FSC white paper criticised for looking out for the interests of the biggest licensees

The Financial Services Council has recommended ASIC should establish a risk-based supervision function for AFSLs, as well as charging licensees more for the industry levy.

The proposals come from its White Paper on the Future of Advice Licensing which models a potential $40,000 per licensee ASIC levy (instead of $1500), which would reduce the per adviser levy cost of $3037 (based on the proposed FY26 levy) to $500. A softer model proposes a $25,000/$1700 split.

But the new paper dropped the tiered licensing proposal, practising certificates, accreditation of third-party compliance providers, new adviser skills and performance registry and capital requirements that were featured in the preceding green paper released last July.

Financial Advice Association Australia chief executive Sarah Abood said the association will review the proposals, but that they will not be well-received by smaller licensees.

“It’s important to be aware of the context of these recommendations,” Abood said in a statement.

“The FSC does not represent financial advice, or financial advisers. It represents the interests of five large advice licensees, with the vast majority of its membership being made up of large product issuers (such as managed investment schemes). Its proposals should be considered in this light.”

The white paper recommended that ASIC should establish a separate enhanced risk-based supervision function for advice AFSLs, where regulatory intelligence or surveillance identifies elevated risk that is then escalated to an “enhanced risk supervision” team for more intensive engagement.

Licensees subject to the enhanced risk supervision will be required to provide ASIC with business-model and governance information, privately disclose material client acquisition channels, external lead-generation arrangements, referral relationships and related-party product distribution arrangements.

Furthermore, these licensees will be subject to targeted information requests, file sampling, governance testing and escalation pathways to enforcement action if breaches of the law are found.

As part of the annual licence renewal, licensees will be required to provide ASIC with their current professional indemnity insurance policy and the regulator will review whether the licensee’s PI arrangements are adequate, based on the business.

FSC chief executive Blake Briggs said the Shield and First Guardian collapses exposed vulnerabilities in the system which the early identification of risk could have prevented.

“These proposals represent a positive step towards strengthening the supervisory framework to identify and reduce those risks,” Briggs said.

“The solution is not new laws, but more effective administration and supervision of the existing licensing framework so that licensees are more rigorously held to account in fulfilling their statutory duties to consumers. ASIC must be equipped with the information, resources and supervisory capability to identify and address risks before consumers suffer harm.”

The paper recommended that the government and ASIC should review minimum professional indemnity (PI) insurance in ASIC’s Regulatory Guide 126 and whether the maximum cover limit of $20 million should be lifted to $30 million, and that PI arrangements should be checked by the regulator as part of the enhanced review system.

The government has already been consulting on how to uplift PI standards and oversight to improve the sustainability of the Compensation Scheme of Last Resort.

To identify connected patterns of misconduct and emerging consumer risk earlier, the paper recommended that ASIC should establish a formal internal intelligence and risk triage framework that integrates information across existing regulatory data sources, including proactive surveillance and enforcement, licence variation and cancellation history, breach reporting data, AFCA systemic issue referrals and complaint trends, disciplinary outcomes, and professional indemnity insurance attestations or notifications.

The council recommended that the ASIC Financial Advisers Register interface on the Moneysmart website should be upgraded so users can search an AFSL and see an enhanced licensee view of the register, which will include all advisers operating under that licence, corporate authorised representatives and trading names ultimately associated with the licence, all in the one place. It also suggested the interface should be refreshed to ensure consumers can more easily understand what advisers can and can’t give advice on.

The paper also recommended that the government consult on a mechanism to identify and disclose responsible managers and responsible persons connected to an AFSL on the FAR, displaying which AFSLs they are linked to and their historical associations.