Parliamentary committee questions adviser jail penalty for record-keeping

A Parliamentary Committee has questioned why financial advisers should face the risk of five years’ jail for record-keeping failures under legislation flowing from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services due to be debated by the Parliament today. 

The largely bipartisan Scrutiny of Bills Committee has expressed serious reservations about the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 and, in particular, questioned why a five-year jail penalty is relevant. 

It points out that the explanatory memorandum to the legislation “does not provide any justification as to why it is necessary and appropriate to impose a significant maximum penalty of five years imprisonment for failure to comply with the record-keeping obligation”. 

“Nor does it include any reference to whether this level of penalty is comparable to similar offences in other Commonwealth legislation,” the committee report said. 

More importantly, the committee has raised questions about the penalty being imposed by way of regulation with the powers being effectively delegated to the Australian Securities and Investments Commission (ASIC). 

“It is the committee's view is that significant matters such as recordkeeping obligations which are subject to significant penalties, as in proposed section 962X, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided,” the committee report said. 

“In this instance, the explanatory memorandum contains no justification regarding why it is necessary to allow such significant matters to be set out in delegated legislation.” 

The committee report asked: 

  • The justification for the significant maximum penalty that may be imposed for failing to comply with proposed subsection 962X(1), including whether this level of penalty is comparable to similar offences in other Commonwealth legislation; 
  • Why it is considered necessary and appropriate to leave the scope of record-keeping obligations which are subject to significant penalties to delegated legislation; and 
  • Whether the bill can be amended to include at least high-level guidance regard.



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ASICs very clear examples of poor record keeping and poor processes for Master Shiptons $128k tax Bill.
ASICs complete disregard to provide information until forced too some 12 mths post being asked.
Surely that’s an instant 5 yrs Jail ???
No doubt an Adviser would get 5 yrs Jail ???
It’s good to be ASIC, do as we say not do as we do hey Canberra Bubble Bureaucrats

ASIC is like the Russian government. They need to keep something up their sleeve. If they can't find any criminal misdeeds or behaviour, then slap them with failed record keeping. At the rate of two per week, there should be no advisers left by the end of the year and ASIC can get their taxes done!
Speaking of record keeping .....! James?? James??? Oh Mr Shipton, where fort art thou?

In 2019, a person was sentenced to 6 years jail for the manslaughter of an 18 month old child - beating and shaking them causing harm resulting in death. I feel that up to 5 years jail for failing to keep appropriate records may isn't reflective of society's expectations, however is indicative of ASIC's feelings towards the advice industry.

The Royal Commission in my opinion was an inept attempt by the wrong people to try to understand financial service. The outcome was a free keep for the big end of town and the little planner or AFS Licensee gets the 5 year penalty for record keeping. Not the CEOs of money laundering scandals, charging deceased estates etc. Again my opinion, but the RC was way over Hayne's level of understanding and we cop the fallout.

....nor the Trustees of Industry funds switching their own investments out of poorly performing illiquid "investments" prior to them being written down. :(

Good to see our politicians questioning some of the extremely onerous penalties that could potentially be applied - seems the parliamentary committee process is working. Remember in terms of proportionality that an unlicensed adviser faces far lower penalties than those that work within the system.

As a 65 year old and 30+ years as a Financial Advisor, I am still waiting for a show of respect/recognition from the government. My question to the relevant minister has still not been answered: why at this stage of my irreplaceable experience am being told I have to spend $24,000 to obtain qualifications to continue to stay in the industry. Besides providing clients with advice, I tutor budding young Financial Advisors providing them with the necessary guidance/experience in order for them to start seeing clients. Yet the governing body apparently won’t allow me to continue if I don’t complete the courses they have set.
Rob Turner

Rob, the real cost is the Economic opportunity cost of the hours wasted studying that you could have done real work.
120 hrs Ethics FARSEA course x $395 / hr (Hostplus Adviser helyn rates) = $47,400 wasted time cost.
Times that by 15,000 Advisers that may do the Ethics course = $711,000,000 Adviser Costs.
And then if you have to do 2,3,4,5 or 6 courses.
We are talking about over $1 BILLION DOLLARS OF WASTED ADVISER TIME.

Just looking for my hammer and nail, my FOR SALE sign is going up out front of my office today.. its been a 'wonderful' 33 years to be now taken over by bumbling nonsensical bureaucrats who now control, but could never be in the our, the true advisers world.

Great sales strategy!

Imagine File Notes, RoA's or SoA's not being to the ASIC Auditors or AFCA's or vexatious litigious lawyers liking despite the advice being fundamentally sound............potentially 5 years in the klink ??? This makes being an Financial Adviser precariously dangerous. This sounds somewhat disconcerting!!!

Lol. The stupidity of the current landscape couldn't be better spelled out than this headline! The positives here are politicians are finally starting to ask questions, without blindly signing off. Thanks guys. It may be too late for a lot of us, but keeping up the scrutiny can only help the remaining planners who are battling through this awful time!

And the beaurocrats wonder why advisers are leaving the industry in droves and the cost of advice is increasing.

Risk of 5 years jail, lots of documentation required then to avoid "BUT" says ASIC advice is too expensive and we'll have to conduct a study to find out why.

The lunatics are surely running this asylum, where's the exit door please?

what about 250K fine per FDS breach, where's the parallel in normal life to that fine?

Exactly. And now we have to forecast fees, anyone with a percentage model is stuffed. For fees in super - an adviser will need to forecast the balance, including contributions (and the timing of these), pay rises, increases in SG, investment returns, insurance premium rises etc. Take a look at ASIC's guidance on projections. It's a minefield. If advisers get one of these elements wrong (in ASIC's eyes) then whammo! Half a dozen breaches would bankrupt most advisers.

NOT one bank exec recieved any Jail time or large Fee personally for all the wrong doing exposed by the RC but lets send ADVISERS away for bad record keeping . I was once a responsible Manager of a MED sized Dealer Group and had to sit on many PI claims moderaed sessions with PI clams managers & QC's and clients and witnessed many adviser files go under the microscope at these meetings only to be appalled at the lack of scutiny any of these QC's paid to the actual file................they did not even read the SOA's docs which actually outlined the VERY advice they were questioning.

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