Can we control ourselves?
The Financial Planning Association has canvassed the possibility of a professional association regulating the industry alongside ASIC but, as Mike Taylor writes, many will question how such an arrangement would work when confronted by disasters such as Storm, Trio and Westpoint.
What would the Financial Planning Association (FPA) have done with respect to Storm Financial Limited if, as a professional association, it had held some responsibility for regulating the financial planning industry?
Equally, what might the FPA have done with respect to the activities of Westpoint? Or, indeed, the activities of Trio/Astarra?
These are important questions in the context of the proposition contained within the FPA’s submission to the Senate Inquiry into the operations of the Australian Securities and Investments Commission (ASIC).
In that submission, the FPA has canvassed the development of a regulatory model which would see it oversighting the industry in cooperation with ASIC.
The FPA submission introduced this concept in the following fashion:
“It is [also] important to understand the restricted resources of ASIC given its responsibilities in overseeing the regulation of all corporations operating in Australia.
"The FPA believe the need to balance respectively limited resources and regulatory oversight responsibilities has pushed ASIC to operate more as an ‘after-event’ or reactionary regulator with limited operations in proactive oversight or ongoing supervision and monitoring.
“The FPA notes ASIC’s role as the regulator overseeing the Corporations Act extends beyond the financial services sector, to govern all corporations and companies.
"While the FPA’s submission draws on our experience as a professional body in the financial services sector, the issues we articulate and the recommendations we propose offer regulatory enhancements and efficiencies for all industries governed by ASIC, as we believe they will support and re-direct the regulator to focus on its core and most valuable consumer protection role of preventing and prosecuting matters of dishonest and fraudulent conduct.
“The FPA recommends that with a closer two-way working collaboration with professional bodies, ASIC could more effectively discharge its legislative mandate to support investor confidence, freeing up the regulator to enable it to expand its legislative responsibilities into areas currently lacking in regulatory oversight”.
In other words, the FPA is holding up its hand to play a role in regulating the industry drawing on its status as a professional association, in the context of that status allowing it to have a positive influence on the conduct of members of the “profession”.
The submission contains a pyramid which, in its top two segments, has ASIC responsible for both “command regulation with non-discretionary punishment” and “command regulation with discretionary punishment”.
The bottom two segments of the pyramid then contain “enforced self-regulation” and “self-regulation”.
It therefore becomes clear that the FPA has in mind a professional body being responsible, where necessary, for “enforced self-regulation”, while professional planners should be capable of being self-regulatory within the terms of an approved code of conduct.
Talking to its objectives in the submission, the FPA said it believed it was fundamental to recognise, in the regulatory design, “the role professional bodies can play in assisting ASIC to achieve its mandate under the ASIC Act, in order to maximise the capabilities of the system as a whole, to improve overall consumer protection, particularly in relation to the bottom sections of the regulatory pyramid”.
“The FPA believes the regulatory design should be a dynamic interaction between the government-imposed legal requirements, the licensee business imposed rules, and the expectation of professional participants as codified in professional obligations,” it said.
“This model is based on the ‘best practice’ Accountable Governance approaches proposed by O’Brien (2010) and Sanders (2010) and also the Australian government’s Office of Best Practice Regulation Handbook 2007, all of which emphasize the regulatory benefits of the separation of complementary roles between the Regulator, the regulated, and the professional bodies.”
“...in the financial planning profession, individual financial planner behaviour is subject to a series of inter-locking obligations. To encourage improvements in individual planner behaviour, the regulatory design must be effective for all three areas of obligation – regulatory, licensee and professional.
"Without formal recognition and encouragement of adherence to professional obligations, there is a gap in the regulatory design as applied to individual providers of financial services to consumers, and consumer protection becomes reliant on the limitations of regulatory and licensee obligations alone,” the submission said.
Which brings us back to our original question. Assuming the FPA submission resonates with the Senate Committee and somehow finds its way into government legislation, can the financial planning industry adequately regulate itself and deal effectively with its bad apples?
Its ability to do so may ultimately determine whether it is ever regarded as a true profession.
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