Despite our detailed criticism of their recent Green paper, the FSC has made a significant and timely contribution to the debate on regulatory settings in Australian financial advice. It rightly highlights that the current framework has created an environment of cost, complexity and risk aversion. It also correctly recognises that the imbalance between broad obligations and severe penalties discourages innovation and undermines the delivery of accessible, quality advice.
These are real and pressing issues. Our experience across hundreds of licensees confirms this: ambiguous obligations, coupled with the threat of high sanctions, produce conservatism and timidity, not professionalism. As Commissioner Hayne observed, process worship crowds out professional judgment, compromises accountability, and undermines client benefit.
We agree with the FSC’s thematic analysis, but we don’t believe that reforming the licensing regime is the best answer to the questions they pose. Licensing reform or refinement may help at the margin, but the deeper problem is behavioural; fear of regulatory sanctions has distorted how advice businesses operate.
A statutory defence modelled on the “business judgment rule” in section 180 of the Corporations Act, on the other hand, would promote flexibility and innovation by providing Licensees and Advisers with a conditional defence from liability or regulatory sanctions where they act with due care and diligence and make reasonable, unconflicted and well-informed decisions.
Without getting too far into the weeds, the business judgment rule provides a balanced framework that protects directors who act responsibly, while still holding them accountable for negligence or misconduct. A “reasonable care safe harbour” is not a cure for misconduct (such as culture, conflicts, or greed), but rather an enabler of innovation and professionalism.
It would protect competent actors from punitive consequences for technical or inadvertent breaches, reducing the deterrent effect of regulatory ambiguity while preserving ASIC’s ability to pursue genuine misconduct.
By encouraging informed and honest decision-making, a “reasonable care safe harbour” supports effective governance, innovation and risk-taking; characteristics not generally associated with most financial services licensees.
Risks That Shape the Industry
Current regulatory settings rely heavily on principles-based obligations, backed by significant civil and administrative penalties. This is both its greatest strength and most important limitation. Its design assumes that participants will respond rationally to broad principles and proportionately to regulatory risk. In practice, the reverse is true: the irrational fear of penalties leads to over-investment, timidity, complexity, and conservatism.
As we explained in our 2022 Treasury submission:
“Businesses traditionally react to equivocal regulation (with significant consequences for non-compliance) with conservatism, risk-aversion and timidity. While competent participants’ fear of regulatory sanction might be irrational, it’s pervasive. Paradoxically, it’s been their pursuit of certainty that led to increased complexity and compromised principles.” (Treasury Submission, p. 6)
This reality lies at the heart of many of the Green Paper’s observations. Ambiguity and fear of sanctions drive risk aversion, suppress innovation, increase costs and encourage process worship over professional judgement. Commissioner Hayne highlighted this during the Royal Commission, warning that prioritising process over outcomes undermines professionalism and entrenches a compliance culture focused on box-ticking rather than client benefit.
The Green Paper has helpfully brought these structural and cultural issues back into focus. A “reasonable care safe harbour” offers us a way to address them directly.
It may be a partial cure, but it’s a critical one.
Reconciling Compliance and Care
Introducing this type of safe harbour for advisers and licensees would require setting clear boundaries for when the defence cannot be relied upon, such as failures to act, decisions involving legal compliance, or breaches of best interests and conflict of interest duties.
It’s also important to appreciate that a “reasonable care safe-harbour” doesn’t replace compliance obligations; the obligations endure, but the “reasonable care safe-harbour” provides Licensees with the flexibility to choose how to satisfy those obligations and removes the fear of sanctions that inhibits the exercise of choice.
Statutory protection of this type will provide Licensees with the confidence that their reasonable decisions are not subject to subsequent regulatory sanction. A “reasonable care safe harbour” would not weaken consumer protection, but would instead reduce costs, increase accessibility and give advisers and licensees the confidence to innovate and exercise professional judgement, while still maintaining substantial penalties for misconduct, misfeasance and mismanagement.
Critically, this new “safe-harbour” wouldn’t be a licence for recklessness, but a conditional defence that requires participants’ diligence, integrity, and transparency.
Although it may presume that most licensees and advisers are competent and diligent actors, ASIC maintains ways to deal with those who are not.
The goal is not to water down ASIC’s enforcement options, but to address the fear that undermines innovation.
A Positive Reform to Complement the FSC’s Vision
Long-standing members of the Assured Support community would recognise that we have consistently advocated for reforms, like these, to lessen the regulatory burden imposed on Licensees and advisers. In 2022, we recommended to the Treasury that Australia should:
“Revise the statutory penalties for non-compliance and introduce a broader ‘safe harbour’ for licensees and advisers whose contraventions occur despite their reasonable care and diligence.” (Treasury Submission, p. 7)
Again, let’s be clear, this proposal is not about lowering standards. It’s about providing proportionate regulatory protection for those who act in good faith and with appropriate care. Under this model, licensees and advisers who can demonstrate that they acted reasonably, diligently and rationally would not face punitive consequences for technical or inadvertent breaches. It does not empower Licensees to ignore the law or ASIC guidance, but provides them with a defence against legal or regulatory action where they acted competently, reasonably and in good faith.
This is both consistent with principle-based regulation and likely to remove the current barriers to innovation.
Importantly, this type of safe harbour is not a “get out of jail free” card; it should not, for example, protect regulated entities from the consequences of deliberate misconduct, fraud, negligence, recklessness or systemic failures. It would also not apply to:
- Failures to act where no decision was made at all;
- Mandatory conduct and disclosure requirements, such as how to disclose information under the Corporations Act;
- Breaches of other duties, such as the duty to act in a client’s best interests (s961B) or to avoid conflicts of interests and duties.
Admittedly, a “reasonable care safe harbour” does not solve problems caused by commercial self-interest, legacy business models, or bad advice practices. It would, however, give well-intentioned participants the regulatory confidence to innovate, adopt new technologies and tailor their compliance arrangements to the “nature, scale and complexity” of their business models, their resources and the needs and preferences of their clients.
In our view, this is precisely the targeted, behavioural reform that would complement the FSC’s structural analysis and liberate regulated entities. It translates their diagnosis into a policy solution that addresses the root causes of regulatory imbalance, ambiguity, risk-aversion and the pervasive fear of sanctions for good-faith mistakes. Admittedly, it presumes that most participants are competent, compliant and ethical, but this is not an unreasonable expectation of an emerging advice profession.
Unlocking Innovation and Accessibility
The benefits of a reasonable care safe harbour extend well beyond more efficient enforcement. As we argued to Treasury:
“Cost, apprehension and complexity could be minimised simply by removing the prescribed form and content of advice documents (repealing s947A, s947B, s947C and s947D) and introducing a ‘safe harbour’ for licensees and advisers whose contraventions occur despite their reasonable care and diligence.” (Treasury Submission, p. 3)
By providing more precise boundaries for good-faith conduct, a reasonable care safe harbour would:
- Empower professional judgement, allowing advisers to focus on clients rather than defensive documentation.
- Encourage innovation, including RegTech adoption and more flexible service models.
- Preserve consumer protections by maintaining substantial penalties for misconduct.
- Enhance regulatory clarity, enabling ASIC to target serious misconduct rather than technical slip-ups.
These are precisely the kinds of outcomes the FSC has been advocating for, particularly in terms of lowering the cost of advice and improving accessibility for consumers. A reasonable care safe harbour would enable, support and accelerate those objectives.
Aligning Consumer and Industry interests
A statutory “reasonable care” defence is a measured, proportionate and credible reform that could unite industry, regulators and policymakers around a common goal of supporting innovation and professionalism while protecting consumers.
This idea is neither radical nor untested. Safe harbours and reasonable care defences are standard features of other regulatory frameworks, providing clarity and proportionality without undermining accountability. Consumer interests are preserved because a safe harbour defence doesn’t dilute compliance obligations but provides Licensees and Advisers with more flexibility on how to satisfy those obligations and protection from liability for inadvertent or unanticipated non-compliance.
This proposal aligns with international approaches that recognise the importance of protecting reasonable conduct while maintaining accountability:
United Kingdom: The Senior Managers & Certification Regime incorporates a ‘reasonable steps’ standard when assessing whether senior managers have fulfilled their regulatory responsibilities. While the regime emphasises accountability, regulators focus enforcement action on inadequate conduct rather than penalising reasonable judgments that don’t achieve perfect outcomes.
United States: The Private Securities Litigation Reform Act establishes safe-harbour provisions that protect market participants from liability when they make forward-looking statements in good faith and with adequate disclosure. This recognises that reasonable conduct deserves protection even when predictions prove incorrect.
European Union: MiFID II’s conduct framework distinguishes between firms that fail to meet required standards and those that demonstrate appropriate processes and reasonable care in their decision-making, even where market outcomes are unfavourable.
These models demonstrate that conditional defences can promote professionalism without compromising enforcement. A ‘reasonable care safe harbour’ would adopt a similar principle, protecting licensees who act diligently and make informed decisions while maintaining substantial consequences for those who fall short of professional standards.
A Shared Opportunity for Meaningful Reform
The FSC has opened the door to a constructive, forward-looking conversation about regulatory balance, highlighting the problems of complexity, risk aversion, and regulatory uncertainty. Their Green Paper has highlighted genuine structural challenges. But unless the behavioural dynamics of fear and over-compliance are addressed, licensing reform alone will not deliver affordability, innovation or consumer confidence.
If we want a more accessible, innovative and professional advice sector, we need to remove the regulatory fear that inhibits licensees and give good actors the confidence to act.
Don’t dismiss the idea of a “reasonable care safe harbour” as “industry relief.” It directly benefits consumers by:
- Lowering advice costs: Advisers will no longer spend disproportionate resources on defensive documentation.
- Improving accessibility: With reduced compliance friction, more firms can serve a broader range of mass-market clients.
- Focusing on outcomes: By reducing fear of sanction, advisers can prioritise judgment and client needs over box-ticking.
- Sharper ASIC enforcement: Freed from policing trivial breaches, ASIC can concentrate on misconduct that actually harms consumers.
A reasonable care safe harbour is a practical way to improve outcomes for all participants, and it’s a reform that the FSC and FAAA, acting together, could secure. Although the reform would need to be supported by current data, we think it’s a practical solution to conservatism and fear.
However, the industry, ASIC, and Treasury would need to collaborate to develop the roadmap, draft the language, articulate the jurisdictional model, and refine how the defence is reconciled with consumer interests and regulatory expectations.
See more.
If you liked this, we recommend that you read:
Clarifying the Path Forward on Advice Licensing
Quality of Advice Review: Promoting advice, not advisers
The Compliance Paradox – Why Good Advisers Still Fail
Understanding Risk Management: A Practical Guide for Licensees and Advice Professionals
Frequently Asked Questions
What is a “reasonable care safe harbour” in financial services regulation?
A “reasonable care safe harbour” is a statutory defence that would protect advisers and licensees from regulatory sanctions where they act with due care, diligence, and integrity—even if they inadvertently breach technical requirements.
How does regulatory fear impact advice practices?
Regulatory ambiguity and the threat of disproportionate penalties often result in risk-aversion, excessive process documentation, and reduced innovation—ultimately increasing costs and diminishing client benefit.
Would a safe harbour reduce compliance standards?
No. Compliance obligations would remain unchanged. The safe harbour would provide flexibility in how obligations are met and protect those who act competently and in good faith from penalties for technical errors.
How does this proposal align with other international regulatory models?
Similar defences exist in the UK, US, and EU—where reasonable, good-faith decisions are shielded from punishment, provided the conduct meets expected professional standards and transparency requirements.
What would be excluded from the safe harbour protections?
It would not apply to deliberate misconduct, negligence, systemic failures, legal non-compliance, or breaches of duties such as acting in the client’s best interests or managing conflicts.
