Fear and confusion are driving a rumoured 10,000 breaches lodged with the regulator as advisors and licensees grapple with compliance.
While not confirmed by ASIC, higher levels of breach reporting are sparked by Hayne Royal Commission-recommended reforms introduced in “Red October” 2021, which also led to design and distribution obligation (DDO) rules, licensees reference checking advisers and mandatory reporting.
QMV Legal senior associate Gabriela Pirana told the Professional Planner Principals in Practice Podcast, breach reporting had risen in line with adviser confusion about compliance and may not change with the Quality of Advice Review’s move to simplify the new rules.
The move from a subjective significance test to reporting breaches of advisers’ obligations has caused confusion and many reportable situations that were not previously reported, Pirana said.
“The breach reporting regime and I think that that’s been the largest hurdle as seen by the industry,” she said.
“Levy’s proposals are intended to essentially simplify the regulatory regime for advisors, and licensees and if that were to happen, by its nature, it will simplify the breach reporting regime.
“Will that actually change the substance of the breaches and the number of breaches that are reported or reportable situations? Potentially No.”
She said the breach reporting regime could become more streamlined and effective with more guidance from ASIC, which it has signalled it is likely to do.
Assured Support managing director Sean Graham said advisers and licensees had dealt with a lot of change and were apprehensive about what the regulator was going to do.
“They’ve also got these unrealistic expectations about what’s going to change and how quickly,’’ Graham said.
“At the same time, consumers are getting more and more active. Based on our data, the number of complaints has really quadrupled from the same period last year, so consumers are generating more, more attention and more focus on their licensees.
“It’s a really challenging and a really difficult environment to deal with.”
While DDO has been called an important consumer safeguard by Levy, most advisors viewed the regulation as “the most bureaucratic, pointless reform that’s been introduced over the past 10 years”, Graham said.
“The difficulty with the DDO piece is it really only required licensees and advisers to do what they always should have done, which is understand the products they’re recommending… that should already be covered.”
DDO was an effective check on product issuers and product performance which was where most complaints from clients came from.
“I think DDO is really just trying to put that balance back and say: ‘if you are going to launch your product, at least think about who it’s going to go out to and accept some responsibility for the proper distribution’,” Graham said.
“Theoretically, that’s always been done, but we all know, there have been notable failures for that to occur over the past 20 to 30 years.”
