The corporate regulator has rejected an assertion from liberal MP Bert Van Manen that its advice lookback requests “back as far as 2008” assess advisers on the basis of standards that did not exist at that time.
Speaking at the Parliamentary Joint Committee inquiry into ASIC’s oversight on December 16, Van Manen voiced a common line of complaint from the industry – that benchmarking advisers against today’s regulatory standards for work completed many years ago is contributing to undue fear and forcing the sector to overcompensate compliance.
“Does ASIC acknowledge that these circumstances heavily influence how the financial advice sector responds to regulatory risk?” the MP asked.
“We do not expect licensees to assess and remediate conduct by reference to standards that did not exist at the time,” ASIC responded to the question, which was taken on notice. “This is a matter for the licensee to consider when turning their mind to whether a remediation is warranted.”
Lookback requests have become a ubiquitous feature of advice regulation since ASIC started receiving breach reports from the banks on fee-for-no-service issues between 2013 and 2015. The regulator subsequently asked the banks to conduct full “review and remediation” work, which dovetailed with the Hayne royal commission. Other licensees, ASIC says, have only been asked to complete this work – known colloquially as ‘lookback requests’ – if it has been notified of a breach in licensee oversight.
The issue for advisers is not so much that ASIC’s regulatory parameters have changed, but that the application of them has been more rigorously applied. Since the royal commission, the record keeping of client file notes, for example, has been an increasing area of focus of the regulator.
Advisers have bristled at ASIC’s inconsistent regulatory application, while ASIC’s perspective is that the rules have always applied. According to UNSW associate professor of law, Marina Nehme, the proliferation of lookback requests have just served to make the general obligations clearer.
“The rules under (section) 912A have been there for a long time,” Nehme says. “The standards have not been changed, just clarified.”
In a separate question – also taken on notice – Van Manen brought up ASIC Commissioner Danielle Press’s earlier PJC comment that “conservative” licensees were hampering advice provision.
He cited the example of a mid-tier licensee spending $3 million responding to an ASIC lookback request that amounted to no breaches.
“If ASIC can initiate one of these lookback projects, at huge expense to the licensee, with no evidence of wrongdoing, then isn’t it unsurprising that licensee would be more conservative and risk adverse?” the MP noted.
Pulling up the 7-year anchor
ASIC is set to rejig key elements of its lookback program, with a consultation paper released in December last year proposing to extend the standard review period beyond seven years.
Currently, licensees are asked to only review advice going back seven years when they become aware of “misconduct or any other compliance failure”, unless there is a specific need.
After ASIC observed that this time-period provided a “disincentive for licensees to investigate the full extent of problems” it released Consultation Paper 335, which seeks to update Regulatory Guide 256 (Client review and remediation conducted by advice licensees).
“The remediation period should not be anchored to a seven-year timeframe,” ASIC stated. “We do not want to create any possible incentives for licensees to avoid proactively identifying and remediating problems as they occur.”
The proposal also seeks to make it clear that all licensees, including credit licensees and licensed superannuation trustees (other than SMSF trustees), fall under the same review and remediation rules as advice licensees.
