The new disciplinary system for financial advisers featuring the expanded role of the Financial Services Credit Panel (FSCP) and ASIC could well mean financial advisers and licensees will face more and different types of regulatory investigations or administrative actions. Are you prepared and ready to respond to any regulatory action?

Background

Two of the key recommendations yet to be implemented from the Hayne Banking Royal Commission Report were the establishment of a single disciplinary body for financial advisers, as well as compulsory registration for advisers providing personal advice. This has now been achieved with the passing of the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act. The ‘Better Advice Act’, as it is colloquially known, commenced on 1 January 2022, although takes a staged approach to registration requirements. 

Financial Services Credit Panel

Through the Better Advice Act, the FSCP, an existing body with limited powers, is now the single disciplinary body for financial advisers with significantly expanded jurisdiction.

Broadly, there are two types of matters which can be referred by ASIC to the FSCP:

1. Restricted civil penalty provisions – matters serious enough to warrant financial penalties, but not serious enough to be characterised as a criminal offence (eg failure to meet education and training standards, breaches of the code of ethics, or failure to be duly registered).
2. Specified circumstances – matters that constitute a contravention of an adviser’s obligations under the law (eg where an adviser has become insolvent, being convicted of an offence of dishonesty, or the FSCP reasonably believes the adviser is not a fit and proper person to give advice).

Previously, ASIC had relatively limited options for disciplining financial advisers. Its primary power was the fairly blunt tool of a banning order preventing an adviser from providing financial services for a period of time. ASIC had no real power to discipline advisers whose conduct was not sufficiently grave to warrant a banning order, but could benefit from additional training or remedial education. 

In contrast, the FSCP has an extensive array of powers to be utilised at its discretion having regard to the nature and severity of the action. The FSCP is able to—

• issue warnings, reprimands, infringement notices and directions to undertake specific training, supervision, counselling or reporting
• suspend or cancel an adviser’s registration (the equivalent of a banning order)
• make recommendations to ASIC that it apply to the Court for the imposition of a civil penalty
• accept enforceable undertakings as an alternative to administrative action (previously popular with ASIC, but rarely used in recent years during the ‘why not litigate’ era).

Before taking action against an adviser, the FSCP is required to issue a notice informing the adviser of the alleged misconduct, the action proposed and the adviser’s right to request a hearing or provide written submissions to the Panel.  This in many ways mirrors the present ASIC process, intended to provide advisers with procedural fairness.

Further guidance will be issued around the FSCP’s processes and powers in the coming months.

Financial adviser registrations

The Better Advice Act also introduces an obligation for financial advisers providing personal advice to be registered. The changes to registration will occur gradually. The first step, commencing no later than 1 January 2023, will require licensees to apply to ASIC to register their representatives. From that same date, it will be an offence to provide personal financial advice while an adviser is unregistered. The second stage will require advisers to apply directly for registration. At the time of writing, there is no known commencement date for the second stage.

Licensees and financial advisers beware!

The limited range of enforcement actions available to ASIC has meant regulatory action against financial advisers has been relatively isolated to date. However, with a broadened range of powers available to both ASIC and the FSCP, it is anticipated the number and type of regulatory investigations or administrative actions against individual advisers may increase substantially. 

For this reason, it is important licensees and advisers ensure all their representatives are complying adequately with the law, including training obligations and compliance programs. Given the relatively short timeframes for responses and the election of hearings (28 days), it is vitally important both licensees and financial advisers seek advice promptly upon receiving any correspondence or notifications from the FSCP. 

Our Funds Management and Litigation teams have extensive experience in acting for licensees and individual advisers in relation to regulatory action. Please contact us if you require assistance at any time.