Treasurer Josh Frydenberg has announced a major backflip on the government’s code monitoring body solution, which has been pushed back to 2021 and will involve a single, newly established body.
The decision, which stemmed from Kenneth Hayne’s royal commissions recommendation that a “single, central, disciplinary body” be established, cruelled the plans of the Financial Planning Association and five other bodies that formed Code Monitoring Australia (CMA), which had received in-principle approval from ASIC to fulfil the role.
Speaking to Professional Planner shortly after the announcement, FPA chief executive Dante De Gori expressed his frustration.
“We’re disappointed because of the amount of work, time and effort that’s been put into it,” he said. “We satisfied all the requirements and for this decision to be made at this point in time… it’s just disappointing.”
De Gori said the decision didn’t come completely out of the blue, and was “understandable to some extent”.
“There’s been question marks around [royal commission] recommendation 2.10 and what it means for code monitoring, and we’ve been asking those questions for a long time,” he said. “Now we have that answer.”
Hayne’s February recommendation for a new disciplinary system led by a single body jarred with the existing plan for interested parties to apply to ASIC for the role to oversee the ethics code written by the Financial Adviser Standards and Ethics Authority. The sticking point was that the front runner for the role, CMA, was a committee of industry associations involving the FPA, the AFA, FINSIA, SAFAA, the SMSFA and the BFP.
Frydenberg said the government will instead work towards establishing a new body in early 2021, subject to legislation. He called the new body a “long term, sustainable solution”.
In the interim, the code of ethics will be applied and licensees will be responsible for monitoring advisers’ adherence to it.
“ASIC is considering the steps it needs to take to ensure that licensees do not breach the law by not registering advisers with a code monitoring body and will provide an update shortly,” the statement said.
Shortly after the announcement, the Association of Financial Advisers said in a statement that in withdrawing the CMA application they “felt it was important to avoid uncertainty and unnecessary duplication of costs”.
De Gori also flagged a desire to limit the FPA’s members to further disruption.
“What we don’t want to do is put our members through unnecessary change if the royal commission recommendations are to result in a different outcome to CMA as the long-term solution,” he said.
What I think is disappointing is the standards are still set to be in force from 1 January 2020 and as noted in the media release (and this story), AFSLs will now be required to ensure their representatives comply with the code and ASIC will be able to take action against licensees that fail to do so.
In order that we can do as required, can we please have the detailed practical guidance that the industry has been calling on for months now to assist us in implementing the standards. We have literally 2.5 months to go and very little detail to assist in the practical application of what is a principles-based ethical framework.
There are some important elements in the standards that will drive advisers to be true fiduciaries but there are also some really poorly defined and frankly unworkable elements that licensees will need to know how to implement in a practical manner without driving more cost into advice which is already becoming a barrier to seeking advice from those who need it most.
If relying solely what has been published to date (the legislative instruments, the explanatory statement, the FPA Guide and opinion pieces) licensees will have no other choice than a literal interpretation of the standards. An obvious implication includes licensees over- or under-shooting the mark and making more of a mess of what has, to date, been a messy and haphazard journey.
My hope is that we get class order relief to give the industry a chance to comply in a professional and measured way.