Time to examine ‘overlooked’ advice licensing framework: FSC

Australia’s financial advice licensing framework is long overdue for an examination, according to the Financial Services Council (FSC), which has put forward a number of proposals to reform the system in a new green paper.

The Value and Future of Advice Licensing, which the FSC said was informed by CoreData research, aims to kick off a “broad, forward-looking conversation about how the licensing regime needs to adapt to meet today’s challenges”.

The driving force of the paper is what the FSC described as a “growing concern that risks in the system are no longer appropriately accounted for or borne fairly amongst the varied industry participants”.

“A series of reforms have helped financial advice mature into a true profession. But the licensing framework that underpins it has not had a holistic review since its inception almost 25 years ago,” said FSC chief executive Blake Briggs.

“It was never designed for the scale, structure, or regulatory complexity of the industry today.”

The proposals are broken into three categories across what the FSC aims to create:

• A recalibrated licensing regime that responds to firm diversity;
• Balanced accountability between licensees and advisers that empowers individual practitioners; and
• Financial resource and other requirements that adequately protect consumers.

Recalibration

Under the first of these, the FSC envisioned a “simpler and more flexible framework” that would tailor the licensee’s regulatory obligations to its size, complexity, and risk exposure.

“This approach would ensure that the regulatory burden is commensurate with the licensee’s operational scale, the sophistication of its services, and the potential risks to clients and the financial system,” the paper said.

“It should also consider a degree of regulatory relief where there is evidence of established governance structures and robust compliance systems. By refining the AFSL regime in this way, regulators could create a more responsive and efficient system that accounts for the diverse business models operating within the financial advice sector.”

According to the paper, while there are a range licensees are required to meet certain financial requirements and training and development standards, the current regime overlooks other risk factors.

The FSC pointed to the type of products on their approved product lists; the qualifications, experience, and specialisations of their personnel; situations where a licensee operates as a "licensee for hire", providing licensing to third-party advisers with potentially limited oversight or accountability; and the reliance of smaller-scale AFS licensees on third-party service providers, along with carrying a higher client remediation risk.

Alongside the tiered framework, the paper proposed an accreditation framework for third-party compliance service providers, which could require them to meet “defined standards of competency, governance, and accountability”.

The paper explores how industry fragmentation, varied financial requirements and professional indemnity insurance coverage, the introduction of the Compensation Scheme of Last Resort (CSLR), and finite regulator resourcing are combining to increase systemic risk in the financial advice industry. In this context, it is timely to re-examine the licensing framework.

Balancing accountability

According to the FSC, the current framework has created a situation in which licensees bear an outsized share of liability for the advisers they authorise, even in cases of adviser misconduct.

As a result, it said, the financial and operational risks associated with holding an AFSL have increased considerably, “driving up compliance costs and discouraging new entrants”.

“As a result, licensees can face disproportionate exposure to financial and reputational harm due to the actions of individual advisers,” the paper said.

“This dynamic can dilute personal accountability and create misaligned incentives, where advisers may rely on their licensee’s oversight rather than proactively managing their own professional obligations.”

The government could, the FSC added, explore reforms to shift liability and responsibility closer to individual practitioners in line with other professions.

“This could include a greater role for professional associations in accreditation, alongside an enhanced adviser registry,” it said.

Part of this could be a practicing certificate model, which would require advisers to obtain a practicing certificate confirming their compliance with registration, continuing professional development (CPD), and ethical standards.

“By making advisers more accountable for maintaining their professional standing, this could encourage greater ownership of their actions and ensure that advisers are not only fulfilling regulatory requirements but also meeting the ongoing expectations of their profession,” it said.

While the Delivering Better Financial Outcomes reforms are still mid-stream, Briggs argued it is the right time to take the “next step”.

“With the Government’s advice reforms already well advanced, the next step is ensuring the licensing framework continues to support a professional, sustainable and trusted industry across all business sizes,” Briggs said.

Following industry and public feedback, which is open until 21 November, the FSC said it will deliver a White Paper on the Future of Advice Licensing in early 2026.