Legislating a principles-based regulation framework should be considered carefully and not be a “knee-jerk reaction for popular support”, believes Synchron.
General manager of compliance, Phil Osborne, made the comment in response o the minister for superannuation, financial services and the digital economy, Senator Jane Hume’s, proposal to target a principles-based regulation framework at the AIA Adviser Summit last week.
Osborne said: “While principle-based regulation is the ideal destination for how we should be allowed to operate as an industry, we should regard this as a destination that will be arrived at after a bit more of a journey.
“We need to think of this in terms of the application – whose principles will be applied? Will we be allowing advisers to use their professional judgement and be guided by ethical standards, as has been promoted since the introduction of the Code of Ethics?
“If so, what happens when the regulator disagrees with the advice provided? Do we then have to discount the principles under which advice was actually given?”
Osborne said the application of the principles on the consumer was an important and often overlooked consideration.
“How is a nuisance complaint to be treated? Under current requirements, the Ombudsman will always allow the client to decide whether to continue with the complaints process, regardless of whether there is any merit in their case,” he said.
“With no disincentive for the client, the advice community is subject to the danger of moral risk under a principle-based system.”
However, Osborne said he wholeheartedly agreed with Hume’s opinion that the domination of checklists was complicating compliance and micromanaging the industry.
“Over the years, checklists that were simple and performed a valuable function have been bastardised – continually being added to and expanded to the point where we’re now seeing checklists for the checklists.
“Adding something to a process doesn’t necessarily mean it’s an improvement. It’s the mentality of compliance departments to add extra things to supposedly improve compliance that now sees the industry overwhelmed by monumental amounts of documentation.
“Checklists, lengthy advice documents, onerous fact-finding demands have all had the effect of creating a bureaucracy that doesn’t support our actual purpose – to provide a service to clients.”
