ASIC wants a bigger regulatory stick
The Australian Securities and Investments Commission (ASIC) has suggested the regulatory bar confronting financial planning practices be raised, particularly with respect to licensing, claiming the benefits of increased market intervention could outweigh the deficits in terms of market efficiency.
In a submission to the Joint Parliamentary Committee on Corporations and Financial Services (JPC), the regulator has made good the comments of its chairman, Tony D’Aloisio, at the recent Investment and Financial Services Association (IFSA) conference by also signaling its dissatisfaction with some remuneration models, particularly commission arrangements.
The key elements of the ASIC submission impacting planners are:
— the suggestion it could move to remove a licence where it believes a breach ‘may’ occur;
— the implementation of finance resource requirements as part of obtaining an Australian Financial Service Licence (AFSL);
— the ability to ban individuals involved in a breach of obligations by another person;
— clarifying the duty owed by financial planners to act in the best interests of clients; and
— the prevention of remuneration structures that might create conflicts of interests.
The regulator's submission also raises the question of reviewing professional indemnity insurance as a compensation mechanism.
However, the submission said in ASIC’s view, the two reforms likely to have the most significant impact on protecting retail investors were ensuring advisers acted in the best interests of their clients via the imposition of a “statutory, fiduciary-style duty to act in the best interests of clients and, where there is a conflict between the interests of the adviser and the client, [preferring] the interests of the client", and preventing remuneration structures that might create conflicts of interest that adversely affect the quality of advice.
The ASIC submission then opens the door for even more regulatory intervention by stating: “In addition, the JPC and the Government may conclude that recent events indicate that the policy settings of the Financial Services Reform regime should be fundamentally changed and the types of options identified above are insufficient."
It said if this were the case, the committee and the Government could consider reforms such as prudential regulation of a greater range of financial products, product design prohibitions or limitations, a duty of suitability for product issuers and intermediaries, and the ‘licensing’ of investors.
AUTHOR
Mike Taylor
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