ASIC Outlines Licensee Obligations For Code

On Tuesday ASIC released a media statement regarding the role it expects licensees to take in monitoring advisers’ adherence to the new FASEA ethics code. The code will come into force on January 1st next year as scheduled, despite industry pressure for an extension to the start date, along with the lack of an ASIC approved compliance scheme or a single disciplinary body to monitor and enforce adherence to it. Without much of the regulatory framework in place, ASIC says licensees will still be required to take reasonable steps to ensure that their financial advisers comply with the code.

The media release listed what it termed 5 reasonable steps that ASIC expects AFS licensees to take to ensure that their financial advisers comply with the code:

1. making sure that their advisers are aware that they need to comply with the code from 1 January 2020 onwards;
2. providing training and/or guidance to their advisers on the types of conduct that is consistent/inconsistent with the code;
3. facilitating individual advisers’ ability to raise concerns with the AFS licensee about how the licensee’s systems and controls may be hindering their ability to comply with the code, and acting on those concerns where appropriate;
4. considering whether advisers are complying with the code as part of their regular, ongoing monitoring of adviser conduct; and
5. when it is in place, considering the decisions of the new disciplinary body and making any necessary changes to their systems and processes.

For licensees following these steps, ASIC said when determining what constitutes reasonable steps, it will take into account the context in which AFS licensees are operating. This includes the current dynamic regulatory environment, the timing of guidance provided by FASEA about the meaning of the code, and the evolving industry understanding about the meaning and implications of the code. ASIC “will not be monitoring or enforcing” advisers’ compliance with the code – for now that will be left up to licensees, but ASIC may take enforcement action where it receives breach reports, and ASIC will continue to take action where there are breaches of the law by financial advisers or their AFS licensees.

So, there would seems to be a bit of wiggle room for licensees who may be unsure if their “monitoring” processes are adequate, but in the current environment it is doubtful anyone could be 100% sure they are doing everything correctly. Equally, many would still be concerned with any potential actions from ASIC and the consequences of non-compliance.

There have been several extensions and exemptions announced around FASEA’s troubled regulatory framework so far, including extensions to 1 January 2022 to pass the FASEA exam and to 1 January 2026 to get an approved qualification; and a three-year exemption to AFS licensees from the obligation under the Corporations Act 2001 to ensure that financial advisers are covered by an approved compliance scheme, and from the associated notification obligations. 

FASEA Submissions Not Made Public

In related FASEA developments, under questioning in Senate Estimates FASEA will be required to provide an answer on the content of submissions made by the Australian Securities and Investments Commission (ASIC) and the reason those submissions were not made public. FASEA chief executive, Stephen Glenfield confirmed during the Senate Estimates hearing that ASIC had made submissions on all the standards put out by FASEA for consultation but said he could not recall what those submissions had suggested.

Some stakeholders believe ASIC may have had “too much” influence regarding the FASEA code of ethics, and the fact that submissions made to FASEA as part of the consultation process were not made public has fanned this speculation. For his part, Glenfield said that the regulator had “made submissions on all of our standards we put out for consolidation”, and he agreed to take the questions on notice and check why this has been the case.

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