Cth Bill for the Regulation of Financial Advisors

Friday 9 July 2021 @ 2.18 p.m. | Legal Research

On 24 June 2021, the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 (Cth) (‘the Bill’) was introduced to the House of Representatives by Assistant Treasurer Michael Sukkar ('the Assistant Treasurer').

The Bill was subsequently referred to the Senate Economics Legislation Committee ('the Committee'). The Committee is due to publish its report on 28 July 2021. The Bill has yet to pass the lower house. 

Purpose of the Bill

The Bill seeks to implement recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
('the Hayne Royal Commission').

In his second reading speech, the Assistant Treasurer, stated:

“The royal commission highlighted that the financial advice industry lacked an effective system of professional discipline, as a result of there being too many different pathways for consumer complaints and ineffective sanctions to deal with misconduct appropriately. In addition, while sanctions are available to ASIC, the lack of less serious sanctions means that ASIC generally only focuses on the most serious incidents.”

Expanding Role of Financial Services and Credit Panel

The Bill seeks to implement Recommendation 2.10 of the Hayne Royal Commission, which recommended the establishment of a single disciplinary body for relevant providers of financial advice services, by expanding the role of the Financial Services Credit Panel (‘the Panel’) within ASIC.

If passed, the Bill's amendments contain:

  • eligibility requirements for Panel membership;
  • the processes for appointment, meeting, decision-making, voting and hearing; and
  • requirements regarding declaration of conflicts of interest, information disclosure and electronic communication.

The Bill also seeks to introduce new offences, if individuals hinder the functions of the Panel, including non-compliance with certain requirements. These offences relate to:

  • contempt through obstruction of the functions of the Panel or by disrupting a hearing;
  • giving evidence to the Panel that is false or misleading;
  • failure to comply with requirements, such as, failing to comply with a summons, failing to take an oath or make an affirmation where it is required, failing to answer a question or produce a document;
  • unauthorised presence at a hearing; or
  • publication of restricted material.

If assented, the Bill would also allow the Panel to accept written enforceable undertakings and provide the Panel with the power to vary, withdraw and enforce an undertaking.

New Penalties and Sanctions for Financial Advisers

The Bill's amendments also propose additional powers to the Panel if a financial adviser contravenes a restricted penalty provision. According to the Explanatory Memorandum, the amendments would allow the Panel to issue an infringement notice, take other administrative action, or recommend ASIC seek a civil penalty if a financial adviser fails to comply with:

  • "education and training standards; 
  • additional education and training standard  for the provision of tax (financial) advice services – if the person provides tax (financial) advice services; 
  • the Code of Ethics; 
  • the obligations of a provisional financial adviser, or the supervisor of a provisional financial adviser; and/or
  • the requirement to be registered to provide financial advice."

Introducing a Registration System for Financial Advisers

The Bill also proposes the introduction of a single registration and disciplinary system for financial advisers, following Recommendation 7.1 of the Hayne Royal Commission. The system would be under the Corporations Act 2001 (Cth), and would apply to financial advisers providing tax advice services.

The Bill proposes a two-stage registration process. The Bill's Explanatory Memorandum summarises:

"Stage 1 registration ([to commence] no later than 1 January 2023) – financial services licensees are required to apply to ASIC to register their financial advisers.
Stage 2 registration ([to commence] by proclamation) – financial advisers are required to apply to the Registrar to register themselves annually. "

Stage 1 would involve a one-off registration to be administered by ASIC. Stage 2 is intended to coincide with the delivery of the new Australian Business Registry Service which is to be administered by the Australian Taxation Office. The Bill seeks to provide for enough time for individuals to apply to the Registar themselves and would allow individuals to annually renew their registration.

Streamlining Regulation of Financial Advisers

Finally, the Bill also seeks to wind up the Financial Adviser Standards and Ethics Authority (‘the FASEA’) on 1 January 2022. Its functions are proposed to be transferred to ASIC and the Minister responsible for the administration of the Corporations Act 2001 (Cth).

According to the Explanatory Memorandum, the FASEA’s functions are to be divided as follows:

"The Minister will be responsible for making education and training standards for financial advisers, including approving principles for the financial adviser exam, and a Code of Ethics. The Minister will also be responsible for approving foreign qualifications.

ASIC will be responsible for administering the financial adviser examination in accordance with the principles approved by the Minister."

In his second reading speech, the Assistant Treasurer stated:

"These reforms will further streamline the number of bodies involved in the oversight of financial advisers, resulting in continuous improvements to the regulatory framework for the financial advice sector and enhanced access for Australians to affordable and quality financial advice."

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Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021 (Cth) and explanatory materials available on TimeBase’s LawOne service

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