Adviser background checks still an issue: ASIC
The financial advice industry is on the road to professionalism as it discards old conflicted remuneration models but background checks when hiring new advisers remains an issue, the Australian Securities and Investments Commission (ASIC) said.
In a speech at the Governance Institute of Australia – Essential Legal and Regulatory Update last week, commissioner, John Price said the corporate regulator frequently encountered dedicated and passionate advisers who met ASIC’s “vision of good” in delivering benefits to clients.
“Given all the media coverage of misconduct in the financial advice industry and the significant ASIC enforcement action in this area, it is easy to forget how far the financial advice industry has come over the last decade or so,” Price said.
However, Price said background checks when hiring new advisers was not yet robust enough despite recent proposals to tackle the issue.
“Clients seem rightly incredulous when it transpires that advisers who have created problems in one firm are able to move around the industry without any apparent difficulty,” Price said.
“ASIC thinks that the recent proposals by the Australian Bankers’ Association (ABA) on reference checking are a good step forward but I think the jury is still out on whether further reforms are needed in this area. Time will tell.”
Price also said ASIC was very concerned that delays in breach reporting to ASIC by firms could result in client loss and emphasised the need for timely breach reporting.
“It is fair to assume that ASIC views delays in breach reporting as a risk factor that often suggests broader and more intensive inquiries about a firm might be needed,” he said.
Price emphasised the need for remediation and client communication in instances of poor advice, adding institutions and firms should be clear about why customers were being contacted and they should be given a reasonable amount of time to respond.
He pointed the industry to various checklists and guidance in REP 515 which could aid in communicating with clients in such instances.
Exploring how regulatory technology (regtech) and financial technology (fintech) could boost cost efficiency in advice, Price said the increased use of technology to capture, store and analyse data could increase the chances of cyber-attacks.
“There are also risks that data will be stored, used and shared with others against the wishes of the consumers providing the data. But there are steps in train to try to deal with these issues, and I have no doubt that the future of what good looks like will strongly influenced by these new technologies,” he said.
ASIC planned to release a report in the coming weeks outlining how it would support regtech, Price said.
AUTHOR
Malavika Santhebennur
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