How many times does it happen that when poor advice is provided by a financial services business, the person who cops it in the neck is the frontline adviser?
On the one hand, it is difficult to sympathise too much with anyone who gives bad advice. On the other hand, it’s possible to see that there may be circumstances where an adviser is poorly trained, poorly supervised or just simply coerced by an employer into giving bad advice.
In an environment where advisers are not yet required to comply with professional and ethical standards, who else should be held accountable? Naturally, the finger points at those responsible for the training, monitoring and supervision of the advisers.
There’s also the related issue of individuals being banned as advisers, but left unencumbered to carry on running financial services businesses. While it might be argued that removing them from an advice role is adequate punishment, it can just as cogently be argued that allowing them to continue running the business simply perpetuates the culture and practices that nurtured the poor advice.
It’s a glaring hole in the powers of the corporate regulator, the Australian Securities and Investments Commission (ASIC) that, to quote the Financial System Inquiry (FSI, the so-called Murray Review), ASIC can “prevent a person from providing financial services, but cannot prevent them from managing a financial firm. Nor can ASIC remove individuals involved in managing a firm that may have a culture of non-compliance,” the Murray Review stated.
This gap can lead to some unusual happenings. For example, in 2013, when ASIC obtained enforceable undertakings (EU) from the Perth-based Wealthsure Pty Ltd and Wealthsure Financial Services, the former chief executive of both companies, Darren Pawski, offered a separate EU, removing himself from the management of both. This enabled Wealthsure to be reconstructed under the guidance of David Newman, a former Western Australia state manager for AMP.
Clearly, it’s not good enough that the regulator essentially relies on the goodwill of the people it regulates to get the results it wants. It’s not right that the buck stops with the frontline advisers in situations where systemic and cultural issues arise from poor supervision and training. Pawski, to his credit, appeared to recognise this; but the same realisation and acceptance has been much slower to dawn on some of this country’s more benighted institutions.
The government has already proposed that the Australian Prudential Regulation Authority (APRA) be given the power to remove and disqualify senior banking executives and directors, under the delightfully named Banking Executive Accountability Regime, or BEAR. This week the ASIC Enforcement Review Taskforce issued a position paper, ASIC’s Power to Ban Senior Officials in the Financial Sector, proposing to complement BEAR by allowing ASIC to hold individuals in the financial services and credit sectors accountable for their conduct.
The report states that, as things stand, someone who is banned from providing financial services can still “own, hold a senior position within, and be involved in the management of a financial services business despite the banning”.
It adds, somewhat coyly, that “this may not always be appropriate”, in circumstances where, for example, the banned person “supervises others who are providing financial services and/or the banned person is responsible for the licensee’s policies and procedures”.
So the taskforce has taken a preliminary position on this issue, proposing that “once an administrative banning power is triggered, ASIC should be able to ban a person from performing a specific function, or any function, in a financial services or credit business”.
It has also taken the preliminary position that “the threshold for the exercise of ASIC’s power to ban senior officials in the financial sector should be expanded”. In other words, not only would ASIC be able to ban people from managing financial services business, it would also be easier, in general, to ban them.
It’s not difficult to imagine the taskforce’s thought processes as it prepared its paper. When institutions regularly and monotonously serve up substandard, and in some cases actively destructive, advice to their clients, and where this can be dismissed – one after the other, week after week, month after month and year after year – as due to “rogue advisers”, someone needs to be held accountable.
The taskforce knows whom that should be – and it’s not just the advisers themselves.
TOPICS: APRA, asic, ASIC Enforcement Review Taskforce, Banking Executive Accountability Regime, Financial System Inquiry, Murray Review
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