Financial Services Regulation

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Unravelled: Raising professional standards of financial advisers

5 February 2016

Written by Senior Associate Simun Soljo and Law Clerk Dixon Song

Following on from the reviews conducted by the Parliamentary Joint Committee and the Financial System Inquiry, the Government delivered on its promises by releasing an exposure draft of the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2015 (the Bill) late last year for consultation. As its title suggests, the draft Bill proposes a number of amendments to the Corporations Act to raise the professional standards of financial advisers that are to apply from 1 July 2017. Many of these reforms impose obligations that licensees in the retail financial advice and superannuation trustees should carefully consider and begin making provision for.

First, the draft Bill introduces new education and training standards that must be satisfied by individuals who provide personal advice to retail clients on 'relevant financial products' (known as relevant providers). The spectrum of products covered is broadly similar to that of ASIC's concept of a Tier 1 product, and includes more complex financial products outside of basic banking, general insurance and consumer credit insurance products. Relevant providers must have completed a bachelor degree or equivalent, undertaken a professional year, passed a formal exam and complied with ongoing continuous professional development (CPD) obligations. Specific standards for each of these requirements are to be set and regularly reviewed by a new industry-funded standard setting body (the Body), while licensees will be required to monitor the compliance of employees with the standards.

Secondly, the draft Bill introduces a Code of Ethics as also developed by the Body that relevant providers must comply with from 1 July 2019 onwards. To complement this, the Bill follows a co-regulatory approach in requiring relevant providers to subscribe to an ASIC-approved monitoring and enforcement scheme developed either by a professional association or licensee. Depending on the circumstances, a breach of the code by a relevant provider may lead to soft sanctions such as a warning or additional training requirements, or more serious consequences such as termination of employment or membership in the particular professional association. Licensees will be required to ensure that their relevant providers are covered by such a scheme within 60 business days from the date of authorisation of the adviser.

Thirdly, the draft Bill amends the content requirements of the Register of relevant providers to now make it mandatory for the Register to display information about whether a relevant provider has complied with the new education and training standards and/or breached the code of ethics. To facilitate this, a number of notice obligations are to be imposed on licensees to notify ASIC of information regarding their relevant providers, including:

  • a relevant provider's educational qualifications within 30 business days from the date of authorisation or the obtaining of a new qualification;
  • a relevant provider's completion of CPD hours within 30 business days of the end of each financial year; and
  • any breach of the code or sanction by a relevant provider within 30 business days of the licensee becoming aware of the relevant breach or sanction.

Finally, the draft Bill provides for certain transitional arrangements for individuals who are relevant providers immediately prior to 1 July 2017 (known as existing providers). In particular, existing providers are to be given a 24-month transitional period from 1 July 2017 to satisfy the new education and training standards by passing the approved exam and/or completing the appropriate bridging courses to raise their qualifications to the requisite bachelor degree level. However, existing providers will still be obligated to meet the CPD requirements from 1 July 2017 as well as the Code of Ethics from 1 July 2019.

Submissions for the consultation closed in early January this year. Implementation of these reforms by industry has already commenced, with some providers beginning to prepare themselves for the new regime.

Other articles in this edition of Unravelled

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