How ASIC sought to rein in FASEA code
Freedom of Information (FOI) documents covering exchanges between the Australian Securities and Investments Commission (ASIC) and the Financial Adviser Standards and Ethics Authority (FASEA) actually show ASIC trying to ensure that the FASEA code of ethics did not range further than the law.
However, ASIC noted that requirement in Standard 2 of the FASEA code to ‘act with integrity’ did go further than the law.
The documents show that, in particular, ASIC was concerned to ensure that FASEA’s Standard 2 was not wider than the actual best interests test under section 961B of the Act.
“A financial adviser is expected under the law to consider a client’s future circumstances in giving advice that complies with the best interests duty in s961B,” the ASIC response said. “Therefore it is not correct to say that the ethical duty in Standard 2 is wider than the s961B obligation and is based on a ‘more professional’ relationship between the relevant provider and the client.”
“For example, where giving advice about a client’s life insurance arrangements, a financial adviser would be expected to consider, for instance, the client’s health (including any known health issues and their extended family health history), the implications of the client’s children being financial dependent on them where relevant, and whether the client can reasonably foresee any changes to their employment situation (planned or unexpected changes) in order to comply with the best interests duty.
“We are concerned that the statement in this paragraph that the ethical duty in Standard 2 is wider than the s961B obligation is incorrect and has the potential to create industry confusion,” the ASIC comments said.
“For this reason, we encourage FASEA to note that the requirement in this Standard for a financial adviser to look more widely at the client’s circumstances is an existing requirement under the law or to delete this comment. The part of the standard which goes beyond the law is to ‘act with integrity’.”
On the controversial Standard 3, ASIC sought to encourage FASEA to provide better examples of ethical dilemmas which entailed breaches of the code, but not the law.
“We think that this would better assist in understanding the meaning of “inappropriate personal advantage”, the ASIC response said.
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