Financial planning licensees will be under a specific obligation to notify clients of suspected misconduct by financial advisers when it actually comes to their attention.
That is one of the key changes to the Corporations Act being pursued by the Federal Government in response to the Hayne Royal Commission and contained in exposure draft legislation released by the Treasurer, Josh Frydenberg.
It makes clear that when a licensee detects misconduct, it is required to inform potentially affected clients within 30 days and to investigate the nature and full extent of any misconduct within a reasonable amount of time.
As well, once an investigation is complete, the licensee will need to inform affected clients within 10 days of the full extent of the misconduct and remediate them for their loss within 30 days.
Importantly, if licensees fail to live up to these obligations then they will leave themselves open to not just civil penalties but also criminal penalties.
The explanatory documentation accompanying the proposed new legislation makes clear that licensees need to act where “there are reasonable ground for the licensee to believe that a reportable situation has arisen and either that reportable situation amounts to a significant breach of a core obligation, or it amounts to gross negligence, serious fraud and other circumstances prescribed by the regulations.
It said the person that had to be notified was the affected client and such notification allowed clients to consider their rights and the ways they could mitigate potential loss or damage.