Small licensees clearly under ASIC’s regulatory spotlight

A focus on licensees’ obligations under the reportable situations regime and requirements to lodge information about internal dispute resolution (IDR) schemes will ensure the regulator’s spotlight falls on even the smallest licensees, the Professional Planner Licensee Summit has heard.

ASIC Commissioner Alan Kirkland told the summit in the NSW Blue Mountains on Tuesday that the regulator has been warning all licensees for the past two years that they must lift their game in respect to breach reporting, and “my message today is that we’re not going to spend the next two years doing the same”.

“Where we find evidence of non-compliance, we will take appropriate action including enforcement action where necessary,” Kirkland said.

The reportable situations regime was a recommendation of the Hayne royal commission and is designed to be a key source of regulatory intelligence for ASIC, providing early signals of compliance issues and failures and helping ASIC decide where to direct its resources.

To date, small licensees have been conspicuous by their absence in breach reporting.

“It’s really important is that it operates effectively,” Kirkland said.

“It’s now been in effect for almost three years but the proportion of licensees that have submitted a report is very low and that suggests that some may still not be complying with their obligations.

“That’s one of the reasons we have made it an enforcement priority for 2024 [and] our surveillance on this topic remains active and ongoing.”

Dispute resolution data

Kirkland added that “another key source of new data to inform our work” will come from a requirement to lodge IDR data with the regulator. Smaller financial firms are required to submit IDR data to ASIC for the first time this year, so that by 1 January 2025, around 8700 firms will have reported.

“This gives us for the first time a picture of how the full spectrum of firms are dealing with consumer and small business complaints under their IDR procedures, the good, the bad and everything in between,” Kirkland said.

“And we intend to use it to inform our work, [and] consistent with the recommendations of the Ramsay Review, which recommended this change to IDR reporting, we also intend to publish some of that data.”

Kirkland said licensees should expect to see ASIC’s reporting of IDR data become more detailed over time.

“We encourage you to be doing what you can now to make sure that the data up your reporting is accurate and comprehensive,” he said.

Kirkland said the reportable situations regime and IDR reporting are just two examples of how small licensees are firmly on the regulator’s radar. Kirkland told the summit he’s aware of criticism of the regulator for leaving the small end of the licensee market largely unexamined, but believes those criticisms are not warranted.

“Alongside [actions against large firms] we also take actions against smaller firms and individual advisers – for instance, our actions against David Valvo, Brett Gordon or Mark Cooper,” Kirkland said.

Kirkland said half of the companies and individuals who were removed, restricted or banned this financial year had an estimated business revenue of less than $1 million, proving ASIC would target firms of all sizes.

“When we’re doing surveillance work, we’ll typically look to include a sample that includes a range of firm sizes, including relatively small firms,” Kirkland said.

Small end growing fast

The small end of the licensee market has grown rapidly in recent years with a licensee business leader at the summit suggesting small licensees may number as many as 4000 and growing.

Kirkland says ASIC does not have a view on how the licensee market should be structured in terms of small, medium and large licensee entities.

“Obviously, we watch those trends, and we are actively thinking about them in terms of what does that mean about how our regulatory and surveillance and enforcement approach needs to change.

“That’s the framework we’ve got, we have to operate within that. But we do watch the trends in terms of how the industry is changing, and that does feed into our thinking about the sorts of issues that we look at, but also, the way in which we go about looking at them.”

Former ASIC commissioner Danielle Press told Professional Planner in an interview in January, after leaving ASIC, that how to monitor and effectively regulate small licensee kept her awake at night.

Kirkland said he shares those concerns to the extent that “I worry about the worst forms of misconduct and financial advice across the entire sector”.

“I’ve stressed ‘the worst’,” he said.

“We are clear that our concerns are about a minority of advisers. But we do continue to see misconduct that creates poor outcomes for consumers, sometimes terrible outcomes from a range of firms.

“So, to the extent that we continue to see that, yes, it does worry me.”

On the issue of charging advice fees to superannuation fund members’ accounts for the provision of financial advice, Kirkland said it still remains ASIC’s view that proposed changes to Section 99FA of the SIS Act will not require trustees of super funds to check every single SOA delivered to members.

Kirkland reiterated that ASIC had not been involved in the drafting of the legislation, specifically s99FA.

“We don’t make government policy decisions or design regulatory reform, despite what you might sometimes write in Professional Planner,” Kirkland said.

“We’re not in there shaping these laws, we are there to provide advice where it’s helpful along the way.

“But we did consider it helpful to be really clear about our views under the current law and the proposed laws.”