ASIC laments impact of AAT

The Australian Securities and Investments Commission (ASIC) has complained that current arrangements around financial services licensing, including the ability to appeal its decisions to the Administrative Appeals Tribunal (AAT), make it difficult for it to successfully deal with errant financial planners.

The regulator also pointed to the desirability of publicly searchable registers, similar to those in the United Kingdom and United States, which would help it weed out the bad apples from the financial planning industry.

In a submission lodged with the Parliamentary Joint Committee reviewing the Government's Future of Financial Advice (FOFA) legislation, ASIC pointed to the difficulties in acting against licensees in circumstances where the AAT became involved and where financial planners promised not to offend in the future.

"ASIC's decision to suspend or cancel a licence can be appealed to the AAT," the submission said. "In practice, ASIC has found it very difficult to establish before the AAT that a licensee will not comply with obligations in the future. This makes it difficult to remove licensees who may potentially cause investor losses in advance of an actual breach."

The ASIC submission also argues that the existing regime places too much emphasis on AFS licensees rather than other key people involved in financial planning companies and dealer groups.

"Under the Corporations Act, a person or entity that carries on a financial services business in Australia must obtain an AFS (Australian financial services) licence from ASIC covering the provision of the relevant financial services, unless an exemption applies. A key exemption is for those who provide services as a representative of a licensee," it said.

The submission said ASIC did not approve representatives and this meant the AFS licensing regime "generally focuses on the AFS licensee, rather than the directors, employees or other representatives of that entity".

It said that while officers involved in the decision-making of a licensee were subject to test of good fame and character, the conduct and disclosure obligations of the financial services regulation (FSR) regime were largely imposed on the licensee entity and not the representatives who worked for the entity.

"This focus on the entity limits ASIC's ability to restrict individual participants in the financial services industry where, for example, they might have worked for another entity that, in turn, is suspected of engaging in questionable conduct," the submission said.

"ASIC can experience difficulties in locating (and taking action against) so-called 'bad apples' in the financial services industry. For example, there is no register that records representatives in the financial services industry, which might assist in identifying individuals of concern," it said.