The corporate regulator has provided clarification on how licensees must fill their interim role as monitors of FASEA’s Ethics Code, which is scheduled for implementation in the new year.

The “reasonable steps” ASIC licensees must take to ensure that their financial advisers comply with the Code include the following:

  1. making sure that their advisers are aware that they need to comply with the code from 1 January 2020 onwards;
  2. providing training and/or guidance to their advisers on the types of conduct that is consistent/inconsistent with the code;
  3. 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;
  4. considering whether advisers are complying with the code as part of their regular, ongoing monitoring of adviser conduct; and
  5. when it is in place, considering the decisions of the new disciplinary body and making any necessary changes to their systems and processes.

The announcement comes after the government announced in early October that the Code monitoring role would not be tendered, and instead be taken up by a not-yet-established “single disciplinary body”. In the interim licensees would monitor advisers.

While mixed signals have been sent about exactly when the new body will be appointed – an estimate of “early 2021”, or up to 18 months, was somewhat contradicted by a three-year code subscription hiatus – the latest update does provide a measure of clarity on the expectation of licensees.

The approach the regulator is suggesting is relatively pragmatic; the first two steps are aimed at awareness and education, while the following three relate to control and monitoring.

Aside from issues inherent in having licensees essentially self-police their own compliance standards, the guidance itself makes sense. None of the points, in isolation, are especially onerous or unworkable. Yet the steps aren’t particularly prescriptive, nor does ASIC provide direction on what licensees should do to arrest non-compliance.

ASIC makes it clear that it won’t do the licensees job for them, noting that it “will not be monitoring or enforcing” advisers’ compliance with 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 release states.

ASIC’s also reports that after consultation with FASEA it will take a “facilitative approach” to compliance with Standards 3 and 7 of the Code until the new monitoring body is formed. While Standard 3 (conflicts of interest) and 7 (consent and commissions) are the two most contentious standards and ASIC’s special interest is warranted, it’s unclear what a “facilitative approach” means.

This lack of understanding is highlighted by the Stockbrokers and Financial Advisers Association in a statement released shortly after ASIC’s announcement.

“Licensees still have an obligation to take reasonable steps to ensure that their financial advisers comply with the Code,” writes Judith Cox, SAFAA’s chief executive. “Given the problems with Standards 3 and 7 (and other standards), licensees require more information from ASIC about how a ‘facilitative approach to compliance’ works.”

Financial Planning Association chief executive Dante De Gori noted in a subsequent statement that ASIC’s facilitative approach means it will “adopt a measured approach where inadvertent breaches arise or systems changes are underway, provided industry participants are making reasonable efforts to comply.”

FASEA chief executive Stephen Glenfield is scheduled to provide an update on the education authority’s position at the Financial Planning Association’s National Conference in Melbourne on Thursday.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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