Brokers

ASIC wants brokers to avoid pitfalls of overly complex advice laws

“I know the legislation is complex and very proscriptive,” he said. “Where we are now is navigating a level of complexity and proscription that most of us are surprised we have to deal with,” he said.

“ASIC will do what we can – what is in our power to do – to make the legislation more workable and allow people to go about their lawful business in the way they should be able to.”

Overburdensome financial advice regulation has triggered an exodus of advisers from the industry and opened an “advice gap” whereby the industry cannot afford to service regular consumers. The challenge has been worsened by the High Court’s suggestion that less onerous “general” advice should be presumed to be “personal”.

The SIAA wants brokers to be able to offer “scaled” advice and “general” advice, which do not require the same level of diligence or paperwork as offering personal advice.

ASIC chairman Joe Longo said the ASX CHESS delay was necessary to ensure that everyone had time to prepare for a project that would ultimately lift the efficiency of the market. Eamon Gallagher

SIAA chief executive Judith Fox grilled Mr Longo on recent ASIC audits of broking firms, suggesting they showed expectations for advisers to undertake a “full fact find” on clients, which conflicts with the idea of providing “scaled advice”.

She said the association was concerned that without general advice, Australians would instead get advice from “finfluencers”, which ASIC has cracked down on. “We think it is important investors can receive good quality general advice given personal advice is increasingly unaffordable,” she said.

Mr Longo said the level of due diligence to meet legal obligations “is a matter for professional judgment. I know the legislation is complex and is very proscriptive. I think limited and scaled advice can work, but it requires skills and judgment to take advantage of that approach … There is no formula that will always answer the question.”

He added that ASIC is “committed to work with industry, to make sure there is a good understanding how [the law] works, and hopefully an understanding that is commercial and allows financial advisers to run businesses in a commercial way”.

“In an environment where personal advice is expensive … general advice assumes a bigger role. But in the end, investors and consumers need to do their bit to be well-informed before they make investments,” he added.

“I would like to think ASIC is a reasonable, sensible, regulator … We will do what we can to reasonably implement the legislation, and you will have to judge us on what we do.”

DDO crackdown

ASIC has also put the financial services industry on notice that it will take legal actions when determinations of product fit for customers do not meet the design and distribution obligations that came into force last October.

“We have had a mixed standard of compliance for target market determinations for example. There is room for improvement,” Mr Longo said.

“The approach we are likely to take in the coming months is probably a more intense approach….we are now looking for compliance. Clearly, we are still in the business of being reasonably responsive to what people are grappling with, but we are now at a point people should be complying with this regime and if we find examples of material non-compliance we will be taking action.”

With credit licensees reporting they are too overwhelmed with post-Hayne duties to report all legal breaches to ASIC, Mr Longo said additional guidance would be released to the market soon given “there are some teething issues administering that legislation”. He added it would “take a couple of years for the regime to deliver the full benefits” and ASIC would be “reasonably cautious” in how it interpreted data this year. He said brokers should call ASIC directly if something significant goes wrong and not wait for the formal notification process in the legislation, a message he has already provided to banks.

And after ASX earlier this month confirmed a delay to the start date for CHESS, Mr Longo said he “certainly has confidence in the project going ahead” and ASX was now “engaging intensively” with market participants.

“The thing I worry about most is we don’t prematurely start a CHESS upgrade when everybody is not ready,” he said.

“We don’t know yet when the ‘go live’ will be, but from my perspective, we are satisfied with the governance arrangements at ASX, and our fundamental position is we don’t want to see the ‘go live’ accelerated prematurely to create an unnecessary risk.”

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