Advisers confused by ASIC breach reporting letters

A rule change regarding breach reporting has left advisers confused why they are receiving warning letters.

Speaking to Money Management, Brian Pollock, corporate governance manager of the Principals Community, said changes had come in several months ago which saw the regulator send warning letters to advisers if there had been a possible breach.

Under the Better Advice Act, the Australian Securities and Investments Commission (ASIC) must now give financial advisers a written warning or reprimand in specified circumstances. A warning would warn an adviser against continuing the conduct or a reprimand would admonish the adviser in relation to the conduct or circumstances.

However, it was still a new change to advisers and many did not realise they had committed a breach.

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Pollock said: “Advisers cannot understand why they are receiving these warnings or what they have done wrong and it creates concern for them. This could be a breach of the Corporations Act, the Code of Ethics or something else. The letters are very confronting and very legalistic and are going straight to the adviser rather than the licensee”.

The letters only looked at action since 1 January, 2022 and Pollock said, although they were confronting for the adviser, ASIC made clear that they were required to issue by letters by law. 

“Most times it is obvious if something is a breach although the requirement to ‘act efficiently, honestly and fairly’ can sometimes be a grey area and the range is a bit broad there.

“We look at what the adviser did wrong, how they can make adjustments and improvements and how they can avoid this in the future.”

He added it was important that advisers always took steps straightaway to ensure they were compliant rather than doing an annual audit.

“You can’t just do a 12 months audit, you have to act straightaway and check everything is correct immediately rather than remediate later.”

Kon Costas, managing director, added: “Have a governance framework and a documented process of all of the activities within the AFSL rather than an annual audit. Being on the front foot is the main thing.

“The cost of this depends on the size of the business when it comes to pre-vetting files and ongoing governance but it is cost-efficient when compared to the potential costs of breach legislation and remediation.”

To hear more about running an successful advice practice, come along to the ifa Future Forum, run by Money Management’s sister publication ifa, on 16 November at the Montage in Sydney.

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