The Australian Securities and Investments Commission (ASIC) has used its statement on Storm Financial to a recent parliamentary hearing to warn that its interest in Storm is likely to have more far reaching implications for the rest of the financial services industry.
ASIC used its statement to the Senate Standing Committee on Economics to warn that its “interest in assessing whether there have been breaches [in the Storm Financial case] is broader than just for Storm and its clients”.
The ASIC statement said information obtained from the regulator’s investigations may lead to litigation with the aim of compensating Storm investors, but that any such proceed ings “would also be likely to provide guidance for the future of the industry”.
This would relate to the operation of the Corporations Act and the nature of financial advice that should be provided to retail clients, the statement said.
The regulator is also asking itself whether the problems associated with Storm extend to other financial services providers. In particular, ASIC is assessing whether Storm’s “aggressive leverage model is more widely used in the industry”.
ASIC said it believes the model “has not been widely used”, but nonetheless is “directing resources to assessing other planners and advisers” to confirm this.
ASIC said it would also now be “assess ing the market more broadly to maintain confidence in the financial planning industry by seeking to reduce the risk of other similar situations occurring”.
But the regulator did give a note of support for the rest of the financial services industry — albeit with a qualifier.
“Overall, given the magnitude of the financial and market crisis, retail investors should continue to have confidence in the financial planning industry,” it said.
“Having said that, we see need for improvement in the quality of advice and are working to achieve that.”
ASIC said it sees benefits in “clarifying the law and setting clear guidance” on what it called the inherent conflict of allowing “advice to be given and at the same time charging fees for investment products”.
But ASIC said whether that inherent conflict needs to be reviewed is “a policy matter for the Government”.
ASIC said as a regulator, its role “is to play the hand it has been dealt”.
