A timely compliance reminder

Bill Fuggle
— 1 minute read

Recent ASIC action serves as a timely reminder to financial service providers of the importance of compliance, writes Baker McKenzie’s Bill Fuggle.

ASIC, AFSL, Bill Fuggle, Ian Yau, Baker & McKenzie, financial services law, finance regulation,

The Australian Securities and Investments Commission (ASIC) continues to demonstrate a willingness to "crack down" on financial service providers who fail to comply with their legal regulatory obligations by cancelling or suspending the Australian Financial Services Licences (AFSLs) of those who are non-compliant.

In 2016, ASIC cancelled the AFSL granted to IMS FX Services Pty Limited for not complying with disclosure and notification obligations. This decision was later upheld by the Administrative Appeals Tribunal. 

ASIC also suspended Group Underwriters & Managers Pty Limited's AFSL and cancelled Core Insurance's AFSL for reporting breaches.

ASIC Deputy Chair Peter Kell has affirmed that "ASIC won't hesitate to act against licensees who do not meet these important requirements”.

As financial advisers require AFSLs in order to provide their services to retail clients, Mr Kell's comment on recent ASIC actions serve as timely reminders to financial advisers of the importance of ensuring compliance with all obligations under their AFSL and Australia's financial services regulatory framework. 

Notwithstanding the smorgasbord of obligations imposed on AFSL holders (licensees) by Chapter 7 of the Corporations Act 2001, we take a look at some of the key compliance obligations specific to advisers that you should be focusing on and suggest some easy steps towards fulfilling them.

General obligations

As a starting point, financial advisers must ensure that they are compliant with obligations under Chapter 7 of the Corporations Act.

Financial advisers need to consider the following when providing factual information and/or financial advice to clients.

These are all regulatory requirements under the Corporations Act, with particular attention to the general obligations set out in section 912A.  These general obligations include:

  • having adequate arrangements in place to manage conflicts of interests;
  • taking reasonable steps to ensure that representatives comply with financial services laws;
  • having adequate financial, technological and human resources to provide financial services;
  • ensuring all staff are adequately trained and competent;
  • having an adequate dispute resolution system if financial services are provided to retail clients;
  • having adequate risk management systems;
  • above all, doing all things necessary to ensure that the financial services are provided efficiently, honestly and fairly;
  • Common law obligations such as duty of care and your fiduciary duties towards your clients;
  • Any contractual obligations; and
  • Compliance with relevant industry standards and codes.

Financial advisers are reminded that under Division 2 of Part 7.10 of the Corporations Act and the Australian Securities and Investments Commission Act 2001, they are prohibited from, among other things, misleading or deceptive conduct in the provision of financial advice.

Additionally, implied warranties are statutorily imposed into contracts for the provision of financial services.

When providing advice and factual information

Under Australia's regulatory framework, financial advice to retail investors encompasses general and personal advice. General advice does not take into account an individual client's objectives, financial situation or needs.

ASIC's guidance is that if you are licensed to give general advice, you must warn your client that:

  • the advice you give them has been prepared without taking into account their objectives, financial situation or needs. It is good practice to take steps to ensure that your client understands upfront that they are getting general financial advice that is not tailored to their specific circumstance;
  • they should consider the appropriate of your advice based on their own objectives, financial situation or needs before acting on your advice; and
  • if your advice relates to a particular financial product (such as an investment in a particular fund), they should obtain a Product Disclosure Statement, read it and consider its content before making any decisions to invest in the product.

If you are giving personal advice to a retail client, Chapter 7 of the Corporations Act requires you to:

  • act in the best interest of your client (section 961B) by, among other things, identifying and considering their specific objectives, financial situation and needs, and conducting investigations into financial products that might achieve those objectives given your clients circumstances;
  • provide your client with appropriate advice (section 961G);
  • warn your client if your advice is based on incomplete or inaccurate information (section 961H); and
  • prioritise the interest of your client (section 961J).

ASIC's guidance further suggests that a financial adviser needs to clearly communicate the scope of any personal advice to retail clients.

Whether you a providing a full financial plan or focusing your advice on particular areas, you should explain what personal advice is and is not being provided.

Further, you can provide your clients with factual information which the law will not consider as general or personal financial advice.

You do not need to hold an AFSL if you are only providing factual information, however, it is good practice to ensure that your client understands upfront that you are providing factual information where there is a reasonable likelihood of doubt and the information provided is not intended to imply any recommendations or opinions about a financial product.

Financial services disclosure documents

Financial advisers who are licensees or authorised representatives and give personal and/or general advice have the obligation to prepare and provide a Financial Services Guide (FSG) to retail clients. 

This ensures that retail investors are provided with sufficient information to allow them to make an informed decision regarding whether to obtain your financial service. 

An FSG should be provided to your clients as soon as practicable in order to give them enough time to consider, and must be provided before financial advice is provided. The content that a FSG must, at a minimum, cover is set out in ASIC Regulatory Guide 175.128, and licensees need to keep FSGs as per their record-keeping obligations.

Further, if you provide personal advice, you are obliged to provide your client with a Statement of Advice (SOA) confirming the advice you have given them. 

This enables them to read, understand and decide whether to rely on the personal advice you have provided to them. You should provide a SOA to your client at the time you provide the advice or as soon as practicable after you provide the advice. 

ASIC Regulatory Guide 175.151 sets out the minimum requirement in terms of the content that an SOA must cover, however, when drafting a SOA for your client, you should always take into account your duty to act in their best interest, and your other obligations associated with providing personal advice to retail clients.

Steps towards compliance

We have outlined some of the key steps and principles that financial advisers should be aware of in order to ensure compliance with their regulatory obligations. 

This is by no means an exhaustive list and does not cover obligations for other financial service activities (for example, if you also issue securities or financial products). 

Financial advisers, licensees and authorised representatives should seek independent legal advice as obligations may vary depending on the nature and type of the financial advice and financial service you provide to retail clients.

It is important that you identify your regulatory and legal obligations as a financial adviser and implement reasonable measures to ensure compliance. This will not only result in your business providing efficient, honest and fair advice to clients, but will also keep ASIC satisfied.

Bill Fuggle is a partner at Baker McKenzie, and wrote this piece in conjunction with Ian Yau, an associate with the firm.


A timely compliance reminder
ASIC, AFSL, Bill Fuggle, Ian Yau, Baker & McKenzie, financial services law, finance regulation,
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