Code monitoring body could face 18-month delay

A recent blog post by The Fold Legal said despite the government’s stated intention to establish a single adviser disciplinary body in early 2021, the firm anticipated that “this will be delayed until mid-2021 at the earliest”.

The Fold director Simon Carrodus told ifa that as the firm did not expect legislation to establish the body to “contain the answers” as to how it would function, the body may not be up and running to monitor code breaches until later in 2021.

“Unfortunately because the government hasn’t announced the specifics of the disciplinary body, it’s not clear how this will operate. At the moment, we think that the legislation will be the first step, however we also think that it probably won’t contain the answers itself,” Mr Carrodus said. 

“We think it’s more likely that the legislation will grant powers to ASIC to address these issues by issuing subsidiary instruments. At the moment we anticipate that the disciplinary body will be in operation by mid- to late-2021.”

With the corporate regulator having made clear it would not actively monitor breaches of the code, this meant responsibility for disciplining advisers who fell foul of FASEA standards could be deferred for more than a year.

“Currently there is no obligation to report breaches of the code. Licensees have the responsibility for ensuring their advisers comply with the code, and of course any failure to comply with the code – which forms part of the financial services legislation – may be a reportable breach to ASIC, where the breach is significant,” Mr Carrodus said. 

“However, ASIC has also stated that they are not responsible for monitoring compliance with the code, so breaches should only be reported where they are significant or where the breaches are a component of another, more serious breach. 

“Frankly speaking, where a breach is that significant we anticipate that the licensee in question will generally have bigger compliance fish to fry.”

With the government also expected to delay the passage of compulsory reference-checking legislation until mid-2021, this left a significant loophole for ‘bad apple’ advisers to remain in the industry. However, Mr Carrodus said ASIC’s more aggressive stance around penalties meant licensees were self-regulating more rigorously than in previous years.

“It’s our experience that the majority of licensees have adopted the ABA reference checking protocol, so we don’t think there’s much scope for rogue adviser[s] to operate,” he said.

“We also note that in the wake of the royal commission and with ASIC’s new ‘why not litigate’ approach, licensees will have a lot of incentive to make sure their representatives are compliant.”