The Australian financial services (AFS) licensing model should be redesigned to recognise the different scale and operations of financial advice businesses and introduce practice certificates for practitioners to ensure they are maintaining professional standards, according to the Financial Services Council (FSC).
The industry body made the call for change in a green paper released today, “The Value and Future of Advice Licensing: FSC Green Paper on the Advice Licensing Framework”, which it stated was designed to start a “broad, forward-looking conversation about how the licensing regime needs to adapt to meet today’s challenges”.
FSC chief executive Blake Briggs noted while a series of reforms had shifted financial advice into being seen as a profession, the AFS licensing framework had not been substantially reviewed in nearly 25 years and was no longer suited to the scale, structure or regulatory complexity of the current industry.
The paper recognised this shift, stating: “While these reforms aim to support the future of the industry, licensing remains a critical yet overlooked pillar of financial advice regulation. While adviser numbers have declined, more than 450 micro-licensees (AFS licence holders with less than 10 advisers) have been approved since 2020.
“This evolution … has caused a reallocation of risk in the financial advice industry and there is shifting responsibility for how compliance obligations are executed across the system.
“In parallel, changes to the regulatory and risk environment, such as the introduction of the Compensation Scheme of Last Resort, varied levels of capital and professional indemnity insurance coverage and industry fragmentation outpacing regulatory resourcing, have exposed systemic vulnerabilities and raised important questions about whether risk is being appropriately allocated.”
In recommending reform, the council proposed the introduction of a licensing regime that considers the diversity of advice firms in the market where obligations are based on the size, risk profile and service scope of the entity.
Additionally, it indicated consultation should take place around the feasibility of a practising certificate model for financial advisers that would show their compliance with registration, continuing professional development and ethical standards.
“By making advisers more accountable for maintaining their professional standing, this would encourage greater ownership of their actions and ensure that advisers are not only fulfilling regulatory requirements but also meeting the ongoing expectations of their profession,” the paper stated.
This certificate would be accompanied by an adviser skills and performance registry, maintained by the Australian Securities and Investments Commission and accessible to clients, licensees and regulators, that would record the qualifications, track record and historical issues with performance or conduct of advisers, responsible managers and responsible persons.
“This system could help prevent the phenomenon of ‘phoenixing’, where individuals with compliance failings leave a licensee and go on to re-establish themselves under a self-licensed or smaller licensed entity,” the paper pointed out.
