Last year saw expressions of relief from advisers and certain industry bodies when it was announced that FASEA would be wound up.
Senator Jane Hume’s statement explained that the “standard-making functions” of FASEA would be transferred to Treasury, with standards being “set by legislative instrument”. FASEA’s remaining functions – including the exam – would be moved into the Financial Services and Credit Panel (FSCP) within ASIC.
Up until now, though, we haven’t had a very clear picture of what the “new FASEA” would actually look like. Only a few weeks ago, ASIC commissioner Danielle Press was asked about distributed responsibilities for adviser professional standards after FASEA is fully abolished and said “the regulation hasn’t been finally settled,” especially with regards to the Code of Ethics.
The good news is that the Financial Sector Reform (Hayne Royal Commission Response—A New Disciplinary System for Financial Advisers) Bill 2021 represents a much more defined vision of the Government’s post-FASEA agenda. The bad news? It appears any changes to the substance or structure of the Code of Ethics, a major stumbling-block for advisers in the FASEA exam, won’t be considered anytime soon.
So what does draft legislation actually contain? First, it proposes an expansion of the FSCP so as to facilitate the single disciplinary body for advisers as recommended in the Royal Commission. This is being designed to address one of the perceived flaws in the advice regulatory system identified in the final RC report, which noted that the only power ASIC typically has to address adviser misconduct is banning orders, “which was not always appropriate for more minor breaches.”
The FSCP will include “at least two industry representatives” and an ASIC staff member as chair. It’s unclear exactly what this pool of potential representatives would look like, but the explanatory materials say that “the list of eligible persons could include representatives from the financial services industry, such as financial advisers and financial services licensees, as well as people with experience in other fields, such as law, economics, accounting and tax.”
In each case, representatives may either be appointed from a list approved by the overseeing Minister or by the Minister themselves via a written determination.
Issues that could be referred to a convened panel include circumstances where advisers have contravened a “restricted civil penalty provision” as determined by ASIC, but ASIC has not proposed a banning order. The draft legislation defines a contravention of a restricted civil penalty provision as being a failure to comply with any of the following requirements:
- education and training standards
- the obligations of a provisional financial adviser, or the supervisor of such an adviser
- an administrative sanction imposed by the FSCP, and
- being registered as a financial adviser
- the Code of Ethics
Subject to the legislation passing, the single disciplinary body/FSCP regime will kick in from 1 January 2022.
Given that breaches relating to the Code of Ethics are included in the list above, you might be wondering what the draft legislation says about the future of FASEA. The answer is: not much we didn’t already know. Treasury explained that it and ASIC are “engaging with FASEA’s existing staff to ensure a smooth transition,” and that this legislation, at least, will not alter the standards as set by FASEA.
While the overseeing Minister will be given the power to change standards via legislative instrument in the future, currently the situation is that “the existing standards and the Code of Ethics remain in place unless they are amended or replaced by the Minister”.
As for the future of the Code of Ethics, the explanatory material explains that while the Government is aware of the “industry’s concerns,” it has “not made any decisions about when or if to change the Code of Ethics or other standards. The Government would not do this without further engaging with industry and understanding any concerns.”
Consultation on the draft legislation described here is currently open and will close on May 14. If you’d like to make a submission, the details for how you can do so are available here.
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