RC/Frydenberg put paid to self-regulation

Will the Government’s single disciplinary body covering financial advisers be a lawyer’s picnic, or will it actually deliver a balance of legal, financial services and community experience sufficient to deliver appropriate outcomes for advisers who are accused of having broken the rules?

In the immediate aftermath of the Treasurer, Josh Frydenberg’s announcement that the Government would be fully embracing the recommendations of Royal Commissioner, Kenneth Hayne, and pursuing the single disciplinary body in preference to the code-monitoring authorities envisaged under the Financial Adviser Standards and Ethics Authority (FASEA) regime it was suggested that FASEA itself or even the Australian Financial Complaints Authority (AFCA) should be empowered as the single disciplinary authority. Such suggestions are flawed.

AFCA is an external dispute resolution body which should not be put in the position of being judge, jury and executioner with respect to financial advisers. FASEA is a standards-setting organisation which is already struggling to fulfil its remit.

Having aborted the concept of industry self-regulation inherent in FASEA code-monitoring authorities, the Government needs to establish and fund a body which, while understanding the industry, stands apart, has judicial powers and is unquestionably independent. To do otherwise is to beg more controversy and criticism.

Given the amount of time, effort and money which was expended by the Financial Planning Association (FPA), the Association of Financial Advisers (AFA), the SMSF Association and the other members of the Code Monitoring Australia consortium, their disappointment at the Treasurer’s announcement is understandable.

However, the writing was on the wall from the moment political and electoral expediency dictated that the Government committed to the implementation of all of Hayne’s recommendations irrespective of how much of the FASEA regime was already on foot.

Then, again, perhaps the writing was on the wall for industry associations and self-regulation when the Royal Commission was informed of the manner and time taken by the FPA Conduct Review Commission in its handling of allegations levelled against former celebrity planner, Sam Henderson. 

To a jurist such as Commissioner Hayne, the processes, responses and time taken may not have appeared suitably effective.

The FPA CRC is actually chaired by a lawyer and, in truth, it followed procedure and arrived at an appropriate determination but it seems obvious with hindsight that this process did not find favour with Hayne who doubtless took into consideration the processes other financial adviser bodies such as the Association of Financial Advisers (AFA).

But the question needs to be asked. Would any lawyer heading a Royal Commission into misconduct in the Banking, Superannuation and Financial Services industry ever have felt comfortable in backing a regime entailing self-regulation? The answer was always going to be a necessarily cautious and conservative ‘no’.

Thus, financial advisers are faced with the prospect of a single disciplinary body the constitution and rules of which have not even been sorted out but the cost of which is likely to be high.

The times and political expediency have once again conspired against advisers.




"The times and political expediency have once again conspired against advisers." - well maybe but more the symptom than the case.

The banking and financial services industries and their affiliates were the cause and so primarily at fault in causing this outcome. Self regulation was non existent but self-interest certainly was. If there had been modicum of self control within the industry then Hayne would not have been so black and white.

The professional bodies were compromised and lacked the guts to discipline their members. The ABA likewise with its members.
So its public servants and/or judges calling the shots - they cant be worse than those who were supposed to be running regulation.
Now you watch - there will be plenty of chicken littles saying all sorts of doom and gloom. But they were part of the problem.
In any case, financial planners now need a strong independent review system to restore confidence in financial planning and planners and to restore incomes of financial planners. Now that the culling of of financial planners who cant make the grade is happening, then hopefully the bad and criminal behaviours might be reduced to an insignificant level and so restore the reputation of a valuable service to Australian citizens.

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