Licensing questions need answers

Select committee members considering the Financial Services Legislation Amendment Bill are being urged to provide clarity on entity licensing – in particular, how much risk and liability licensed entities will take on.

Monday, March 5th 2018, 6:00AM

by Susan Edmunds

Submissions were open until February 23 on the bill, which repeals the Financial Advisers Act and adds provisions for advice into the Financial Markets Conduct Act.

One of the most significant changes is that, instead of individually authorised advisers, as under the current rules, the new laws require advisers to work for licensed firms – financial advice providers (FAPs).

Adviser group Share, which has 75 adviser members, said it was likely it would apply to be a FAP with all advisers working under its license.

But that would be confirmed when more retailers were known about the cost and complexity of applying for and maintaining that licence.

In its submission to the select committee, it said there needed to be a clearer understanding of where advice liability would rest - and that providers were not taking on more than was fair.

“An FAP that has appropriately documented policies, procedures and compliance requirements, and that can demonstrate that their financial advisers are aware of, and have been adequately trained in, those policies, procedures and compliance requirements should be protected from aberrant behaviour,” it said.

“In other words, the financial adviser should be clearly liable, and penalised for, any breaches of the standards set by their financial advice provider.”

It's a theme that has been raised by other industry bodies.

Jenny Campbell, former general manager of the PAA,said earlier that it was a worry for most groups.

She said the bigger groups were concerned about the compliance obligations they would accept if they were licensed as financial advice providers for a large number of nominated representatives or advisers. “What’s going to be involved in licensing advisers you don’t see day-to-day? That’s a real concern. What will the concerns be in respect of the liability?"

Chartered Accountants Australia and New Zealand also weighed in, concerned the regime would introduce undue compliance cost and create little benefit.

“Compliance burdens associated with licensing costs, disclosure requirements and other administrative matters will reduce productivity, competition, independence and the delivery of high quality, affordable financial advice to consumers," it said in its submission.

It said uncertainty around costs could cause a contraction in the market which would be anti-competitive and not in the public interest.

Share also said that those issued a transitional licence should be determined to be reasonably capable of providing those services under the new regime. Transitional licenses will apply for two years until the full regime takes effect.

“Applicants should at least be required to prove that they have the policies, procedures and standards in place to ensure that their financial advisers can provide a reasonable quality of advice.

"Otherwise you are just delaying the benefits of the new regime for another two years. We understand that the FMA may not have the resources to approve and issue full licences at the beginning of the transitional period, but the transitional licencing process should have a sufficient level of rigour that ensure that we don’t end up with a whole lot of advisers applying for a transitional licence, with no intent to move onto a full licence and thus just delaying their inevitable exit from the industry for another two years."

Tags: accountants financial advisers Financial Services Legislation Amendment Bill