The FSC's white paper blind spot: Who's accountable when compliance fails?

4 August 2026 16:14

The Financial Services Council deserves credit for listening.

Its White Paper on the Future of Advice Licensing is a great improvement on its green paper. The FSC abandons tiered licensing, rejects practising certificates and accepts that licence size is not a reliable proxy for risk. Most importantly, it concludes that we don’t need to replace the AFSL framework; we need to supervise it more effectively.

That’s the right direction.

But the white paper still leaves one critical question largely unanswered: who is accountable when a licensee’s compliance systems fail?

The paper continues to focus on “the licensee” as though compliance is something organisations achieve simply by having governance frameworks, policies and compliance teams. Bitter experience tells us a different story. Compliance failures are rarely caused by a lack of systems or an absence of frameworks. More often, they occur because the people responsible for those systems fail to act.

The white paper rightly acknowledges that large licensees can have mature governance structures, sophisticated compliance functions and greater financial resources. Yet history repeatedly demonstrates that these attributes don’t guarantee effective compliance.

The FSC’s bias and preferences are understandable, but they’re not facts.

Westpac, Macquarie and, more recently, ASIC’s proceedings against InterPrac Financial Planning illustrate the point. None of these organisations lacked compliance personnel, reporting systems or access to information. The question was whether management recognised warning signs, exercised authority and responded appropriately when risks emerged.

That’s why licence size is ultimately the wrong measure. Capability depends on judgement, leadership and accountability, not adviser numbers.

The InterPrac proceedings are particularly instructive. ASIC alleges that the licensee identified significant warning signs, including deficiencies in advice files, concerns about product recommendations and issues involving lead generators, yet failed to respond effectively. Those allegations remain before the court, but they highlight an important regulatory principle: the effectiveness of compliance depends on how management uses the information it already has.

This exposes the white paper’s principal weakness. It discusses the capabilities of licensees without giving equivalent attention to the directors, executives, controllers and responsible managers (RMs) who determine whether compliance arrangements actually operate.

A licensee is a legal entity, not a real person. It doesn’t read compliance reports, investigate misconduct or decide whether to terminate profitable advisers. People do.

If we want to strengthen confidence in the advice profession, accountability must follow practical authority rather than corporate structure. Regulators should ask who received the relevant information, who had authority to intervene and why action was, or wasn’t, taken.

One practical reform would be to require periodic independent reviews of a licensee’s governance, compliance and supervisory arrangements. Similar models already exist elsewhere in Australia’s regulatory framework. Independent reviews are more likely to reveal governance weaknesses than additional administrative meetings because they test whether controls operate effectively rather than simply confirming that policies exist.

The FSC has made an important contribution by shifting the debate away from replacing the AFSL framework and towards improving supervision. That deserves recognition, but the more critical step to take is to stop treating compliance as an attribute of corporate entities and start recognising it as a function of management behaviour.

The central issue isn’t how many advisers operate under a licence or how many compliance staff a business employs. It’s whether those with authority use the information available to them and are held accountable when they fail to act.

That’s where advice licensing reform should begin and that’s where real leadership is needed.

Sean Graham is the managing director of financial advice compliance firm Assured Support.

Assured Support, Financial Services Council, FSC, licensing, sean graham

One response to “The FSC’s white paper blind spot: Who’s accountable when compliance fails?”

SONJA

August 5, 2026

This article is really ASIC describing its own defective administration — just without having the honesty to apply the analysis to itself.
Sean Graham’s central proposition is that accountability must follow the people who received the information, had authority to intervene and failed to act. Fine. Apply that exact test to ASIC.
In Lion Property Group, ASIC investigated for approximately four years and achieved precisely nothing for investors. It received repeated misconduct reports, evidence of commingled funds, alleged misuse of trust money, director withdrawals and escalating project failures. It closed the investigation without warning investors, refused to reopen it when subpoenaed banking evidence was provided, refused to intervene in the Supreme Court proceedings and left financially exhausted victims to spend hundreds of thousands of dollars doing the regulator’s job. The eventual Supreme Court findings confirmed an unlawful unregistered managed investment scheme, the pooling and misuse of investor funds and more than $122 million raised. ASIC did not discover it, stop it or bring it before the Court. The victims did. �
FINAL_Regulator Notice & Defective Administration Timeline[1].pdf
Worse, ASIC devoted public resources to dealing with disclosure documents and regulatory form while apparently paying no serious attention to the damage those documents had already facilitated. Rewording a PDS is not consumer protection when the underlying conduct is rotten. It is regulatory cosmetics. It gives a scheme the appearance of legitimacy while investors continue to rely on documents carrying ASIC’s regulatory imprimatur.
Sterling First shows this was not an isolated failure. ASIC had years of warning signs: previous stop orders, missing financial reports, misconduct referrals, misleading statements, compliance breaches, concerns about financial viability and directors connected with numerous earlier corporate collapses. ASIC stopped one PDS, allowed the same product to return under a replacement PDS, and then failed to undertake the surveillance necessary to detect fundraising through Silverlink and other entities. Sterling ultimately raised more than $30 million from 527 investors. ASIC’s response included meetings, requests to change websites and written undertakings that the directors simply ignored. �
8. Sterling First Action Group(1).pdf
That is not merely a failure of “the regulatory system”. Named officers and executives received the information. People decided not to escalate it. People decided not to warn investors. People accepted assurances from directors already surrounded by extraordinary red flags. People allocated resources elsewhere because other collapses were larger. ASIC itself later acknowledged it could have stopped the replacement Sterling PDS and should have communicated the risks more effectively. �
8. Sterling First Action Group(1).pdf
Prime Trust raises the same foundational issue at the front door: what meaningful fitness assessment is being undertaken when an AFSL can be issued into circumstances involving deeply concerning histories, failed enterprises or obvious questions about competence and character? ASIC cannot continually license first, supervise weakly, react after collapse and then tell victims that no regulator can guarantee against misconduct. Nobody is asking for perfection. They are asking ASIC to act on the information already sitting in its own systems.
ASIC is very good at explaining that corporations do not make decisions — people do — when prosecuting private licensees. Yet when ASIC’s own administration fails, responsibility disappears into “competing priorities”, “regulatory discretion”, “resourcing” and “lessons learned”.
So let us use the article’s test properly:
Who received the reports?
Who reviewed the evidence?
Who authorised the investigation to be closed?
Who decided investors should not be warned?
Who decided ASIC would not intervene?
Who monitored compliance with stop orders and undertakings?
Who allowed replacement products and new fundraising vehicles to continue?
And who has been held personally accountable?
Until ASIC answers those questions, this is not credible licensing reform. It is another discussion about holding private management accountable, conducted by a regulator whose own management remains almost entirely insulated from accountability when its failures destroy homes, retirements and families. ASIC does not merely regulate defective administration. In Lion, Sterling and Prime Trust, it repeatedly appears to have practised it. ASIC, fix your own backyard. Lead by example. Stop hunting corporate villains to deflect attention from your own compliance, governance and accountability failures.

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