The corporate regulator has released guidance regarding the functions and processes of its Financial Services and Credit Panel, including the rights of advisers who are called to a convened session and the contraventions that may lead to it.
ASIC previously announced its parameters for warnings and reprimands but, in guidance released on Wednesday afternoon, added it “will consider whether misconduct is widespread or part of a growing trend, and whether referring the matter to a sitting panel will send an effective and deterrent message to industry”.
ASIC will maintain full discretion over matters it will investigate and will “carefully consider” how it will respond to reports of situations that fall under its remit.
“However, we cannot investigate or take action in relation to every such report,” it stated. “Instead, we will be selective about the matters we pursue to ensure that we use our resources to target misconduct effectively and efficiently.”
Insolvency, fraud, not a fit and proper person, failure to approve a statement of advice, provision of personal advice by an unregistered financial adviser, and serious contravention of a financial services law make up most potential infractions.
These contraventions, at most, could result in ASIC accepting an enforceable undertaking from a financial adviser as well as suspending or restriction an adviser from being registered.
Additionally, a breach of education and training standards at maximum could result in ASIC issuing civil penalty proceedings against the financial adviser.
The panel
When a matter has been decided if it will be put in front of a panel, the regulator will nominate an internal and at least two external members of the FSCP.
ASIC announced its inaugural panel roster earlier in the year after it had been picked up the names were yet to be public despite the regime having officially begun.
“Where appropriate, we may convene the same sitting panel to hear a number of similar matters together to ensure that the sitting panel operates as efficiently as possible,” the guidance stated. “However, even where the same sitting panel considers several different matters, each matter will be considered separately and on its own merits.”
ASIC stated each panel member must give written notice regarding all conflicts of interest that could be a factor if selected for a trial.
“Using the declarations provided by external members and other information available to ASIC, we will undertake checks for conflicts of interest before appointing external or internal members to a sitting panel.”
You can’t handle the truth
Although to many the process may have the look and feel of a court of law, ASIC has strictly specified this is a mistake to assume.
It noted the rules of evidence do not apply in FSCP hearings and the whole process should not be compared with proceedings in a court of law, noting the purpose is different.
“A hearing by a sitting panel is an inquiry to determine the facts and help the panel determine what, if any, action it should take against a financial adviser based on those facts,” the guidance stated. “The hearings are ‘inquisitorial’ in nature, rather than adversarial—that is, they serve as an inquiry to ascertain the relevant facts.”
The guidance also dismissed the relevance of commonly known legal principal for burden of proof and how it applies.
“The concept of ‘burden of proof’ arises in court processes but has no place in administrative hearings. An administrative hearing gives the financial adviser an opportunity to provide the sitting panel with information which the financial adviser believes is relevant to the matter. Generally, the financial adviser does not have to prove or disprove anything.”
A review of the decision to the Administrative Appeals Tribunal will cost $1,011 but can be reduced to $100 based on certain conditions around financial hardship.
ASIC commissioner Danielle Press said the FSCP has been given its own functions and powers to consider and act in response to financial adviser misconduct.
“The FSCP, combined with ASIC’s new warning and reprimand powers, enables ASIC to respond to a range of financial advice misconduct, including lower-level misconduct that may otherwise go unaddressed,” Press said.
Given our legal system and administrative review panels for professional conduct are modelled upon statute, case law, and legal principles governing the codification of review standards that a panel would use to determine administrative responses in regard to a breach of conduct under a professional standard’s code, the minimal standard of establishing a breach is based on the ‘balance of probabilities’ in a civil case architecture, and therefore requires an alignment on mitigating factors or causal events to link such factors and events to an implied effect from these on the ‘balance of probabilities’.
If this simple standard to determine the effect of an Adviser’s actions is to not be linked to mitigating factors or causal events on the ‘balance of probabilities’, then what standard will the Review Panel use in making a determination to attribute cause or fault in consideration of its inventory of remedies?
Establishing a standard of attribution of fault without having an established legal standard of ‘balance of probabilities’ invites the development of a new standard which is subject to a subjective standard, either by the review panel members for the case, or by the FSCP governance mechanics to determine it for each case.
Either way, to permit a hearing model without the proven accountability of the ‘balance of probabilities’ standard invites inconsistency in determinations and governance to responding to complaints over the long term.