Calls for principles-based regulation framework must ‘not be a knee-jerk reaction’

Synchron’s general manager of compliance, Phil Osborne, said the proposal by financial services minister Jane Hume should be “considered carefully and not be a knee-jerk reaction for popular support”.

“While principles-based regulation is the ideal destination for how we should be allowed to operate as an industry, we should regard this as a destination that will be arrived at after a bit more of a journey," he said.

“We need to think of this in terms of the application – whose principles will be applied? Will we be allowing advisers to use their professional judgement and be guided by ethical standards, as has been promoted since the introduction of the Code of Ethics?

“If so, what happens when the regulator disagrees with the advice provided? Do we then have to discount the principles under which advice was actually given?”

Mr Osborne said what also should also be considered is the way in which the industry has “fumbled” the opportunity to apply principles-based regulation through the Code of Ethics in January 2020.

“The fact that it took the industry two years to understand that a concern for conflict of interest didn’t actually mean referral payments were banned under Standard 3 doesn’t bode well for how regulation on a principles-basis would actually be applied," he said.

Mr Osborne said that before seeking a change it must assess the current legislation in place now, which he believes is “not that prescriptive or onerous”.

He added that being able to interpret what is there now will assist in understanding what is needed from principles-based regulation.

“Let’s get used to working with the Code of Ethics in conjunction with the spirit of the current legislation before we go changing anything,” he said.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.