Reviewing advice verging on “Python-eseque silly walk”

6 November 2018

The Federal Court’s decision to penalise Financial Circle for failing to meet its obligations has meant Australian Financial Services licensees are now legally required to take ‘reasonable steps’ to comply with their obligations, which Mills Oakley partner, Mark Bland, says might make licensees think what’s expected of them amounts to a “Python-esque silly walk”.

In its judgment, the Federal Court ordered Financial Circle to pay $9 million in pecuniary penalties for misleading conduct, unconscionable conduct, unlicensed credit activities and failure to take reasonable steps to ensure compliance with FoFA advice obligations. $1 million of the fine was applied for the failure to take reasonable steps.

Bland said the most interesting thing for licensees is what ‘reasonable steps’ was said to mean, which is to:

  • Take reasonable steps to ensure representatives comply with financial services laws; and
  • Take reasonable steps to ensure representatives comply with best interests, appropriate advice, incomplete advice warnings and client priority.
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The court’s ‘reasonable steps’ considerations became a question of whether the licensee had “adequate policies and procedure in place to ensure its advisers complied”.

The Australian Securities and Investments Commission brought in an expert report to determine what was “adequate”, which included procedures that reflected “reasonable industry practice”.

And, Bland said while many items are unremarkable, a few licensees might quietly start doing these a little better:

  • Regular and targeted risk-based monitoring and supervision of advisers; and
  • Regular review of its measures, processes and procedures.

As a minimum, reasonable industry practices includes pre-vetting or peer-review and escalation, something Bland said he’d be interested in the statistics on how many licensees subject all advice to pre-vet or peer views.

“Licensees may feel like, with the increasing cost burden of compliance, pre-vetting or peer-reviewing all advice is verging on a Pythonesque silly walk. But in light of this decision, it needs to be carefully considered,” he said.

“How this will apply to a particular licensee will turn on its particular circumstances, but this is a matter that no licensee wants to discover through the courts. What has been revealed in the Royal Commission hearings and interim report is that licensees need to revisit how they comply with their general obligations.”

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pre vetting didnt save Dover. Just saying

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