“There is no route out of the maze. The maze shifts as you move through it, because it is alive.”
— Philip K Dick, Regulatory Consultant
Introduction
The financial services landscape in Australia has been under intense scrutiny, especially in the year 2023. Regulatory bodies like the Australian Securities and Investments Commission (ASIC) and the Financial Services and Credit Panel (FSCP) have been relentless in their pursuit of a more transparent, ethical, and robust financial sector. This article provides a comprehensive review of the regulatory outcomes in 2023, focusing on ASIC’s enforcement activities and FSCP matters that have shaped the industry.
ASIC’s 2022 Enforcement Activities: Lookback
The Landscape
The Australian Securities and Investments Commission (ASIC) carried out numerous enforcement actions in the financial sector throughout 2022, targeting misconduct across various areas including credit, financial advice, insurance, investment management, and superannuation. The enforcement activities were aimed at improving the industry’s financial reporting, risk management, and ensuring better disclosure in financial reports.
Enforcement Outcomes for 2022:
Across 2022, according to their reports issued in June and December 2022 ASIC obtained several enforcement results addressing misconduct. Here is a detailed breakdown:
- Credit Misconduct: 2 Criminal, 9 Civil, 25 Administrative; Total: 36.
- Financial Advice Misconduct: 2 Criminal, 7 Civil, 24 Administrative; Total: 33.
- Insurance Misconduct: 0 Criminal, 6 Civil, 0 Administrative; Total: 6.
- Investment Management Misconduct: 2 Criminal, 3 Civil, 21 Administrative; Total: 26.
- Superannuation Misconduct: 3 Criminal, 12 Civil, 3 Administrative; Total: 18.
In addition, there were ongoing financial services enforcement litigations as of 9 January 2023:
- Credit Misconduct: 7 Criminal, 16 Civil; Total: 23.
- Financial Advice Misconduct: 14 Criminal, 8 Civil; Total: 22.
- Insurance Misconduct: 3 Criminal, 6 Civil; Total: 9.
- Investment Management Misconduct: 12 Criminal, 11 Civil; Total: 23.
- Superannuation Misconduct: 3 Criminal, 8 Civil; Total: 11.
ASIC’s 2023 Enforcement Activities: Rigorous Oversight?
The Landscape
In recent years, ASIC has significantly increased its enforcement activities to ensure a well-regulated financial market. The year 2023 was no exception, with ASIC meticulously scrutinising financial advisers and Australian Financial Services Licensees (AFSLs) to uphold the integrity of the financial services sector.
One of the notable enforcement actions unfolded with Stephen Wan Tat Chan, a NSW licensee whose AFSL was cancelled due to multiple compliance failures. The licensee neglected to lodge the required financial statements and auditor opinions with ASIC. Moreover, the licensee didn’t maintain an external dispute resolution membership with the Australian Financial Complaints Authority (AFCA) and failed to pay ASIC’s industry levies.
The Quattro Capital Group case was another hallmark of ASIC’s 2023 enforcement crusade. Quattro, an entity with a 13-year tenure as an AFSL holder, came under ASIC’s radar for failing to uphold the necessary competence in providing financial services, inadequate supervision of its representatives, and lacking the requisite human and financial resources. The failure to lodge annual financial statements from 2016 to 2020 was the tipping point that led to the cancellation of Quattro’s AFSL.
Furthermore, Centurion faced ASIC’s enforcement action, having its AFSL cancelled as there was no evidence of the license being utilised, and no indication of future use. This case was under review by the Administrative Appeals Tribunal (AAT) as of May 2023.
In addition to individual licensees, ASIC has shown a stern face towards companies, cancelling or suspending AFSLs of entities like Rizzak Capital Pty Ltd and Sterling & Freeman Advisory Pty Ltd for failure in lodging audit opinions. Brendan Kennedy and Old Cold Gold Pty Ltd were also in the cancellation list, for not maintaining adequate external dispute resolution membership with AFCA and for failing to lodge financial documents for the 2021 financial year.
On the broader spectrum, the Financial Services and Credit Panel (FSCP) saw an expansion of its regulatory perimeter with the Better Advice Act, which broadens ASIC’s regulatory responsibilities. Although the specific matters under FSCP’s scrutiny in 2023 aren’t directly available, it’s indicative of a tighter regulatory framework that financial advisers and AFSLs need to navigate.
Some commentators have observed that the FSCP is prescribing training and external oversight for misconduct that ASIC treated with banning and cancellation. We understand that perspective, but we don’t believe that ASIC has “gone soft”; instead, believe that these more nuanced regulatory responses finally recognise the need for proportional, and just, regulatory outcomes.
The Australian Financial Complaints Authority (AFCA) also played a pivotal role in 2023, with a notable uptick in complaints relating to superannuation and life insurance. AFCA’s 2022-23 Annual Review shed light on its significant work program, highlighting the regulatory body’s relentless effort in addressing consumer grievances and ensuring that financial firms adhere to the highest standards of professionalism.
This year again demonstrates a relentless commitment to fostering a compliant and robust financial sector. ASIC’s enforcement actions, complemented by the FSCP and AFCA, highlight the critical need for financial advisers and AFSLs to remain vigilant, well-informed, and respectful of the evolving regulatory landscape.
For a more comprehensive understanding of ASIC’s enforcement activities and its implications on the financial services sector, explore our insights at Assured Support, where we provide adept regulatory support and risk management solutions tailored to navigate the complex regulatory maze.
Navigating the Regulatory Minefield: A Deep Dive into FSCP Matters for 2023
The Financial Services and Credit Panel (FSCP) plays a pivotal role in ensuring that financial advisors and institutions adhere to the highest standards of ethical and professional conduct. The year 2023 has been no exception, with several cases coming before the FSCP that offer valuable insights into the regulatory landscape.
This article will explore the 11 key matters on the FSCP Outcomes Register from 2023, highlighting their similarities and implications for the industry.
Chronological Order of FSCP Matters for 2023
1. Mr S (29/05/2023)
Instrument issued under s921L(1)(a)(iv) of the Corporations Act 2001. The relevant provider impersonated a client during two telephone conversations with a bank in an attempt to facilitate a transaction for the client’s benefit. No benefit was obtained by the provider. The Sitting Panel determined contraventions of s1041H and s921E(3).
2. Mr M (30/06/2023)
Advised a cold-called client to switch superannuation funds via a Statement of Advice (SOA). Contravened various sections of the Corporations Act 2001, leading to an instrument being issued under section s921L(1)(a)(iii).
3. Mr K (07/08/2023)
Issued a Statement of Advice (SOA) recommending clients switch their superannuation and insurance providers. A reprimand was issued due to oversight in transferring full insurance cover.
4. Mr H (31/08/2023)
Contravened various sections of the Corporations Act 2001 and Corporations Regulation 2001 by failing to keep adequate records of advice. Required to engage an independent expert for auditing.
5. Mr O (31/08/2023)
Contravened the Corporations Act 2001 and Corporations Regulation 2001 by failing to maintain adequate records. An instrument was issued under section s921L(1)(a)(iii).
6. Mr E (07/09/2023)
Contravened section s911B(1) of the Corporations Act 2001 by giving an SOA which included an insurance recommendation, despite not being authorised. A reprimand was issued.
7. Ms D (08/09/2023)
Faced multiple contraventions of the Corporations Act 2001 when providing various types of advice in an SOA. An instrument under s921L(1)(a)(iii) was issued.
8. Mr V (12/09/2023)
Advised two members on improving their super balances by altering their investment strategy. Found inappropriate due to a lack of thorough enquiry into the clients’ circumstances.
9. Mr T (21/09/2023)
Issued a warning for failing to include specific advice in an SOA and contravening several sections of the Corporations Act 2001.
10. Mr P (11/10/2023)
Had clients sign blank off-market transfer forms, which were then completed to transfer multiple securities. No further action was taken due to significant remedial steps.
11. Mr X (07/2023)
Found to have contravened several sections of the Corporations Act 2001 when providing SOAs to three clients using a layered advice strategy. An instrument was issued under section s921L(1)(a)(iii).
Case Similarities
Breaches of Core Obligations. Think Best Interest and Client Priority failures. Sections commonly contravened include s961B(1), s961G, s921E(3), and s911B(1). These contraventions often relate to conflicts FASEA’s Standard 3, which mandates that advisors must not advise, refer, or act in any manner where they have a conflict of interest.
Statement of Advice (SOA) Issues: Think about how the professional obligations are addressed in the written document and whether, and to what extent, the SOA establishes the appropriateness of the advice. Sections commonly breached include s961B(1) and s961G often come up in relation to SOA issues. Questions of appropriateness often involve a contravention of FASEA Standard 5, which requires advisors to consider the broader financial impacts of their advice.
Record-Keeping: Cases like Mr H and Mr O often involve contraventions of the Corporations Regulation 2001 and, in particular, a failure to maintain adequate records. This is in line with FASEA’s Standard 10, which requires advisors to be accountable for their actions and take responsibility for client outcomes.
Some thoughts on Layered Advice
Layered advice strategies, as seen in Mr X’s case, pose a unique set of risks. These strategies often involve providing multiple pieces of advice over time, each building upon the last. While this can be beneficial in complex financial situations, it does also increase the risk of contravening sections like s961B(1) and s961G of the Corporations Act 2001. This is because each layer of advice must individually meet the ‘best interest’ duty and other requirements, making compliance more challenging. Layered advice can also create conflicts of interest, thereby violating FASEA’s Standard 3.
Practical Tips for Avoiding Trouble
- Regular Compliance Reviews: Conduct regular internal and external audits to ensure compliance with the Corporations Act and FASEA standards. But reviews aren’t just for advisers so consider the value of a Licensee Review that addresses the operational design and effectiveness of your compliance framework.
- SOA and Advice Process Review: Implement a robust review process for your Statements of Advice templates to ensure they meet all legal requirements.
- Ongoing Training: Keep your team updated on the latest regulatory changes and ethical standards.
- Conflict of Interest Policy: Establish and regularly update a conflict of interest policy in line with FASEA’s Standard 3. Commissioner Hayne noted that advisers and licensees were very good at disclosing conflicts (but terrible at doing anything more than disclosing conflict). Confound expectations by documenting your approach and outlining how you’ll manage, mitigate and avoid conflicts.
- Improve your Record-Keeping Systems: Invest in secure and efficient record-keeping systems to ensure you meet the requirements under the Corporations Regulation 2001.
- Embed a Client-Centric Approach: Always act in the best interest of the client, as mandated by FASEA’s Standard 2, and ensure that this ethos is embedded in your firm’s culture. The Law already requires you to prioritise clients’ interests but consider how you can, and why you should, aspire to be better than compliant.
All these matters serve as a critical reminder of the regulatory complexities and ethical considerations that financial advisors must navigate. By understanding these cases and implementing the practical tips outlined above, you’ll be better prepared to offer compliant, ethical, and effective financial advice.
To stay updated on regulatory changes and industry best practices, see more here.
