Adviser penalty regime ad-hoc and confused

14 December 2017

The current penalty regime around financial planning appears ad-hoc and confused and there needs to be clarified, according to the Association of Financial Advisers (AFA).

In a submission to the Australian Securities and Investments Commission (ASIC) enforcement review being undertaken by the Federal Treasury, the AFA has pointed to the reality that there could be life-long implications for planners found to have been doing the wrong.

However, pointing to the regulator regime which had evolved since the imposition of the Future of Financial Advice (FOFA) legislation from 2012, it said the focus had changed to the core financial advice obligation to act in the best interest of your clients was based on a civil penalty regime.

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“A failure to comply with the best interests duty is a very serious breach, and one that should be up the higher end of the scale for penalty,” the AFA said before pointing out that the Financial Services Reform Act of 2001, included a number of criminal offence provisions.

“There is a major disconnect between these two regimes, that should be addressed before proposals are brought forward to increase some of the criminal penalties,” it said.

“We are bemused by suggestions to increase the maximum prison term for something like failing to provide a Financial Services Guide when the more serious breach of failing to comply with the Best Interests Duty is a civil penalty offence,” the AFA submission said.

“We believe that there needs to be much greater clarity in the overall framework for penalties and a more genuine level of consistency across the financial advice penalties regime, rather than what appears to be ad-hoc changes in certain areas,” it said.

Elsewhere in its submission, the AFA pointed to the need for perspective to be injected into the penalty regime in circumstances where what might be appropriate for large corporations was not necessarily going to be appropriate for the vast majority of financial planners operating in smaller business structures.

“Whilst many stakeholders may view this matter from the perspective of penalties that are applied to large corporations, the important reality is that a substantial majority of financial advisers are either small business operators or employees in small businesses,” it said.

“These reforms are not simply a matter of making sure that the big guys pay for doing the wrong thing. The implications on small businesses can be substantial and they often do not have the capacity to pay. Whilst this might mean that action is appropriately taken against some members of the firm, it may also have the consequences of the loss of jobs for other people in the business who were doing the right thing.”

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