The government has agreed to all but one of the 44 recommendations contained in the Financial System Inquiry (FSI) report, and outlined plans to introduce legislation to make the issuers and distributors of financial products more accountable and increase professional standards for financial advisers.
The response, issued jointly by Treasurer Scott Morrison and Assistant Treasurer Kelly O'Dwyer, said the government would introduce legislation by mid-2016 designed to lift adviser "standards".
The legislative amendments to raise standards would require advisers to hold a degree, pass an examination, undertake continuous professional development, subscribe to a code of ethics and undertake a professional year.
The government will consult on appropriate transitional arrangements for existing advisers.
"We will do more to lift the standards of financial advisers, including by placing this activity on a professional footing for the first time," the response said.
The government has also agreed to develop amendments to ensure that financial advisers adequately disclose their relationships with associated entities. Further, it agrees to rename "general advice" in order to improve consumer understanding.
"We will consult with a wide range of stakeholders and conduct consumer testing before finalising the new term," the report said.
At the same time, the government said it would consult on the development of accountabilities for issuers and distributors of financial products and ASIC's product intervention power.
"While consumers are responsible for the consequences of their financial decisions, they should be treated fairly. The financial services and products they purchase should perform in the way they are led to expect," the response said.
"Recent history provides a number of examples of product and advice failures. While the circumstances of each case differ, problems have arisen when commercial incentives have overridden consumer interests.
"Following extensive stakeholder consultation, we will introduce legislation to make the issuers and distributors of financial products accountable for their offerings," the statement said.
The response details plans for a "principles-based" product design and distribution obligation, which is not aimed at being prescriptive.
"We will consult with stakeholders on the development of a new ASIC product intervention power that could be used to modify products, or if necessary, remove harmful products from the marketplace," the response said.
The government said that by the end of 2016, it would develop legislation to give ASIC the power to ban individuals from managing financial firms, and consult on strengthening ASIC's enforcement tools in relation to the financial services and credit licensing regimes.
However, the government did not agree with the FSI's recommendation to prohibit limited recourse borrowing arrangements by superannuation funds.
"While the government notes that there anecdotal concerns about limited recourse borrowing arrangements, at this time the government does not consider the data sufficient to justify significant policy intervention," the report said.
"The government will, however, commission the Council of Financial Regulators and the Australian Taxation Office (ATO) to monitor leverage and risk in the superannuation system and report back to Government after three years."
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