASIC welcomed the amendment made by the FOFA reforms,
it outlined the problems it sees with the 'negative assurance test' that
to grant a licence unless it has material 'that would form the basis for ASIC
the necessary belief about future misconduct by the applicant':
The legislation does not provide significant guidance to
allow us to take into account all relevant factors in coming to this belief
about the applicant. An important aspect of our licensing assessment involves
consideration of whether the applicant and its responsible officers are of
'good fame or character'. Section 913B(3) sets out some of the matters that are
relevant to considering whether an applicant is of good fame or character. While
a non‑exhaustive list, it nominates convictions, suspensions or
cancellations of a licence or banning or disqualification order against the
person as being relevant to consider.
However, often we may have concerns about an applicant that
do not relate to recorded convictions, cancellations or banning orders, but to
their past conduct more broadly, particularly their involvement in financial
services businesses where misconduct has occurred—for example, as an employee
representative with a significant role in the business, or otherwise as a
manager, director or officer of the licensee. Nevertheless, without the
legislation indicating an intent that such matters are relevant for
consideration in the licensing process, our decision to refuse a licence
according to such criteria may be more likely to be reversed on merits review.
These issues could also be relevant to credit licences, as ASIC noted
the tests in place for credit licences under the National Consumer Credit
Protection Act 2009 are very similar to the tests for AFS licences.
ASIC outlined a number of changes that could strengthen its licensing
tests. These included:
changing the 'no reason to believe' test to one where ASIC grants
a licence where it is 'satisfied' that the applicant would not be likely to
the AFS/credit licensee obligations;
amending the licensing test to insert additional criteria to the
'good fame and character' test, such as whether ASIC has a reasonable belief
that the applicant held a material role in the management of a financial
services business that:
had its licence cancelled; and
did not pay determinations made by an approved external dispute
resolution scheme of which it was a member;
replacing the 'ASIC must grant a licence if...' test to an
ASIC may grant a licence test, or otherwise providing ASIC with the
discretion not to grant
Banning and disqualification
In some cases, the reports of corporate wrongdoing made to ASIC are of
such a serious nature that deferring action could result in further harm to
investors and consumers. A quick and effective means of putting a stop to
corporate misconduct or the availability of unsafe products is to suspend or ban
the wrongdoer or the product. The committee has referred to ASIC's slowness in
responding to problems. There are many instances, especially from the
perspective of the retail investor, where ASIC should have stepped in much
sooner to prevent consumer losses. ASIC has a range of administrative actions
available to it, including powers to:
ban a person from acting as a director for up to five years;
ban (including permanently ban) a person from providing financial
or credit services;
issue a stop order for defective disclosure documents (e.g.
prospectuses and Product Disclosure Statements); and
give a direction to a market to suspend dealing in a financial
product if it is necessary or in the public interest.
In this section, the committee considers the options for banning a
financial service provider.
A number of submitters referred to the harm caused by rogue advisers.
For example, Mr Peter Francis, who works as an expert witness in stock
markets and market related transactions, cited a particular case where people
had lodged complaints with ASIC about a particular adviser but did not receive
a satisfactory response. He explained that about ten years ago he started to
get cases about this adviser, which over the next years amounted to over 50
cases from more than ten different lawyers. According to Mr Francis:
In that time this advisor had moved from Epic Securities to
Macquarie Securities to BNP Paribus to Citigroup Wealth Management to Tricom
Securities...From these 50+ cases, all were eventually settled by the Defendants
once the correct documentation was discovered and an Expert Opinion produced.
He informed the committee that the adviser was subsequently found guilty
of fraud and convicted. Mr Francis noted, however, that:
...over the six years many 1,000s of people had lost a good
proportion of their savings or superannuation funds in some instances as a
result of this one advisor.
This case was not an isolated one. The committee has referred to the
financial planners at CFPL, who continued to practice in the industry even
after ASIC became aware of their wrongdoing. With regard to the unscrupulous
conduct of a financial adviser or planner, ASIC was asked about its powers to
stop them from working in
the industry. In response, ASIC outlined the banning powers it currently has,
to ban someone it must establish proof and conduct a hearing. The hearing, which
includes the cross‑examination of witnesses, allows the adviser or
planner to be heard and respond to the evidence.
ASIC was asked about the merits of it being given the power to suspend a
financial planner immediately where substantial evidence of wrongdoing existed.
Mr Medcraft did not think the suggestion was unreasonable, subject to natural
Mr Medcraft noted that the law already reflects situations where
protective action is necessary to stop damage to individuals.
In a written question on notice, ASIC was asked to reflect further on
this proposal. ASIC responded by observed that there 'would clearly be benefits
for consumers if ASIC had the ability to quickly remove advisors that were
engaging in serious misconduct, most particularly in preventing further loss or
damage'. ASIC added, however, that there were a number of complicating factors
when considering such a power, including:
a person's right to be heard before a significant decision is
the need to carry out information gathering and investigative
work and then adequately brief a person authorised to exercise ASIC's powers, a
process that would affect 'the immediacy with which the power could be
the type of conduct the power should be used for—ASIC noted that the
power could be useful for misuses of client funds, but less useful 'where the
conduct involved complex factual and legal questions about whether advice
provided was above or below the necessary legal standard'.
Clearly concerned about the impact individual rogue advisers can have on
public perceptions of the overall financial advice/planning industry, the FPA
recently called for ASIC to be given a suspension power:
ASIC should have suspension powers for financial
planners/advisers suspected of material and systemic breaches of the best
interests duty. ASIC must have a justifiable position and the financial
planner/adviser has the right to appeal at the AAT.
Banned advisers remaining active in
One particular aspect of ASIC's banning powers that the committee believes
warrants closer attention goes to banned advisers continuing to be involved in
businesses providing financial advice.
Concern about financial advisers remaining active in financial services while
banned is not a new issue. In June 2012, in response to a question about the
activities of Peter and Anne-Marie Seagrim, Mr Kell informed the PJCCFS that
the couple had been banned from providing financial services for a period of
three years. He acknowledged that there had been some media commentary
around the couple,
for example, describing their business as operating in a manner that was
'business as usual'. He explained that from ASIC's perspective the ban was
currently in force and the Seagrims were banned from providing financial advice
to clients or dealing in financial products on behalf of clients. They had
lodged an appeal. Mr Kell emphasised that although the ban was in place in
relation to their ability to provide financial advice or deal in financial
products, the law did not prevent them from acting as directors.
He went on to state, however, that:
...the Corporations Act does not prevent the Seagrims from
acting as directors of a corporate authorised representative of a financial
services licence holder. In that capacity they may still undertake activities.
However, we have been very clear that business as usual certainly does not mean
that they are able to provide that financial advice or deal in financial
products on behalf of clients.
This matter of a banned adviser still allowed to manage a company was
raised during this current inquiry. For example, Professor Dimity Kingsford
Even if a person is banned they may continue to be
influential in a licensed firm as a director, officer or a significant
shareholder. The tests for bans and director/officer disqualification are
different, and consideration should be given to prohibiting a banned person acting
as a director or officer. Similarly, consideration should be given to
empowering ASIC to exclude from management a shareholder who is banned. ASIC
should have express power to consider the fitness for a license of a firm where
a banned person has a significant shareholding.
The committee asked ASIC whether any impediments existed to extending
the ban on advisers to being a director of, or a person occupying a position of
influence in, a financial services company. ASIC informed the committee that while
it has powers to cancel an AFS license or credit licence, or to ban a person
from providing financial services or credit services, 'a missing element was a
power to prevent a person from having a role in managing a financial services
business or credit business'.
It explained that the law as currently drafted means that ASIC can have 'difficulty
in removing these managing agents who do not themselves provide a financial
service but are integral to the operation of a financial services business'. ASIC
explained that it had:
...seen instances where we cancel the AFS licence of an
advisory business due to poor practices or other misconduct, but those
responsible for managing the business move to another licensee's business, or
apply for a new licence with new responsible managers.
If such managers are not themselves directly providing
financial services or credit services in that new role, ASIC may not be able to
prevent them from continuing to operate in the industry, even where there were
serious failings in the previous business.
In its main submission, ASIC recommended amending the law to provide
ASIC with the power to ban a person from managing a financial service business
or credit business. The FPA advised that it supports this recommendation. It
the following reasoning:
If you have been banned as a financial planner there are
usually very good reasons for it, and if you were then to be supervising and
managing financial planners or a financial planning company were would see it
as inappropriate—depending on the circumstances, of course. Obviously it would
need to be a serious breach, not a minor breach.
The committee recognises that steps need to be taken to improve
standards in the financial advice sector and perceptions about that sector. Doing
so would provide several benefits. Higher barriers to entry and better
mechanisms for dealing with problem advisers will assist ASIC in its regulation
of the sector. In turn, the improved reputation of the sector that should
result will encourage more Australians to seek financial advice; encouraging
investors to become more informed about their circumstances and investment
options appropriate to them will assist ASIC to achieve its statutory
The committee emphasises two points. Firstly, to ensure the measures are
as effective as possible, they should be developed by ASIC working closely with
industry. Secondly, the measures for improving standards should be funded by
the industry and to the extent possible operated by the industry. The committee
notes that the national examination would require amendments to the
Corporations Act that stipulate that representatives of AFS licensees must have
passed the national examination to be deemed competent.
The committee appreciates ASIC's evidence about the need to ensure that
the licensing tests specified in legislation set an appropriately high bar to
entry. A licensing process that works as effectively as is reasonably
possible to prevent people from entering the financial services and credit
industries who should not be in these industries is clearly a desirable
regulatory goal. The changes proposed by ASIC would make ASIC more responsible
for carefully screening people seeking to enter these industries. The changes
would also provide ASIC with a better chance of meeting existing community
expectations about the people that should be trusted with such licences.
ASIC's proposed amendments to the AFS and credit licensing tests were
not addressed in detail in the evidence the committee received from key
The committee is of the view that the government should assess these proposals
and initiate a targeted public consultation process limited to this issue,
ideally with draft legislative amendments available for stakeholders to comment
The committee considered a proposal for ASIC's powers to be strengthened
to immediately suspend financial advisers and planners suspected of egregious
misconduct causing widespread harm to clients. This report has identified that
ASIC is often slow to react and to exercise the powers it already has. The CFPL
matter is a stark, but not isolated, example. The committee is also mindful of
the need to ensure procedural fairness. Sound decision-making usually requires
to have both sides of the story; enabling ASIC to make a decision that prevents
an adviser or planner from working without providing them with the opportunity
to respond to the evidence would be a significant departure from current
On the other hand, the current options for preventing a problem adviser from
causing continued harm may be deficient.
Should ASIC be given the power to suspend an adviser suspected of
malfeasance that, if allowed to continue, would cause detriment to his or her
clients or potential clients, the committee believes that robust safeguards
must be in place. The committee considers that the suspended adviser or
need to be informed of the complaint against them;
have the right to reply to the complaint;
have the right to appeal ASIC's decision to the AAT;
the suspension would not be publicised until a subsequent banning
order was made; and
the decision to issue the suspension would be taken at a senior
level in ASIC.
The power should also only be available in limited cases that do not
involve complex questions of law, such as where client funds are clearly being
The committee recommends that financial advisers and planners be
successfully pass a national examination developed and conducted
by relevant industry associations before being able to give personal advice on
Tier 1 products;
hold minimum education standards of a relevant university degree,
and three years' experience over a five year period; and
meet minimum continuing professional development requirements.
The committee recommends that a requirement for mandatory reference
checking procedures in the financial advice/planning industry be introduced.
The committee recommends that a register of employee representatives
providing personal advice on Tier 1 products be established.
The committee recommends that the Corporations Act 2001 be
amended to require:
that a person must not use the terms 'financial adviser', 'financial
planner' or terms of like import, in relation to a financial services business
or a financial service, unless the person is able under the licence regime to
provide personal financial advice on designated financial products; and
financial advisers and financial planners to adhere to
professional obligations by requiring financial advisers and financial planners
to be members of a regulator‑prescribed professional association.
The committee recommends that the government consider whether section
913 of the Corporations Act 2001 and section 37 of the National
Consumer Credit Protection Act 2009 should be amended to ensure that ASIC
can take all relevant factors into account in making a licensing decision.
The committee recommends that the government consider the banning
provisions in the licence regimes with a view to ensuring that a banned person
cannot be a director, manager or hold a position of influence in a company providing
a financial service or credit business.
The committee recommends that the government consider legislative
amendments that would give ASIC the power to immediately suspend a financial
adviser or planner when ASIC suspects that the adviser or planner has engaged
in egregious misconduct causing widespread harm to clients, subject to the
principles of natural justice.
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