FSC says wider scope of conflicts guidance ‘creates further uncertainty’

Responding to the Australian Securities and Investments Commission’s (ASIC) consultation on Regulatory Guide 181 Licensing: Managing conflicts of interest, which has sat unaltered for two decades, the Financial Services Council (FSC) said it was supporting of the updates “in principle”.

“However, it should be noted that in widening the explicit scope of the RG, this creates further uncertainty, for which further guidance is required,” the submission said.

The FSC acknowledged that in some areas this has been provided, but others still require “further clarity”.

One of these areas requiring greater clarity is around documentation, it said, arguing that it is currently unclear what the regulator’s expectations are “specifically in relation to what artefacts should be produced and if ASIC expects that one artefact is to be produced that covers all expectations”.

“Typically, organisations will have multiple documents that may cover various matters including Insider Trading Policies, Compliance Plans, Gift and Entertainment Policies, and a general Code of Ethics/Conduct,” the FSC said.

“Furthermore, the FSC notes that requiring the same level of documentation for all conflicts regardless of materiality creates unnecessary compliance burden. Clear materiality thresholds would enable organisations to apply proportionate documentation based on the significance and risk of specific conflicts.”

Similarly, the industry body argued that the regulator taking a singular approach to supervision regardless of organisational structures is not fit for purpose.

“The proposed Table 2 framework requires comprehensive monitoring at every stage without acknowledging the practical challenges this presents across diverse business models,” the FSC said.

“The one-size-fits-all approach to supervision fails to recognise that different supervision approaches are necessary and appropriate for different business models – from directly employed advisers to self-employed authorised representatives, from institutional trading desks to small advice practices.

“ASIC should provide explicitly scaled supervision requirements that recognise diverse business models.”

According to the FSC, this should include different supervision standards for employed versus self-employed representatives, risk-based supervision approaches that allow licensees to allocate resources based on assessed risk, utilisation of technology-enabled supervision, and flexibility in how outcomes are achieved rather than prescriptive methods.

Much of the concern from other industry groups, most notably the Financial Advice Association Australia (FAAA) and the Stockbrokers and Investment Advisers Association (SIAA), was around the discrepancy between the Financial Planners and Advisers Code of Ethics 2019 and the Corporations Act concerning the management of conflicts of interest.

“Standard 3 of the Code of Ethics requires advisers to avoid advising, referring or acting for a client where there is a conflict of interest or duty. This makes the code impossible to comply with in practice,” SIAA argued.

The FAAA’s Phil Anderson said that while advisers are legally required to prioritise clients’ interests when conflicts arise under the Corporations Act and the code of ethics, the code’s current rules, in place since 2020, are widely seen as impractical, and a promised 2023 review has not yet occurred.

Similarly, the FSC said the proposed guidance remains “at odds” Code of Ethics and the Corporations Act.

“Standard 3 of the Code of Ethics requires that advisers avoid all conflicts of interest while the ASIC guidance talks of managing conflicts,” it said.

“Avoiding all conflicts of interest is an unworkable expectation and the FSC supports the Code of Ethics being similarly reviewed to be more suitable.”