08 February 2022
The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (Cth) (Better Advice Act) came into force on 29 October 2021. It introduced a new disciplinary system for financial advisers, including a new disciplinary body, the Financial Services and Credit Panel (Panel).
In this article, we discuss significant features of the Better Advice Act, particularly as it relates to the Panel.
The Better Advice Act applies to those licensed or otherwise authorised to provide financial advice to retail clients, including their representatives (which includes their employees – see section 910A of the Corporations Act). This definition does not apply to financial service licensees and authorised representatives who are not financial advisers.
From 1 January 2022, the Better Advice Act empowers ASIC to convene the Panel to take a range of disciplinary action against a financial adviser. ASIC will typically refer complaints to the Panel where it believes an adviser has breached its obligations under the Corporations Act 2001. ASIC will provide the Panel with evidence and material it prepared in the course of its investigations, but will not act as ‘counsel’ or as a ‘prosecutor’ in matters before the Panel.
The Better Advice Act compels ASIC to convene the Panel in circumstances prescribed by the regulations. Although no regulations have yet been passed, the exposure draft regulations list a number of prescribed circumstances, including where an adviser is insolvent or has been convicted of fraud, or where ASIC believes the adviser is not a fit and proper person to advise retail clients, that the adviser has not met education and training standards or where the adviser has contravened a financial services law. ASIC also has discretion to convene the Panel in other circumstances.
The Panel is constituted by:
The Panel has the power to take action against financial advisers where they have either:
There are a number of restricted penalty provisions, including failures to follow education and training standards, the Code of Ethics and registration requirements.
The savings provisions in the Better Advice Act preserve the Code of Ethics made by the Financial Adviser Standards and Ethics Authority (FASEA). However, the Minister is empowered to prepare a new Code of Ethics in the future. An adviser will breach a civil penalty provision by failing to comply with the Code of Ethics.
In determining whether a financial adviser is a fit and proper person, the Panel will consider whether the person has been banned or disqualified under the Corporations Act or the National Consumer Credit Protection Act 2009 (Cth), or if the financial adviser has previously been insolvent under administration.
The Panel’s functions and powers are typically exercised at meetings of the Panel. Meetings of the Panel are not held in the presence of the financial adviser or their representatives.
The Panel must hold a hearing if the Panel proposes to make a certain order or if the financial adviser requests a hearing in certain circumstances. At a hearing, the Panel must take into account any evidence or submissions presented.
Hearings are not intended to be technical or formal, and the rules of evidence do not apply (although evidence must still be given under oath or affirmation). Importantly, however, a financial adviser may be represented by a lawyer at a hearing.
The Panel may apply a large number of penalties, ranging from warnings to infringement notices and even recommendations of civil actions by ASIC. The severity of the penalty depends upon the nature of the contravention, including whether the financial adviser has contravened a civil penalty provision.
Before the Panel may take such administrative action, it must give the financial adviser a proposed action notice and invite the financial adviser to respond to the notice within 28 days. At the end of that period, the Panel may undertake a number of actions, including giving the financial adviser a written warning or reprimand. Failures by financial advisers to comply constitutes a civil penalty and may result in court action by ASIC.
The Panel may also accept enforceable undertakings where appropriate.
Where a financial adviser has contravened a civil penalty provision, the Panel may either issue an infringement notice or make a recommendation to ASIC that it apply to the court for a civil penalty. Infringement notices cannot be made until the Panel gives a proposed action notice to the financial adviser.
Alternatively, the Panel may recommend to ASIC that it apply to the court for a civil penalty where it has not issued an infringement notice and where it believes a financial adviser has contravened a civil penalty provision. If ASIC successfully applies to the court for a civil penalty, the court must make a declaration of contravention and may order the financial adviser to pay a maximum financial sanction of either 5,000 penalty units ($1,100,000) or three times the benefit derived.
ASIC may also delegate its power to make a banning order to the Panel, in which case a hearing must be held.
ASIC may publish decisions of the Panel on the Financial Advisers Register (Register). The Panel may direct ASIC to include details on the Register relating to disciplinary action, declarations made by a court and any undertakings made by advisers to a board.
The Better Advice Bill also deals with a number of other matters, including setting up a two-stage registration system for financial advisers, the winding up of FASEA (the Financial Adviser Standards and Ethics Authority), and the removal of double registration requirements for tax (financial) advisers.
The creation of the Panel provides ASIC with significant scope to regulate the conduct of financial advisers. While the Panel includes at least two non-ASIC members, the Better Advice Act provides ASIC with a significant role on the Panel, including that a representative from ASIC sits on it. Referrals to the Panel are made by ASIC and any brief of evidence concerning a financial adviser’s conduct is provided by ASIC.
For a number of years, ASIC has pursued financial advisers in a range of contexts, but most frequently those who deal with retail clients. The Panel arrangement now has the power to issue a broad range of penalties for wrongdoing and to compel enforceable undertakings. These penalties and undertakings are enforceable through court action.
Financial advisers referred to the Panel ought to consider engaging lawyers to assist them with the process as there may be significant consequences arising from an adverse finding.
Holding Redlich has extensive experience in regulatory investigations (including by ASIC) and assisting practitioners in responding to a range of professional disciplinary bodies. We are well-placed to assist you in this rapidly changing regulatory and disciplinary environment.
If you have any questions about this article or would like more information, please contact us or send us your enquiry here.
Authors: William Madani & Thomas Rubic
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.