The federal government has cancelled plans to allow financial planning and advice associations to act as code monitoring bodies in its new code of ethics enforcement regime and instead will create its own industry-wide disciplinary body for this purpose.
Treasurer Josh Frydenberg and Assistant Minister for Superannuation, Financial Services and Financial Technology Senator Jane Hume made the announcement in a joint-statement released to media late last week.
The statement noted the government would establish a new disciplinary system for financial advisers, including the single disciplinary body, as recommended by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The new body is due to be in operation by early 2021 but is subject to the passage of legislation which will be introduced into the parliament next year.
The move effectively ends any further efforts by financial advice sector to be involved with the enforcement of an industry wide code of ethics that has been created by the Financial Adviser Standards and Ethics Authority (FASEA), with the government acknowledging the work done by the associations.
“A long term sustainable solution based on Commissioner Hayne’s recommendations will replace the role of code monitoring bodies which were due to be established by industry associations under professional standards reforms.”
“The government thanks the professional associations and acknowledges the considerable amount of time and resources that have been undertaken towards implementing code monitoring by the end of this year.”
“Treasury will immediately begin engaging with these associations, consumer representatives and other stakeholders to consult on the new system.”
Despite the shift in direction, the FASEA Code of Ethics will still become effective from 1 January 2020 and advisers will be required to meets it standards while licensees will be required to ensure their representatives comply with the code.
Following the government’s announcement, the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) told their members Code Monitoring Australia (CMA), a joint effort between six industry bodies to create a code monitoring solution across the advice sector, had withdrawn its application to be a nation-wide monitoring and enforcement scheme for financial advisers.
A statement from the FPA noted “the heads of Australia’s six leading professional associations for financial advisers have expressed disappointment in the timing of the government’s decision today to not proceed with code monitoring, just a month before all financial advisers are due to have registered. The associations have urged the government to work with them on a new disciplinary system for financial advisers.”
“Today’s announcement by the government makes it unreasonable for us to proceed with CMA. We need to avoid adding complexity, further duplication and cost to the regulation of financial advice.”
The AFA added in the absence of any code monitoring body, which was due to start its work from the start of 2020, it was seeking to understand what interim measures would be put in place and how the FASEA Code of Ethics would apply.
“The AFA continues to have concerns about the current wording of the FASEA Code of Ethics as it stands, and has voiced those concerns to both FASEA and the government. We are expecting further guidance from FASEA in this regard.”