ASIC’s case against the Commonwealth Bank is a signal to small and medium AFSLs that the regulator will soon be coming after them for historical breaches of remuneration laws, an industry body has said.
In a blog post published on Tuesday, Profession of Independent Financial Advisers president Daniel Brammall said the regulator’s case against the Commonwealth Bank, which alleged breaches of remuneration law through funds paid to the bank for selling Colonial First State super products through its retail branches, would be “the first of many” cases in coming years.
“Make no mistake, once the regulator has shot down these larger targets, the regulator will be focusing its crosshairs on smaller AFSLs and how they are dealing with the conflicts of interest prohibited under [FASEA] Standard 3,” Mr Brammall said.
He added that small and medium AFSLs had put themselves at risk in recent years by outsourcing their compliance functions to external consultants with questionable views around the application of conflicted remuneration rules.
“These consultants are taking the view that there’s no conflict in insurance commissions anymore because all insurers pay the same percentage,” Mr Brammall said.
“The insurers don’t all charge the same premiums, though, and this is a consideration that needs to be flagged very clearly in the advice – why this particular insurer was chosen when cheaper premiums exist.”
Mr Brammall said such licensees were in even more danger given that the FASEA standards had been added to the list of potential breaches for the regulator to investigate, and that these could be enforced retrospectively.
“The ASIC action against CBA dates back seven years – when the regulator and the yet-to-be-formed independent disciplinary body run out of targets, they will be looking back at the breach registers of a good cross section of small and mid-size AFSLs and asking where are the Standard 3 entries,” he said.
“Be assured, they’ll be letting the courts test a few of these cases.”
He added that recent comments from FASEA board director and Ethics Centre head Simon Longstaff indicated that FASEA standards were “just as legally actionable” as corporations law.
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