Back in February, we discussed the glacial pace with which the single disciplinary body (SDB) has been lurching towards implementation - even though it's technically been up-and-running since January.
Later that month, ASIC opened consultation on its proposed approach to operating the SDB, including why and when it would convene a Financial Services and Credit Panel (FSCP) and how FSCP decisions would be published. The full details are included in CP 359 Update to RG 263 Financial Services and Credit Panel, available here.
While the Better Advice Act regulations specify circumstances in which ASIC must convene an FSCP, the law leaves room for the regulator to use its discretion in other instances. And up until this latest guidance, we haven't had much indication of how ASIC plans to exercise these new powers. Indeed, late last year ASIC commissioner Danielle Press said she didn't "have any idea about" when an FSCP would need to be convened.
Per CP 359, though, ASIC has "full discretion in deciding which matters we investigate." And while the regulator will "carefully consider" its response to reports of matters that "may fall within the convening circumstances ... [We] cannot investigate action in relation to every such report."
As such, ASIC has proposed that it should weigh up the "regulatory benefit" of referring a given matter to an FSCP. Benefit may be derived, ASIC suggested, if the matter pertains to widespread misconduct that is "part of a growing trend," and/or referring the matter to an FSCP would "send an effective and deterrent message to industry."
According to the Financial Services Council (FSC), while ASIC's consideration of deterrence seems "reasonable," it carries the risk of "[disproportionately impacting] an individual adviser who becomes a scapegoat for similar issues that ASIC and the panel may have considered."
In its submission, the FSC added: "By its nature, using an individual case to set an example typically means the penalty is sizable to have the necessary effect."
To address these concerns, the FSC recommended "controls and transparency" be put in place to avoid situations where an "unlucky adviser ... [bears] the impact of numerous prior indiscretions committed by other advisers." This would entail ASIC being required to publish quarterly FSCP data, which would include information on:
Greater levels of transparency regarding ASIC's discretionary powers are also critically important because, as the AFA has previously argued, leaving it open to interpretation could disincentivise robust compliance processes.
The AFA noted: "The laws applying to financial advice are very complex, extensive and easily breached, which means any routine adviser audit could potentially trigger the process leading to an FSCP being convened. Where even the most minor of matters are reported to ASIC or the SDB and involves unavoidable additional cost this only discourages the application of rigorous processes."
In other words: it's hard to follow the rules if you don't know what they are.
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