Compliance
Bans Show Australia's Financial Watchdog Is Baring Its Teeth
Australia's financial regulator tells this publication about the extent of its commitment to raise standards as bans on miscreant advisors mount.
A sequence of bans on Australian financial advisors underscores how the country’s main regulator is cracking the whip to remove not just a few “bad apples” but also tackle systemic problems caused by conflicts of interest and incompetence, it has told this publication.
Earlier this week, for example, WealthBriefingAsia reported on how the Australian Securities and Investments Commission had banned for life a former advisor for recommending investments to clients without checking if they were suitable. (See that story here.) ASIC has also punished advisors for offences such as fraud, creating a fake family office, forging documents, forging client signatures, and other actions.
Other regulators in the Asia region, and in other parts of the world, have been cracking down on miscreants, a process that has accelerated since the 2008 market mayhem that emboldened policymakers to tighten compliance rules. The enforcement actions page on the website of the Monetary Authority of Singapore, for example, shows a number of punishments for malefactors.
“Our concerns are not limited to a few ‘bad apples’ in the industry, or even a few bad firms. Instead, they reflect broad systemic problems within the financial advice industry, driven by ownership and remuneration conflicts of interest and low levels of competence, compounded by weaknesses in the regulatory system,” ASIC said.
Australia’s raft of actions against advisors seem to be a particularly marked trend. ASIC says it has told policymakers of how, over the past 15 years, it has identified “broad and sustained problems in the quality of retail financial advice arising from embedded conflicts of interest and low levels of competence, compounded by weaknesses in the regulatory system.”
Over this time, ASIC has sought to take a strategic approach to addressing these problems, using existing regulatory tools as well as discussing issues publicly and calling for reform. "The Future of Financial Advice (FOFA) reforms (most of which came into effect on 1 July 2013) are designed to address some of these problems, and to improve the quality of financial advice,” the organisation said in an emailed statement.
The stakes are large because Australia, which has compulsory savings for retirement, is like all countries facing the risk of a shortfall of savings because of an ageing population. This heightens the need for professional, honest and impartial advice. Persons aged 65 and over in Australia are projected by ASIC to rise by 22 per cent by 2055 from 2015 (source: ASIC Corporate Plan 2015-16 to 2017-18).
The government
has legislated for a Financial Adviser Register, which ASIC
oversees, and this began operation in March last
year.
As at 30 June 2015, ASIC’s new advisor register showed there
were around 22,500 such persons.
“ASIC would like to be given powers to ban managers and executives from financial advice firms. The FSI has recommended this and other reforms to the financial advice sector,” it continued.
In one of its most prominent moves, in October 2014 the regulator launched its Wealth Management Project, designed to raise standards by major financial advice providers. It focuses on the largest financial advice firms: NAB, Westpac, CBA, ANZ, AMP and Macquarie.
Under the project, ASIC has banned 12 advisors from the sector; the programme of enforcement and surveillance continues, it says.