A partner at Sydney law firm Ashurst has challenged the chief executive of FASEA on some of the fundamental aspects of the Code of Ethics standards, pointing out that while the non-prescriptive guidance is understandable and also seen in the Corporations Act, it is open to legal interpretation.

Speaking on a web panel at the Stockbrokers and Financial Advisers Association’s 2020 online conference this morning with SAFAA CEO Judith Fox and FASEA CEO Stephen Glenfield, Jonathan Gordon responded to a statement from the Glenfield explaining how advisers would only breach the Code of Ethics if they did the wrong thing.

“We heard the authority speak in terms of ‘you have nothing to worry about if you meet the values of the code’, and in one sense that is true,” Gordon said.

“It’s easy to say ‘if you’ve done nothing wrong, you’ll be fine’ but unfortunately that tends to be not how lawyers look at things,” he continued. “And lawyers will be involved… lawyers will look at it with benefit of hindsight and pick apart those standards.”

Glenfield pointed out that the standards are non-prescriptive by necessity, and that the examples in the guidance are the best way for advisers to understand how they relate to in-practice issues. Gordon acknowledged the reasons behind the dynamic, but said the challenge for providers would be “developing the interplay between the specific provisions”.

The Ashurst partner took specific issue with Standard 3 in the code, which states that advisers “must not advise, refer or act in any other manner where you have a conflict of interest”.

“There’s an almost endless list of things that could be conflicts,” Gordon said, adding that the challenge lies in the fact that the standard is “black and white”.

“Avoiding any conflict of interest is actually impossible because that test has no element of materiality or proportionality,” he said. “The smallest of holdings in BHP could be a conflict of interest.”

While saying that the intent of the code was good, the lawyer said the “inconsistency in the guidance should be tightened up”.

That will happen over time, Gordon continued, and the code will develop in the same way the Corporations Act has.

Glenfield agreed, saying the code and its 12 standards were never going to be ameliorate all the issues immediately, nor were they set in stone.

“It’s not expecting an instantaneous fix, it’s looking at raising the standards over time,” the FASEA CEO said.