With no oversight and with the formulation of a disciplinary body still in transition, advisers and licensees have put on hold the supervision and application of the Code of Ethics despite the possible legal ramifications associated with doing so.

Currently it is a requirement under the Corporations Act following reforms introduced in March 2017 to adhere to new professional standards including compliance with the Code of Ethics. In its timeline the securities regulator sets out that from January 2020 advisers who are authorised representatives of AFSL holders must apply with the code.

“I’m not aware of any AFSL having incorporated anything to do with supervising or administering the Code,” said Dan Brammell (pictured, far right), head of AFSL holder Independent Financial Advisers Australia and president of the Profession of Independent Financial Advisers.

“Everyone in the industry seems to be waiting for some new regulator to say, ‘here is a case’ and ‘this is wrong’, no one seems to be taking their obligations [under the code] seriously,” he said.

In December last year Jane Hume, the current minister for financial services, superannuation and the digital economy announced FASEA would be disbanded and have its role divided up between Treasury and ASIC’s Financial Services and Credit Panel to form the industry’s long awaited single disciplinary body.

Since Hume’s announcement – and even before then –the regulator and industry associations had gone quiet on how the Financial Adviser Standards and Ethics Authority-developed statutory code would be monitored and enforced.

Licensees were given responsibility to monitor advisers’ adherence to the new code following an announcement by Treasurer Josh Frydenberg to delay the requirement for all practitioners to be a member of a code monitoring body for up to three years. ASIC has regulatory oversight for the statutory Code of Ethics that applies to all registered financial advisers giving advice to retail clients from January 1, 2020.

“There’s so much confusion around the oversight of the code, until we get something in the court of law there is a bit of apathy amongst licensees and advisers,” said Conrad Travers (pictured, far left), director of advice compliance consultancy, Tangelo Strategy and Advice Consulting. Travers described the application of the code by licensees currently as an “afterthought”.

At the time licensees were given responsibility for monitoring advisers’ adherence to the code and reporting breaches ASIC commissioner Danielle Press said the regulator required licensees to take “reasonable steps” to ensure advisers are compliant while acknowledging that FASEA at the time still hadn’t completed its guidance and that questions remain relating to how aspects of the code will apply in practice.

“The code was left in a half finished place – on the one hand it’s a ‘vibe’, on the other hand it’s the black letter of the law. To me that means it needs interpretation,” said Paul Moran (pictured, middle), a self licensed financial adviser with Moran Partner Financial Planning based in Melbourne.

“ASIC does things like regulatory guides which are much more perspective, what it seems is we are sitting between a principle and black letter law approach,” Moran said. He added that a principles-based approach would put more interpretation for the code in the hands of the adviser whereas the black letter law approach would leave the interpretation up to the licensee and it’s compliance approach.

A spokesperson for ASIC noted that while oversight of the industry’s adherence to its professional standards obligations remain in transition the regulator still expected the law to be obeyed. He also noted that the the government has indicated oversight for the code will eventually rest with ASIC but the move to put in place a single disciplinary body is currently in the government’s hands.

2 comments on “Code of Ethics obligations an afterthought for licensees”
  1. Avatar
    Dr. Angelique McInnes

    @Kym Bailey,

    I am confident the advice sector will to quote you “one day, get out of this lawyer fest approach to financial planning”, because the advisers who remain within and the new entrants entering the emerging profession are going to be able to behave far more ethically when no longer shackled to product distribution.

  2. Avatar

    I can’t agree this is a truism across the board. AFSL oversight of Code compliance is being absorbed into the already rigorous compliance regime. Internal audit programs now incorporate the FASEA standards.
    Where a breach is identified, it is likely to be alongside a breach of another part of Chapter 7 but in any case, will be included in a consequences framework.
    Remembering that the Code is about behaviour, not just black letter law, it is adviser’s responsibility to ensure they demonstrate this via their client records – file notes etc.
    As more advisers complete the Ethics Bridging course, the more understanding of their individual responsibility for Code compliance is displayed.
    I hope, that we can, one day, get out of this lawyer fest approach to financial planning. If we keep looking for the stick, rather than encouraging behavioural changes, we will remain strangled by the “Gordian knot”

Join the discussion