In making the transition towards professionalism, Australia’s financial planning sector needs to embrace more effective self-regulation, according to Richard Batten, partner and financial services legal specialist at Minter Ellison.
He refers to the management of “bad apples” within the industry, especially in the context of this year’s budget, that has seen the Australian Securities and Investment Commission’s (ASIC) budget significantly cut.
This will see ASIC’s budget drop by around 12 per cent for the 2014-15 financial year, losing around $120 million over four years, and a loss of more than 200 staff.
“There is a risk, whenever a regulator starts questioning its ability to engage in enforcement – whether because of resources or the way it’s been criticised for its conduct or the way it’s been perceived – it reduces the risk of non-compliance,” Batten says.
“It’s a difficult issue. ASIC’s been obviously quite concerned about it, but there are limits around how far it has felt it can go in certain areas.”
He acknowledges that Australian financial services license (AFSL) holders typically have a strong interest in this, but also accepts that “there may be concerns about the sharing of information between licensees, depending on whether it’s a competition issue or a defamation issue.”
Looking at an externally managed model of financial services industry regulation, he points out a key limitation of this approach.
“There’s a strong interest to manage that process…but the only real solution in our current structure is for the misconduct to be drawn to the attention of ASIC, and for ASIC to issue a banning order,” he says. “That’s the only true remedy that can actually be effective.
“There is a banning register. There is a remedy there.”
But Batten also concedes that as a legal process, it doesn’t always progress as quickly as some parties may like. The time it took ASIC to act on Commonwealth Financial Planning (CFPL) is one prominent recent example.
“But it’s a legal process, people are entitled to due process and to fair hearings,” he says.
“It’s a very serious consequence. On one level, you wouldn’t want the regulator to be exercising that power lightly.
“Obviously you don’t want bad apples in the industry, and there may be a basis for a view that the current regulatory structure doesn’t address that particular issue as well as it might.”
The way forward
While emphasising the sensitivity of the issue of individual licensing of financial planners, which would many believe would be a step back for the industry, Batten says this has re-emerged in some industry forums, “but not in any sort of statutory sense”.
“We’ve made a deliberate decision as a country, not to do individual licensing,” Batten says, highlighting the prohibitive resource requirements of such an approach, which he suggests would not be favoured by ASIC.
However, he suggests one or more of the financial planning industry’s professional associations may achieve a similar regulatory outcome.
“Whether it’s through a statutory authority like ASIC, or through enforced professional organisation membership – which we do have some equivalents of in other professions.”
Drawing comparisons with the accounting profession, he says that clients dealing with accountants know to first check whether a practitioner is a member of an industry association before engaging them.
“FPA is obviously making a big case for itself being one of the professional associations that exercises power like that,” Batten says, referring to CPA Australia and the Institute of Chartered Accountants as examples.
“I think it’s one of the difficult balancing acts,” he says.
“We’re in a transition, to some extent; an industry that’s in the development of becoming a profession, and we’re going through the teething pains of that process at the moment, as the industry works out the best way for itself.”
