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19-319MR ASIC outlines approach to advice licensee obligations for the financial adviser code of ethics
As announced on 14 November 2019, ASIC has taken action to provide certainty to Australian financial services (AFS) licensees that they will not be in breach of the law because their financial advisers were not able to register with an ASIC-approved compliance scheme by 1 January 2020, as originally required.
ASIC’s action follows a Government announcement that it would accelerate the establishment of a single disciplinary body for financial advisers and the withdrawal of applications for ASIC approval of a compliance scheme.
ASIC will not be monitoring or enforcing individual advisers’ compliance with the Financial Planners and Advisers Code of Ethics 2019 (the code). Under the Corporations Act 2001, ASIC does not have a role as a code monitoring body and is specifically prevented from exercising its power to ban an adviser for breaches of the code.
The code was set by the Financial Adviser Standards and Ethics Authority (FASEA) in February 2019. In October 2019, FASEA issued guidance about the interpretation of the code. FASEA is currently consulting about the guidance. The new single disciplinary body will displace the role of compliance schemes in monitoring and enforcing the code.
Financial advisers will still be required to comply with the code from 1 January 2020 and AFS licensees will still be required to take reasonable steps to ensure that their financial advisers comply with the code. However, after consultation with FASEA, ASIC will take a facilitative approach to compliance with Standards 3 and 7 of the code until the new single disciplinary body is operational.
The reasonable steps that ASIC expects AFS licensees to take to ensure that their financial advisers comply with the code include the following systems and processes:
- making sure that their advisers are aware that they need to comply with the code from 1 January 2020 onwards;
- providing training and/or guidance to their advisers on the types of conduct that is consistent/inconsistent with the code;
- facilitating individual advisers’ ability to raise concerns with the AFS licensee about how the licensee’s systems and controls may be hindering their ability to comply with the code, and acting on those concerns where appropriate;
- considering whether advisers are complying with the code as part of their regular, ongoing monitoring of adviser conduct; and
- when it is in place, considering the decisions of the new disciplinary body and making any necessary changes to their systems and processes.
In determining what constitutes reasonable steps ASIC will take into account the context in which AFS licensees are operating. This includes the current dynamic regulatory environment, the timing of guidance provided by FASEA about the meaning of the code, and the evolving industry understanding about the meaning and implications of the code.
As noted above, AFS licensees will still be required to take reasonable steps to ensure that their financial advisers comply with the code from 1 January 2020, and advisers will still be obliged to comply with the code from that date onwards. ASIC may take enforcement action where it receives breach reports.
ASIC will continue to take action where there are breaches of the law by financial advisers or their AFS licensees.
Professional standards reforms for financial advisers were introduced to the Corporations Act 2001 in March 2017 to raise the education, training and ethical standards of people providing personal advice to retail clients on more complex financial products.
These reforms require FASEA to develop the code. See FASEA’s website for information and guidance on the code.
For additional information see:
- ASIC media release 19-309MR ASIC relief from financial adviser compliance scheme obligations takes effect
- ASIC media release 19-280MR ASIC to provide relief from financial adviser compliance scheme obligations
- Joint media release from the Treasurer and the Assistant Minister for Superannuation, Financial Services and Financial Technology of 11 October 2019 Taking action on the Banking, Superannuation & Financial Services Industry Royal Commission – Recommendation 2.10: New financial adviser disciplinary system