Introductory Info
Date introduced: 24 June 2021
House: House of Representatives
Portfolio: Treasury
Commencement: Sections 1–3 on Royal Assent;
Parts 1 and 2 of Schedule 1 on 1 January 2022; Part 3 of Schedule 1
at the same time as item 1150 of Schedule 1 to the Treasury Laws
Amendment (Registries Modernisation and Other Measures) Act 2020; Schedule 2 on
the earlier of a day to be fixed by Proclamation or four years after Royal Assent.
Purpose of
the Bill
The purpose of the Financial
Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021
(the Bill) is to establish a new disciplinary system for financial advisers.
Structure of
the Bill
The Bill comprises two Schedules.
Schedule 1 has three Parts:
Schedule 2 contains those amendments to the Corporations
Act which will commence within the next four years.
Background
Improving
standards of licensed financial advisers
In 2017, the Federal Government enacted the Corporations
Amendment (Professional Standards of Financial Advisers) Act 2017 (2017
Act), the purpose of which was to set the education, training and ethical
standards of licensed financial advisers in Australia.[1]
It was a response to earlier inquiries and reports which recommended changes to
improve different aspects of the professional, ethical and education standards
in the financial services industry.[2]
The 2017 Act inserted subsection 921X(1) into the Corporations
Act to empower the Minister to declare that a body corporate is the standards
body. Accordingly, under the Corporations
(Standards Body) Declaration 2017 the Financial Adviser Standards and
Ethics Authority Ltd (FASEA) was declared to be the relevant standards body.
Currently, section 921U of the Corporations Act
requires the standards body to make determinations by legislative instrument
about approved educational qualifications, approved exams to be undertaken and
requirements for professional development[3]
and to make a code of ethics by legislative instrument.[4]
The Code of Ethics applied from 1 January 2020.[5]
In addition, the standards body is empowered to approve or refuse to approve
foreign qualifications.[6]
Stakeholder
concerns about FASEA
However, commencement of the Code of Ethics was met with
some concern by financial advisers that it would ‘smash the business models of
some firms’.[7]
In response to those views, Stephen Glenfield, Chief Executive of FASEA is
reported to have said:
It’s a code about lifting standards, ethical behaviour and
professionalism. It’s asking advisers to put the interests of the clients first
at all times, which is the hallmark of any profession. It doesn’t ban specific
products or forms of remuneration such as commissions, but it will challenge
advisers to act in the best interests of the client and provide value.[8]
There were also concerns about the time limit for existing
financial advisers to meet the qualification and examination requirements set
by FASEA.[9]
The Government subsequently approved an extension of time so that existing
advisers must complete the FASEA exam by 1 January 2022 (one additional
year) and meet FASEA's qualification requirements by 1 January 2026
(two additional years).[10]
However, in December 2020, the Government announced that
it would be ‘expanding the operation of the Financial Services and Credit Panel
(FSCP) within the Australian Securities and Investment Commission (ASIC)’ to function
as ‘a single, central disciplinary body’ for financial advisers. This would ‘leverage
its extensive expertise and existing governance structures, avoiding the need
to establish a new body to perform this role’.[11]
In addition the Government announced that it would:
… move the standard-making functions of the Financial
Adviser Standards and Ethics Authority (FASEA) to Treasury, with the
standards to be set by legislative instrument. Remaining elements of FASEA’s
role, including administering the adviser examination, will be incorporated
into the FSCP’s expanded mandate. These reforms will further streamline the
number of bodies involved in the oversight of financial advisers, resulting in
FASEA being wound up.[12]
[emphasis added]
Banking
Royal Commission
The Bill responds to Recommendation 2.10 of the Royal
Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry (Banking Royal Commission) which commenced in December 2017.[13]
The final report by Commissioner Hayne recommended, amongst other things, that the
law should be amended to establish a new disciplinary system for financial
advisers that:
- requires
all financial advisers who provide personal financial advice to retail clients
to be registered
- provides
for a single, central, disciplinary body
- requires
Australian Financial Services License (AFSL) holders to report ‘serious
compliance concerns’ to the disciplinary body and
- allows
clients and other stakeholders to report information about the conduct of
financial advisers to the disciplinary body.[14]
Commissioner Hayne provided the rationale for the
recommendation stating:
A single, central disciplinary body for financial advisers is
important because it will ensure that appropriate disciplinary consequences
are imposed where a licensee fails to impose them, and that the
disciplinary consequences imposed on a financial adviser can extend beyond the
adviser’s employment with or appointment by a particular licensee.
ASIC currently has the power to make banning orders, which
extend beyond an adviser’s relationship with a particular licensee. But there
are several reasons why I do not consider it appropriate to continue to rely on
ASIC’s existing powers as the sole means by which to impose disciplinary
consequences that extend beyond a particular licensee.
First, a banning order will not be an appropriate response
every time a financial adviser fails to adhere to the standards expected of him
or her. There is an important role for less serious sanctions in
demonstrating that particular conduct is unacceptable and encouraging or
requiring individuals to change their behaviour …
Second, because a banning order is a serious sanction, and
because ASIC has limited resources, ASIC tends to direct its investigation
and enforcement activities to the most obviously serious cases … A body
dedicated to the investigation of matters concerning individual advisers could
be expected to consider a broader range of cases than ASIC currently does.
Third … the process involved in making a banning order is
time-consuming … the body should have available to it a range of sanctions
varying in severity, the most serious of which must be the cancellation of
the registration of a financial adviser.[15]
[emphasis added]
Review of
the Tax Practitioners Board
The amendments in the Bill also respond to recommendations
made in the Independent
Review of Tax Practitioners Board (the Review) which was tasked to ensure
that tax agent services are provided to the public in accordance with
appropriate standards of professional and ethical conduct.[16]
The final report of the Review (Review report) made 28
recommendations.[17]
Relevant to this Bills Digest, recommendation 7.1 states:
… in alignment with implementing Recommendation 2.10 of the
Final Report of the Financial Services Royal Commission, a new model be
developed for regulating tax (financial) advisers in consultation with
ASIC, FASEA, the TPB [Tax Practitioners Board] and Treasury. This new model
should incorporate the following features:
- single point of registration for individuals
- requirement to abide by only the one code of conduct
and
- any
disciplinary action involving the provision of tax advice is decided by experts
from the tax profession.
Until the new model is developed the status quo should be
retained.[18]
[emphasis added]
The Bill implements these recommendations by establishing
a single disciplinary body thereby reducing ‘regulatory overlap’.[19]
Committee
consideration
Senate
Standing Committee on Economics
The Bill has been referred to the Senate Standing
Committee on Economics (the Economics Committee) for inquiry and report by 28
July 2021.[20]
That time was extended to 30 July 2021. The Economics Committee received 16 submissions.
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
(Scrutiny of Bills Committee) raised the following concerns in relation to the
drafting of the Bill:
- the
presence of strict liability offences[21]
- the
reversal of the evidential burden of proof[22]
- that
significant matters are to be set out in delegated legislation—rather than in
the primary statute[23]
and
- the
inclusion of a ‘no-invalidity clause’.[24]
Each of these is discussed in detail under the heading
‘Key issues and provisions’ below.
Policy
position of non-government parties/independents
At the time of writing this Bills Digest, there have been
no comments in relation to the Bill by non‑government parties or
independent Members and Senators.
Position of
major interest groups
Stakeholders were generally supportive of the Bill—in
particular, the establishment of a single disciplinary body.[25]
In addition stakeholders welcomed the winding up of FASEA[26]—with
some reiterating their earlier concerns about the manner in which FASEA had
undertaken its role.[27]
Individual comments are canvassed below under the heading
‘Key issues and provisions’.
Financial
implications
According to the Explanatory Memorandum:
Funding for this measure was provided to the Department of
Treasury in the 2021-22 Budget. This included $2.5 million in 2021-22 to fund
the ongoing operational costs of FASEA and its wind-up costs after its industry
funding agreement ceases on 30 June 2021.[28]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[29]
Parliamentary
Joint Committee on Human Rights
At the time of writing this Bills Digest the Parliamentary
Joint Committee on Human Rights had not made any comment in relation to the
Bill.
Key issues
and provisions
Establishing
financial services and credit panels
Item 12 in Part 1 of Schedule 1 to the Bill inserts
proposed Part 9—Financial Services and Credit Panels into the ASIC
Act. This will be the single disciplinary body for financial advisers.
Panel
members
Under proposed Part 9:
- the
Minister may make a written determination setting out persons who are eligible
to be appointed to FSCPs—in particular the Minister must be satisfied that the
relevant persons have experience or knowledge in at least one of the following
fields: business, administration of companies, financial markets, financial
products and financial services, law, economics, accounting, taxation and /or
credit activities and credit services[30]
- it
is for ASIC to appoint members to the FSCP in writing.[31]
If a determination by the Minister as laid out above is in effect, the person
appointed to the FSCP must be specified in that determination[32]
- FSCPs
comprise a Chair and at least two other members. Importantly, the Chair must be
a staff member of ASIC[33]
and
- panel
members are to be paid allowances in accordance with a determination made under
the Remuneration
Tribunal Act 1973. In the absence of such a determination, the Minister
may prescribe allowances by legislative instrument.[34]
Stakeholder
comments
There is disquiet among some stakeholders that the FSCP
does not comprise at least ‘one consumer voice’. For instance, Maurice
Blackburn Lawyers considers that ‘it would be difficult for consumers
(including victims of poor corporate behaviours) to have confidence in a system
where their voice is not embedded in the decision making process’.[35]
Super Consumers Australia echoes that sentiment.[36]
On the other hand, Benjamin Marshan of the Financial
Planning Association of Australia told the Economics Committee during public
hearings about the Bill:
… we’re reasonably comfortable with the proposed panel
make-up that is drafted in the legislation. We have always been of a view that
the profession and the peers of the profession should sit in judgement over the
conduct of their peers, and we think the make-up of the panels makes sense to
provide that professional framework for considering whether or not you have
upheld the standards of the profession and whether or not you’ve complied with
the laws and regulations of that profession.[37]
Panel
meetings
The Bill contains the rules for FSCP meetings including that
the Chair must preside at all meeting,[38]
the number of members constituting a quorum[39]
and voting.[40]
In particular, questions are to be determined by a majority of the votes of the
members of the panel who are present and voting.[41]
The Chair of the panel has a deliberative vote and, if the votes are equal, a
casting vote.[42]
In addition, the Chair is entitled to hold all or part of a meeting using
technology that allows a person to participate in a meeting without being
physically present.[43]
Decisions
without meetings
The Bill empowers the FSCP to make decisions without
meetings. Essentially, the FSCP is deemed to have made a decision at a meeting
in the following circumstances:
- the
Chair of the panel informs the other members of the panel of the proposed
decision, or makes reasonable efforts to do so
- a
majority of the members of the panel who are entitled to vote on the proposed
decision indicate agreement with the decision and
- the
panel has earlier determined that it may make decisions of that kind without
meeting and has determined the way in which members are to indicate agreement
with proposed decisions.[44]
Panel hearings
Under the Bill the FSCP must hold a hearing if it
proposes to make a decision about imposing a banning order (if ASIC has
delegated that power to the FSCP)[45]
in respect of a person and the person requests that the panel hold a hearing.[46]
The FSCP may hold a hearing if ASIC so requests in
relation to a decision to vary or withdraw an undertaking[47]
or a decision to vary or revoke instruments affecting relevant providers.[48]
The Bill requires that a hearing of the FSCP be conducted
with as little formality and technicality and as much expedition as a proper
consideration of the matter permits. Whilst the FSCP is not bound by the rules
of evidence, it must, nevertheless observe the rules of natural justice.[49]
As with panel meetings, the FSCP may conduct all or part of a hearing using
technology that allows each person to participate in the hearing without being
physically present.[50]
The FSCP must notify an affected person of the time and
date of a hearing, where it will take place and, if technology may be used, the
nature of the technology.[51]
A person does not need to appear at a hearing of the FSCP and may, instead,
lodge a written submission of the matters which he or she wishes the panel to
take into account.[52]
Whilst the person about whom the decision is to be made
(the affected person) is not required to attend, the Chair of the FSCP at, or
prior to a hearing, may by written summons given to a person (other than the
affected person) require that person to appear to give evidence, to produce
specified documents, or to do both, and may also require the person to attend
from day to day unless excused. In that case, the FSCP may take evidence on
oath or affirmation that the evidence the person will give will be true.[53]
According to the Explanatory Memorandum to the Bill this ‘ensures that the
panel is able to obtain access to all of the information it needs to make its
decision, without displacing the privilege against self-incrimination’.[54]
Strict
liability offences
The Bill creates a suite of criminal offences relating to
the operation of FSCPs.[55]
Specifically a person commits an offence:
- if
the person does an act or omits to do an act which results in the obstruction
or hindering of the FSCP or a member of the FSCP in the performance or exercise
of any of the panel’s functions and powers[56]
- if the
person does an act or omits to do an act which results in the disruption of a
hearing[57]
and
- if
the person gives evidence at a hearing of the FSCP which is false or
misleading. In that case, it is a defence that the person reasonably believed
that the evidence was true and not misleading when it was given.[58]
The maximum penalty for each of those offences is two
years’ imprisonment.
The Bill also contains offences of strict liability[59]
where:
- a person
fails to comply with a requirement of a summons
- a
person fails to comply with a requirement to make an oath or affirmation and
- a
person fails to comply with a requirement to answer a question or produce a
document.[60]
In each of those cases the maximum penalty is 50 penalty
units.[61]
An additional offence of strict liability arises if a
person publishes evidence given before the FSCP where there is a direction
restricting the publication of that evidence. The maximum penalty for the
offence is 120 penalty units.[62]
Scrutiny of
Bills Committee
The Scrutiny of Bills Committee expressed concern at the
inclusion of strict liability offences in the Bill on the grounds that, in the
absence of a requirement for the prosecution to prove fault, the offence will be
made out if it can be proven that the defendant engaged in the impugned
conduct.[63]
Its particular concern arose in relation to the offence arising if a person
publishes evidence given before the FSCP where there is a direction restricting
the publication of that evidence.[64]
The Committee noted that the Explanatory Memorandum set
out the rationale for the offence but did not consider that the explanation
provided an adequate justification for the amount of the penalty.[65]
That being the case, the Scrutiny of Bills Committee drew the attention of
Senators to its concerns.[66]
FSCP decisions
Powers with
respect to a relevant provider
Item 49 in Part 1 of Schedule 1 to the Bill repeals
and replaces Division 8B of Part 7.6 of the Corporations Act. Proposed Division
8B outlines the power of the FSCP to take action against a relevant
provider.[67]
A relevant provider is an individual who is authorised to provide
personal advice to retail clients in relation to relevant financial products,
either as the holder of an Australian financial services licence, or on behalf
of the licensee being:
- a
financial services licensee
- an
authorised representative of a financial services licensee or
- an
employee or director of a financial services licensee, or a body corporate
related to the financial services licensee.[68]
According to the Explanatory Memorandum to the Bill an FSCP:
… does not have the power to take action against financial
services licensees and authorised representatives that are not financial
advisers. Disciplinary action against these entities will continue to be
administered by ASIC, using ASIC’s existing powers under the ASIC Act
and the Corporations Act, which includes the power to cancel or suspend
a licence, or to commence criminal or civil proceedings.[69]
Matters for
an FSCP
The Bill identifies a number of restricted civil
penalty provisions. An FSCP may issue an infringement notice,[70]
take other administrative action or recommend to ASIC that it seek a civil
penalty for a contravention[71]
of those provisions being:
- education
and training standards[72]
- additional
education and training standards for the provision of tax (financial) advice
services[73]
- the
Code of Ethics[74]
- the
obligations of a provisional financial adviser, or the supervisor of a
provisional financial adviser[75]
and
- the
requirement to be registered to provide financial advice.[76]
Other administrative
actions by an FSCP
Within Division 8B, proposed section 921K of the Corporations
Act empowers the FSCP to make an instrument in relation to a provider in the
following listed circumstances:
- the
financial adviser becomes insolvent
- the
financial adviser is convicted of fraud
- an
FSCP reasonably believes that the financial adviser is not a fit and proper
person to provide financial advice
- an
FSCP panel reasonably believes that the financial adviser has contravened a
financial services law, or has been involved in another person’s contravention
of a financial services law
- the
financial adviser has at least twice been linked to a failure or refusal to
give effect to a determination made by the Australian Financial Complaints
Authority (ACFA) or
- the
financial adviser has been an officer of two or more corporations that have
been unable to pay their debts.
The decision to make an instrument is reviewable by the
Administrative Appeals Tribunal (AAT) in accordance with the Administrative
Appeals Tribunal Act 1975.[77]
The kinds of written instrument are:
- a direction
that a relevant provider undertake specified training, receive specified
counselling or supervision or report specified matters to ASIC
- a registration
suspension order suspending the relevant provider’s registration for a
period specified in the order or
- a registration
prohibition order cancelling the registration of a relevant provider at
a time set out in the order and providing that the relevant provider is not to
be registered until after the prohibition end day also specified
in the order.[78]
The power to make an instrument is qualified. The FSCP must
not make an instrument unless either of the following has occurred:
- it gave
the relevant provider a proposed action notice[79]
detailing the instrument to be made and the circumstances giving rise to it and
either no submission or request for a hearing was made by the provider; or a
submission or request for a hearing was made within the response period set out
in the notice and the FSCP has taken the submission into account or held the
hearing[80]
or
- it gave
the relevant provider a proposed action notice in relation to a
different instrument or an infringement notice in relation to the same
circumstances; a submission or request for a hearing was made and the panel has
taken into account the submission or held the hearing.[81]
Such an instrument comes into force when a copy of it is
given to the relevant provider along with a statement of reasons in accordance
with the requirements of proposed section 921M of the Corporations
Act. However, a failure to comply with those requirements does not affect
the validity of the instrument.[82]
Scrutiny of
Bills Committee
According to the Scrutiny of Bills Committee:
A legislative provision that provides that an act done or
decision made in breach of a particular statutory requirement or other
administrative law norm does not result in the invalidity of that act or
decision, may be described as a ‘no-invalidity’ clause. There are significant
scrutiny concerns with no-invalidity clauses, as these clauses may limit the
practical efficacy of judicial review to provide a remedy for legal errors. For
example, as the conclusion that a decision is not invalid means that the
decision-maker had the power (for instance, jurisdiction) to make it, review of
the decision on the grounds of jurisdictional error is unlikely to be
available. The result is that some of judicial review's standard remedies will
not be available.[83]
Proposed subsection 921M(3) is such a clause. The
Committee noted that the Explanatory Memorandum ‘does not contain a
justification for the inclusion of a no-invalidity clause’ and has asked the
Minister to provide ‘advice as to why it is considered necessary and
appropriate’ in this instance.[84]
Varying or
revoking an instrument
Where such an instrument as set out above is in effect ASIC
may, on its own initiative, request the FSCP to make a decision to vary or
revoke the instrument.[85]
In the alternative, the relevant provider may apply to
ASIC for an instrument to be revoked or that a specified variation be made.[86]
The options available to ASIC having received the application are to request the
FSCP to make a decision to vary or revoke the instrument or to decide not to make
such a request.[87]
Where ASIC makes the request, the FSCP must decide whether
to revoke the relevant instrument or to vary the instrument in the manner requested
or in some other way.[88]
In that case, the FSCP must provide written notice of its decision and a
statement of reasons for that decision to the relevant provider (and to the
licensee if any) as well as to ASIC. Where the FSCP makes a decision to refuse
to vary or revoke the instrument, notice needs only to be given to the relevant
provider.[89]
Warnings and
reprimands
Under the Bill, either ASIC or the FSCP may give a written
warning or reprimand to a relevant provider. These are new sanctions for
financial advisers who have breached their obligations under the Corporations
Act.
Proposed section 921S of the Corporations Act
requires ASIC to give a relevant provider a written warning or reprimand where ASIC
reasonably believes that one or more of the following circumstances exists:
- the
relevant provider is not a fit and proper person[90]
to provide personal advice to retail clients in relation to relevant financial
products—the relevant test being set out in proposed section 921U
(discussed below) but subject to the spent
convictions scheme outlined in Part VIIC of the Crimes Act 1914
- the
relevant provider has contravened a financial services law or
- a
circumstance set out in proposed paragraphs 921K(1)(a), (b), (e), (f) or (g) (being
matters about which the FSCP may make an instrument).
In addition to having the reasonable belief as set out
above, the giving of a written warning or reprimand occurs where ASIC has not
convened an FSCP in relation to the relevant circumstance and has not exercised
or proposed to exercise its powers under the corporations legislation against
the relevant provider.[91]
Such a sanction is considered to be ‘administrative’ in nature.[92]
Proposed section 921T of the Corporations Act
empowers an FSCP to give a relevant provider a written warning or reprimand in
similar circumstances.[93]
Fit and
proper person test
The fit and proper person test requires regard to be had to
any relevant matter, including (but not limited to) whether the financial
adviser has ever been:
- subject
to a suspension or a cancellation of their Australian Financial Services
Licence or their Australian credit licence
- banned
or disqualified under the Corporations Act or the Consumer Credit Act
or under other relevant state and territory legislation
- linked
to a refusal or failure to give effect to a determination made by the
Australian Financial Complaints Authority (AFCA)
- an
insolvent under administration
- the
subject of information given to ASIC, or an authority of a state or territory
- convicted
of an offence in the last ten years
- the
subject of disciplinary action by a FSCP in the last ten years or
- other
matters prescribed by Regulations (if any).[94]
Minister
takes on the functions of FASEA
Once FASEA is wound up on 1 January 2022, its functions
will be transferred to the Minister. Item 42 in Part 1 of Schedule
1 to the Bill inserts proposed subsection 921B(6) into the Corporations
Act so that the Minister is empowered to:
- approve
bachelor or higher degrees, or equivalent qualifications
- approve
principles for the conduct of an exam
- set
requirements for work and training and
- set
requirements for continuing professional development for a relevant year.
The Bill inserts similar education and training
requirements to be met by tax (financial) advice services.[95]
According to the Explanatory Memorandum:
From 1 January 2022, financial advisers who meet the
additional education and training requirements to provide tax (financial) advice
services may do so without being registered under the Tax Agent Services Act
2009.[96]
Other
matters
Item 45 in Part 1 of Schedule 1 to the Bill repeals
and replaces section 921E of the Corporations Act and item 49
repeals Division 8C of Part 7.6 (including paragraph 921U(2)(b)) so that it is
the Minister who makes the Code of Ethics rather than FASEA. A relevant
provider must comply with the Code of Ethics. Under the Bill, the Code of
Ethics that was made and in force immediately before 1 January 2022 continues
in force.[97]
Item 48 inserts proposed section 921G into the Corporations
Act empowering the Minister to approve foreign qualifications.
Matters relating to tax (financial) advice services are
discussed under that heading below.
Scrutiny of
Bills Committee
The Scrutiny of Bills Committee was concerned that
proposed section 921E ‘provides the Minister with a broad discretionary power
to mandate a Code of Ethics in circumstances where there is no guidance on the
face of the bill as to how the power should be exercised’.[98]
The Committee stated:
Additionally, the Committee’s consistent scrutiny view is
that significant matters, such as the contents of an enforceable Code of
Ethics, should be contained in primary legislation unless a sound justification
for the use of delegated legislation is provided. In this instance the
explanatory memorandum contains no justification as to why there is no detail
regarding the matters to be included in the Code of Ethics on the face of the
primary legislation.[99]
The Committee has requested the Minister’s advice in
relation to its concerns.[100]
Stakeholder
comments
Stakeholders have expressed the view that the winding down
of FASEA is a good thing. In its evidence to the Economics Committee during
public hearings, the spokesperson for the Stockbrokers and Financial Advisers
Association, Judith Fox, was critical of some aspects of FASEA’s performance
stating:
There was absolutely no-one on that board with any expertise
or understanding of stockbroking and investment advice.
… all of the educational requirements are suitable for
financial planning. We support those qualifications for financial planners, but
they’re completely unsuitable for our industry. The exam, also, was geared
towards financial planning, and so that was quite a challenge for people who
were working in stockbroking and investment advice. They were being asked
questions on insurance, aged care and Centrelink. Stockbrokers and investment
advisers do not deal with those matters.
We just felt that it was a board that really didn't
understand our industry …[101]
Similarly, spokesperson for the Association of Financial
Advisers Ltd, Philip Anderson stated:
We support the winding down of FASEA at the end of 2021 and
the transfer of existing responsibilities to the Minister and ASIC. There is
more work for FASEA to do over the remainder of 2021, including the ongoing
administration of the exam and the review of the FASEA code of ethics. It is
our view that there is still room for sensible changes to some of the FASEA
standards, including better recognition of prior study, as expressed in the
2017 professional standards explanatory memorandum, and an increase in
technical and reduction in ethics hours that are required under the CPD
[continuing professional development] standard.[102]
Importantly, the transitional provisions in relation to
education and training standards operate so that an instrument that was made
before 1 January 2022 which was in force before that day remains in force on
and after that day.[103]
Authorisation
to provide personal advice
Item 44 of Part 1 in Schedule 1 to the Bill repeals
existing sections 921C and 921D and inserts proposed section 921C which
operates so that ASIC must not grant a license to provide financial
advice to a person who has not:
- completed
an approved degree or equivalent qualification
- passed
the financial adviser exam
- undertaken
at least one year of work and training in accordance with the requirements
prescribed by the Minister and
- completed
the additional education and training standards (if any) for the provision of
tax (financial) advice services—if the licence is intended to cover the
provision of tax (financial) advice services.[104]
Further, the holder of an AFSL must not authorise a
person to provide personal advice to clients on the licensee’s behalf if any of
the following apply:
- the
person has not met the education and training standards and passed the exam
- the
person has not undertaken at least one of year work and training (professional
year) and
- if
the person is to provide tax (financial) advice services the person has not
satisfied the requirements for tax (financial) advices services outlined above.[105]
Application
for registration of providers
A relevant provider must not provide personal advice
unless the provider’s registration is in force.[106]
The Bill sets out the two-stage process for the
registration of financial advisers being:
- stage
1 is a one-off obligation for financial services licensees to apply to ASIC to
register their financial advisers by providing additional information on their
authorised advisers. ASIC will use the information to update the Register of
Relevant Providers (the Register)[107]
and
- stage
2 will be administered by the Australian Taxation Office using the new
Australian Business Registry System and involve individual financial advisers
applying to register themselves.[108]
Registration
by ASIC
ASIC must refuse to register a relevant provider if there
is a banning order or a disqualification order in force against the provider. Where
a registration prohibition order is in force, ASIC must refuse to
register the provider until after the end day specified in the order.[109]
The registration remains in force until the earliest of:
- the
cancellation time specified in a registration prohibition order
made against the relevant provider
- the
time when a banning order against the relevant provider takes
effect and
- for
the holder of an Australian financial services licence—the date it ceases to be
in force[110]
- otherwise—when
the licensee ceases to authorise the relevant provider to give financial advice
to retail clients on the licensee’s behalf.[111]
Existing section 922Q of the Corporations
Act establishes the Register and sets out what information must be
contained in the Register. Items 68–73 amend section 922Q to update the provisions
dealing with the contents of the Register to reflect the changes in the Bill—including
for example the requirement that all relevant providers must be registered and
whether the relevant provider provides a tax (financial) service.[112]
Stakeholder
comments
Some stakeholders firmly agreed with the move towards registration
of individual advisers. According to the Institute of Public Accountants, ‘this
would be consistent with other professions which rely on individual
responsibility and accountability’.[113]
CPA Australia also welcomed the measure.[114]
Regulation
of tax (financial) advisers
One purpose of the Bill is to implement recommendation 7.1
of the Independent
Review of Tax Practitioners Board ‘by reducing regulatory overlap and
ensuring that the new disciplinary regime for financial advisers also applies
to individual tax (financial) advisers’.[115]
It achieves this by requiring a person who provides tax
(financial) advice be registered as a tax agent or be a financial adviser
who has met the additional education and training standard to provide tax
(financial) advice services under the Corporations Act. Accordingly, the
Bill empowers the Minister to determine by legislative instrument any or all of
the following requirements for a person who provides a tax (financial) advice
service:
- completion
of one or more specified bachelor or higher degrees, specified qualifications
or courses
- a
requirement that the person has undertaken specified work and training
- a
requirement for continuing professional development.[116]
Items 106–141 in Part 2 of Schedule 1 to the Bill make
consequential amendments to the Tax Agent Services Act.