How four adviser breaches could escalate to 198

It will be virtually impossible for small financial planning firms to comply with the new breach reporting regime proposed to be imposed on the industry via the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2020 Measures)) Regulations 2021: Breach Reporting legislation, according to the Association of Financial Advisers (AFA). 

What is more, the AFA has cited member feedback which suggests that four breaches reported by a licensee in 2020 could be escalated to as many as 198 under the new regime. 

In a submission filed with the Treasury, the AFA has strongly complained that the breach reporting measures contained in the legislation go well beyond what was proposed in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. 

“We believe that the impact is much greater than was appreciated when the bill was drafted, and we have therefore recommended that the Government consider a deferral of the commencement of this new regime,” the AFA has said. 

“Our serious concern with respect to the implications of the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020, is that it is significantly moving away from the concept of significant breach reporting and that this new regime will involve an exponential increase in the number of breaches that need to be reported and many of these will be of a largely administrative nature,” it said. 

“The other key point that Commissioner Hayne made in his interim report was the need to review and reduce the complexity of the requirements of the Corporations Act,” the AFA said. “Unfortunately, the new breach reporting regime represents a substantial increase in the scale of complexity and in our view, this is virtually impossible for a small financial advice licensee to comply with.” 

Pointing to member consultation, the AFA said it had held a number of discussions with its licensee partners and was well aware of the serious concerns that many of them had about the implications of the legislation. 

“In one case, a licensee who had four breaches reported in 2020, expected on the basis of the new legislation, that this would increase to 198,” it said. “Their feedback suggests that the exclusion of civil penalty matters for the failure to deliver an FSG [financial services guide] and a PDS [product disclosure statement] would only marginally decrease the number of breaches that would need to be reported. 

“For context, financial advice licensees are required to undertake a detailed audit of a number of financial advice files for each adviser every year. This process inevitably results in a number of matters being identified, even for those advisers with a good compliance track record. The vast majority of these matters would involve no consumer detriment and are largely administrative or record keeping matters.  

“The reality is that the compliance regime for financial advice is very complex, and this means that minor breaches are common. It does not in any way suggest that the quality of the advice is poor, or that the clients are at a greater risk of the prospect of detriment. 

“In the context of what has been rapidly rising costs for financial advisers and their licensees over recent years, we are motivated to ensure that the cost impact of this reform is not excessive. It is important to note that licensees will need to carefully review each potential breach and for licensees that lack in-house lawyers or compliance resources, they will need to seek external guidance before deciding to report a breach. It is this cost, along with the extra management time and oversight that will be necessary, that will have a very material impact on the cost of financial advice. Ultimately clients will end out paying for this.” 

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And therein lies the rise and rise of the new growth industry........COMPLIANCE. Let's now watch capable, quality adviser's leave the advice industry to ASIC Compliance Audit Staff or Privatised Compliance Auditors.

...... and many (currently) qualified move from being advisers to financial 'counsellors' ......

better hurry.. With a large exit of adviser, moreover small margins for Life co and super funds...there will be no jobs for anyone.

so much for the ol simplification tag line...that didn't take long to evaporate. Compliance CANNOT be crafted in a vacuum - risk frameworks must have as their core tenet that they do not materially impact the consumer or the provider, otherwise the costs rise and in many cases instances on non-compliance actually rise because it all becomes too complex to manage. Seriously lawyers and politicians know how to fu*k sh*t up don't they??!

The great "adviser drop off " has not even begun. This just adds fuel. Ticking down to 1/1/2026.

actually first big drop off will be first quarter of 2022. just watch kaboom.

Yes, compliance has become the tail wagging the advice dog (literally and figuratively). No one objects to sensible compliance that ensures quality advice but it has simply gone way, way too far.

Does it ever end ? Never have I seen a bugger mess then maybe the Vietnam war
How many ways can ASIC FAESA and this Government I helped vote in stuff this wonderful and badly required industry
Does anyone look at these comments ? Does anyone in control care ? Week after week we don’t just complain we give solid reasons and no one listens ! Does anyone feel as hopeless and angry as me
A complete and utter joke this has been since the beginning and just getting worse
If this was going on in the building industry there would be demonstrations led by the unions in George st
Is it that time for us ? What else are we to do the AFA and FPA are useless gutless and might as well disband
This just pushes more quality advisers out the door and increases the burden on the health system to breaking point

Regulation strangulation at its finest. Give yourselves a pat on the back ASIC, Hayne and Hume.

I love how they beat us over the head with these compliance bricks and now they're talking about all of the issues and "maybe some relief for limited advice ROA's" or "reconsidering the breach reporting regime". They were warned loudly and clearly by the industry for years that this was what the result would be, it's like they're just going through the motions and not actually listening. Or at best "yeah yeah we know but this is the way it has to happen, first we have to hurt you all and then we can talk about relief and you'll be grateful". It really is past the point of needing a serious protest, something I thought our industry bodies who represent us would've organized a long time ago, but maybe their cushy Sydney offices are just too comfortable?

I've already left the industry. This is just another reason why my decision was correct.

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