FAAA wants ‘meaningful action’ from regulatory simplification program

Early in September, the Australian Securities and Investments Commission (ASIC) released Report 813 on regulatory simplification for consultation, with chair Joe Longo saying that ASIC is “focused on reducing regulatory burden while maintaining consumer protections”.

“Simplification supports effective regulation and a well-functioning economy,” Longo wrote in the foreword for the report.

“ASIC is committed to simplifying how we regulate entities and individuals, including by making it easier to find and understand information, interact with us and comply with regulations.”

In its submission to the regulator’s consultation, the Financial Advice Association Australia (FAAA) said it welcomed the focus on a simplifying the regulatory framework, however noted that it comes at a time of “heightened sensitivity for the financial advice profession”.

“The time and monetary cost of compliance for financial advice firms has never been greater – ASIC’s services contribute to the time/effort cost, and its levies are part of the monetary cost,” the FAAA said in its submission.

“Furthermore, the profession is potentially facing increased costs as a consequence of the levy structure to fund the Compensation Scheme of Last Resort.

“Regulatory simplification developments must, therefore, deliver identifiable benefits in a commercially viable (cost/benefit-wise) manner to the community that ASIC seeks to serve, and that funds its operations. Some of the feedback the FAAA has received suggests that this is not the case for the recent website improvement.”

According to the association, there has also been a disproportionate level of punishment for relatively minor breaches.

“More disturbingly, certain participants in the financial advice profession have been subjected to ASIC’s heavy pecuniary penalties for foreseeable administrative mistakes, heavy penalties which on the face of it appear disproportionate to the mischief underlying the regulatory breach, and levied against licensees which strive to be compliant in every aspect of their operations,” the FAAA said.

Rather than focusing on these areas, particularly in light of the recent collapses of large managed investment schemes like the Shield and First Guardian funds, there should be a spotlight on “regulatory oversight and early intervention”.

“Whilst law reform and other changes are likely to be necessary to address a number of gaps that have been identified, the existing law does enable appropriate enforcement to a significant extent,” the FAAA said.

“It is our view that the regulatory regime should place more focus on early intervention to avoid major issues and less focus on interfering with the efficient operation of well-intentioned businesses.

“It is important that strong regulatory enforcement action is taken with respect to these matters to provide a clear message to strongly discourage similar conduct in the future.”

Another recommendation from the FAAA based on member feedback was that ASIC guidance be drafted with financial advisers as the intended audience.

“This guidance should be principles-based, with examples and templates to support concepts. Our membership would also like ASIC to provide more educational services about its guidance, be more open to industry feedback and increase engagement generally,” it said.

“Whilst the FAAA sees some merit in ASIC embarking on a program to consolidate regulatory guidance into a single source of truth, either on a topic or sector basis (or both), most practitioners use external search engines to find answers to regulatory questions.

“So, we see greater merit in improving the ASIC website search function, relieving users from the inconvenience of exiting to use external search functions.”

Importantly, the FAAA added, the result of the consultation must result in “meaningful action”, which it argued has not always been the case.

“In November 2020, ASIC released Consultation Paper 332 on Promoting access to affordable advice for consumers,” the submission said.

“In total 466 submissions were received from financial advisers, licensees, associations and other relevant stakeholders in response to this consultation. To the best of our understanding, very little reform occurred as a result of this consultation.

“Whilst some of the ideas were passed on to the Quality of Advice Review, it seems to those who did so much work on CP 332, that very little actually happened. It is essential that meaningful change flows from this consultation.”