The second phase of a risk-based surveillance operation and reference checking measures aimed at ensuring that “bad apple” advisers don’t move undetected between licensees are priorities for the regulator over the next 12 months.
While the Australian Securities and Investments Commission (ASIC) will have its hands full delivering guidance on aspects of Future of Financial Advice (FoFA) reforms, advising the various industry associations on codes of conduct and day-to-day reactive surveillance, ASIC’s Nick Coates said the audit of business risks facing practices would continue.
In 2009, the regulator began requesting information from the 20 largest Australian financial services licensees that provide financial product advice to retail clients.
This covered licensee business models, training of advisers, monitoring and supervision of advisers, product and strategic advice, and complaints handling and compensation.
ASIC developed a set of risk indicators to assess the information gathered and identify policy and regulatory issues. This information was collected over 2010 and a report released in September last year.
The regulator then approached the 30 next largest AFS licensees in December 2012 with a reduced and more targeted questionnaire as part of phase two.
Report card
“We are in the process of making a preliminary assessment of the surveys that have been sent in and licensees and dealer groups can expect to hear from us soon with a report card on how we think they’ve travelling, their strengths and where there’s possibly opportunities for improvement,” Coates told the Association of Financial Adviser’s roadshow in Sydney this week.
Surprisingly, Coates believes the results from this process will be very different from phase-one examining the 20 largest licensees.
“We are cognisant of the fact that the business models are different,” he said. “Many of the medium-sized licensees are quite different in the way their business models are set up. They face different risks when it comes to FoFA than their larger counterparts.”
ASIC will be looking for evidence that licensees have adopted appropriate risk-management strategies.
One area of concern for the regulator after assessing phase one was inconsistencies with the reference-checking dealer groups were carrying out on financial advisers, leading to the formation of the “bad apples” project.
“One of the things that came out of our first risk-based surveillance was the significant variation in how licensees and dealer groups are doing reference checking,” said Coates.
“Clearly there is an anomaly here and, while some licensees admitted to us that on occasion they appointed people with only limited information or no information, the inconsistencies in reference checking are a concern for us.”
The intention of the “bad apples” project is to make it as difficult as possible for disgraced advisers to move between licensees, often in different cities or states.
ASIC will release a consultation paper soon, the contents of which are expected to be a test the regulator’s new powers to investigate and prosecute serious misconduct and permanently ban individuals.
