ASIC unveils plans to fine, boot out dodgy advisers in updated guidelines for industry associations

Dodgy financial advisers will be fined or kicked out of industry associations under future compliance schemes.

 

Dodgy financial advisers will be fined or kicked out of industry associations under new compliance schemes to be put in place by January 2020, the corporate watchdog says.

The Australian Securities and Investments Commission also expects the new schemes to conduct at least one “thematic” review of problems in the industry off their own bat every year, it said in a new regulatory guide released today ahead of the banking industry royal commission interim report.

ASIC expects industry associations will have to overhaul their existing disciplinary schemes to meet new independence requirements, including an independent chairman and consumer representation.

The new rules for compliance schemes are part of laws, introduced after a series of scandals in the sector revealed a bonus-hungry culture rife with rip-offs, that bring in a compulsory code of ethics binding all advisers.

Under the new rules, compliance with the code, which is being developed by the Financial Adviser Standards and Ethics Authority, is to be monitored by bodies set up by industry.

All advisers are to subscribe to a scheme by November 15 next year, ASIC said.

“Effective compliance schemes are a key component of the reforms that will require higher standards of ethical behaviour and professionalism among financial advisers,” ASIC deputy chairman Peter Kell, who has overseen much of the regulator’s work cleaning up the industry, said.

“Our guidance requires high standards for compliance schemes, reflecting the significant responsibility that monitoring bodies operating compliance schemes will have.

“This includes the responsibility to effectively monitor and sanction adviser members if required.”

Industry bodies that want to run a compliance scheme face a tight timetable to get their houses in order, with ASIC demanding they register their interest by the end of next month and submit a full draft application by the end of the year.

After feedback from ASIC, final applications are due in June next year and the regulator expects to announce which schemes it has approved “in early October 2019”.

The new schemes must be overseen by a board with at least three members with an equal balance from the advice industry and consumer representatives.

An independent chairman who is not a member of any financial advice industry association, a financial adviser, or someone who works for a licensee must also be appointed.

ASIC rejected pleas from adviser associations seeking to loosen the independence requirements and shirk a requirement to conduct own-motion investigations.

“Monitoring bodies need to have a way to uncover examples of both ethical and unethical behaviour that they can highlight and use to educate covered financial advisers and financial advisers need to know that any conduct they engage in that is inconsistent with the code may be detected and acted on,” ASIC said.

The regulator said merely dealing with complaints was not enough to achieve these goals.

“Proactive monitoring activities should be determined each year in a risk-based annual work plan and should comprise, at a minimum, one thematic ‘own-motion’ inquiry each year.”