Why seven is a key number in advice remedation
Seven represents a key number within the Australian Securities and Investments Commission's (ASIC's) latest regulatory guide on client review and remediation conducted by advice licensees, with the regulator stating it would not normally expect reviews to extend back more than seven years.
The new regulatory guide, RG256 has laid out a clear framework for licensees and provided examples of how they should handle client reviews and remediation in the event that they detect breaches within their organisations, and follows on from the major advice and remediation project carried out with Commonwealth Financial Planning.
However, seven has emerged as a key number in the exercise, with the ASIC regulatory guide stating that where time-frames are concerned for review and remediation, licensees would need to consider the time-frames in which the "relevant misconduct or other compliance failure may have occurred and the length of time that clients have potentially been affected".
However it then goes on to state that ASIC "will not generally expect you to review advice given to clients more than seven years before you became aware of the misconduct or other compliance failure".
It said this was consistent with the requirement for AFS licensees to keep certain records in relation to the provision of financial product advice for at least seven years, but then went on to caution that, "in certain circumstances — such as where the client has held the product about which advice was given for a long period of time — it may be appropriate to review records going back further than the minimum seven years".
"We expect that you will act in a way that gives priority to the interests of your clients when deciding how far back to review advice given to clients," the regulatory guide said.
The ASIC document also makes clear to licensees the need to consult closely with their professional indemnity insurance providers when dealing with advice review and remediaton, warning that cover might be lost if such consultation does not occur.
As well, it warned licensees that they "cannot merely rely on inviting clients to express an interest in having their advice reviewed — that is, clients should generally not be expected to ‘opt in' to review and remediation".
"We expect you to take reasonable steps to determine the group of clients that may have suffered loss or detriment as a result of the potential misconduct or other compliance failure. Inviting clients to participate in the review and remediation should only be necessary in limited circumstances," it said.
Recommended for you
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
Compliance professionals working in financial services are facing burnout risk as higher workloads, coupled with the ever-changing regulation, place notable strain on staff.
