Responding to ASIC’s conflicts management guidance, the Stockbrokers and Investment Advisers Association (SIAA) argued the draft highlights yet again 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.
It explained that while ASIC’s draft guidance requires conflicts to be managed through avoidance, control and disclosure, Standard 3 of the code makes avoiding any conflict “impossible”.
“Every time an adviser is paid (regardless of form), they are potentially conflicted, so for the code to promulgate that conflicts have to be avoided altogether is clearly unworkable,” SIAA said.
“We reiterate the importance of changes being made to the code to ensure there is consistency between the provisions of the code and this draft guidance,” the association added.
ASIC commenced its consultation last month after announcing the guidance, which had not been updated since 2004, would be getting a revamp.
At the time, the regulator said: “Our approach in draft RG 181 reframes our guidance to align it with parliamentary intent and the operation of the law – that the conflicts management obligation applies to all conflicts of interest, except those that occur entirely outside of a financial services business.”
ASIC stressed that it is “not an expansion of the obligation”, but an update that further clarifies its relevance to both consumer protection and market integrity.
Broadly, the aim of the updated guidance is to set out how Australian Financial Services (AFS) licensees should comply with their conflicts management obligation.
This includes how the law applies, including its scope and interaction with other related obligations, the types of conflicts AFS licensees need to identify and manage to meet their obligation, the need to have robust and tailored arrangements that are adequate to manage conflicts, and how licensees can effectively manage conflicts.
However, in its submission, SIAA challenged several elements of the draft, arguing that some examples and definitions are either misleading or impractical.
It said that an adviser recommending a stock they also hold is not necessarily a conflict, particularly if ownership demonstrates alignment of interests with clients.
“Owning recommended stock aligns the adviser’s interests with those of the client and ensures that the adviser has ‘skin in the game’,” SIAA said.
It further objected to draft guidance suggesting commission-only pay structures should be avoided, stressing that this is a common and legitimate model for stockbrokers.
At the time ASIC released its updated guidance, commissioner Kate O’Rourke said: “These updates support ASIC’s strategic priority to improve transparency and consistency across products and markets and aim to ensure financial markets operate efficiently and fairly.”
ASIC added that the consultation is part of its broader regulatory maintenance work and aligns with its “simplification agenda”.
