Professional judgement, not prescriptive rules: FAAA

The industry body has argued against “prescriptive record keeping obligations” in favour of advisers using their professional judgement.

According to the Financial Advice Association Australia (FAAA), there needs to be “greater regulatory capacity for financial advisers to rely upon their professional judgement”, rather than prescriptive rules.

In August, ASIC announced a consultation on the proposed extension of three legislative instruments for a further five years, including Class Order [CO 14/923] Record-keeping obligations for Australian financial services licensees when giving personal advice.

The class order modifies the Corporations Act to insert a new section 912G that imposes “specific record-keeping requirements when AFS licensees or their representatives (including advice providers) give personal advice to retail clients”.

Responding to the consultation, the FAAA said the obligations are contributing to higher costs for advice.

“The obligations in Class Order 14/923 generate a high amount of activity and effort to comply with, particularly as they relate to 912G(2)(a) and 912G(2)(b). Compliance with these obligations has caused a significant increase in the cost of providing financial advice,” it said.

The association further argued that, given the class order is currently 10 years old, there have been changes within the Corporations Act that impact the usefulness of its provisions, adding that the expected removal of the safe harbour steps in the next tranche of DBFO reforms would also “significantly impact the relevance of this class order”.

There are also areas within CO 14/923 that are either confusing or not fit for purpose, the FAAA said, such as the retention of records obligation continuing to apply even if a financial services licensee ceases to operate.

“While professional judgement and the code of ethics should be the focus, the pending consultation on the government’s Tranche 2 DBFO reforms offers an opportunity to build certain provisions of the class order into obligations in the primary legislation,” the submission said.

“We encourage ASIC to advocate for the appropriate obligations within this class order to be subject to a thorough consultation process as part of the DBFO reform agenda. Any necessary and appropriate provisions should be incorporated into the Corporations Act.

“We suggest Class Order [CO 14/923] Record-keeping obligations for Australian financial services licensees when giving personal advice, in its current form, is not a useful part of the legislative framework and should not be extended, other than as a short-term measure in a modified and simplified form.”

ASIC also consulted on Corporations and Credit (Breach Reporting—Reportable Situations) Instrument 2021/716, which modifies the Corporations Act to exclude “certain forms of non-compliance from being deemed ‘significant’ breaches of core obligations”, about which AFS licensees and credit licensees must lodge breach reports under the Corporations Act.

It extends the period in which AFS licensees and credit licensees may report certain breaches that relate to an earlier reported breach.

According to the FAAA, the current breach reporting regime is “excessively broad and is capturing matters that are not worthy of being self-reported to ASIC or consuming ASIC’s focus and time”.

However, the FAAA is supportive of the provision to exclude trivial misleading and deceptive conduct, while also noting that the extended period to report a subsequent matter is “appropriate”.