Fears are growing among the licensees of small, independently-owned advice firms about their ability to continue to declare themselves solvent under the Corporations Act in the current market conditions.
One licensee told Money Management anonymously that she feared she would “soon be unable to meet the onerous solvency declaration rules imposed by the regulator”, the Australian Securities and Investments Commission (ASIC).
She said she knew of
“several” other licensees of independently-owned advice firms who are similarly worried they could be in danger of losing their licences for a breach of ASIC’s rules.
“Small advice firms such as mine are required to provide ASIC with three-month rolling cash flow predictions to be able to continue trading solvent over the following three months,” she said.
“If we aren’t confident of our cash flows to trade solvent over the next three months we are required to notify ASIC immediately, and that’s a breach to our licence.”
These rules are “appropriate in a normal functioning market, but no longer appropriate or even fair in the prevailing extraordinary market volatility and economic conditions”, the licensee said.
She appealed to ASIC to “consider a change in the rules for small advice firms to reflect the state of the market we are operating within”.
She is also concerned institutionally-owned firms “do not need to demonstrate solvency to ASIC and can simply hide current losses within the consolidation report of their parent company”.
A spokesperson for ASIC responded that the regulator “had no plans at this stage to review the obligation licensees have to declare their solvency”.
On the licensee’s allegation of preferential treatment for institutionally-owned advice firms, the spokesperson said small, independently-owned advice firms “aren’t being singled out necessarily”.
“There is a requirement in the Corporations Act that a company must not trade insolvent, and that applies to all entities.”
