New code of ethics for financial advisers

November 2018

In 2017, the Federal Government passed legislation aimed at raising the professional, ethical and educational standards of financial advisers. Special counsel Selina Nutley says the most significant reforms require financial advisers to comply with a single uniform code of ethics and to have in place a compliance scheme to monitor their compliance with that code.

All financial advisers must be covered by a compliance scheme from 1 January 2020. Compliance with the code will not be monitored by ASIC, but rather by a "monitoring body" which must be independent, impartial and comprised of members with appropriate expertise.

Compliance scheme

While the code of ethics is presently being developed by the Financial Adviser Standards and Ethics Authority, financial advisers and licensees are responsible for preparing their compliance scheme. ASIC has recently released Regulatory Guide 269 Approval and oversight of compliance schemes for financial advisers which sets out the criteria it will use to determine whether it will approve a proposed compliance scheme. ASIC's approach is underpinned by the key principles of transparency, consistency and fairness. ASIC will look for the following elements in a compliance scheme:

  • A good governance and administration structure which shows the monitoring body has adequate resources and expertise to carry out its function and a clear delineation of tasks.
  • Proactive monitoring activities, including at least one own-motion inquiry per year, such as testing financial advisers' compliance with a specific standard.
  • Reactive monitoring processes for receiving, assessing and deciding reports of breaches and, where appropriate, imposing sanctions.
  • A legally binding relationship between the monitoring body and the financial adviser to secure compliance with its decisions and the requirements of the compliance scheme, as this is not covered by the Corporations Act.
  • Measures for the collection, storage and analysis of data which will enable bi-annual reporting to ASIC, and annual public reporting.
  • An obligation for the monitoring body to report serious contraventions or systemic issues to ASIC.

How can we help?

Our Funds Management lawyers are up to date with the details of these changes and can help with any queries and also developing your compliance scheme.

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