The Financial Planning Association of Australia The Financial Planning Association of Australia

FPA submission supports strengthening penalties for unlicensed operators

The Financial Planning Association of Australia (FPA) has submitted recommendations to the ASIC Enforcement Review to increase the proposed penalty for unlicensed operators, to support the professionalisation of the financial planning profession.

The FPA in principle supports the ASIC Enforcement Review’s Positions Paper 7, entitled “Strengthening Penalties for Corporate and Financial Sector Misconduct”. The Paper proposes extending the penalty regime to provide ASIC with a range of regulatory tools to be applied based on the circumstances and severity of the misconduct.

Ben Marshan, Head of Policy and Government Relations at the FPA, said: “Ensuring there is a strong and flexible penalties regime available to the Regulator is vital for deterring misconduct and protecting consumers.

“However, the FPA disagrees with the proposed 5-year maximum penalty for unlicensed conduct and recommends the penalty should be in proportion to the dishonest and intentional conduct, and the consumer detriment related to a breach in financial advice disclosure provisions.

“Unlicensed conduct shows intent to behave and act dishonestly and against the law – that is a person actively decides to provide a financial service with no licence, authorisation, or against a banning order.

“It is disappointing that the ASIC Taskforce is continuing the focus on the disclosure regime, proposing criminal penalties for breaches of financial advice disclosure provisions that are double the proposed imprisonment penalties for unlicensed conduct.”

The FPA has identified some areas that require further consideration and has put forward a number of recommendations:

  • Unlicensed misconduct warrants the maximum criminal sanctions – This conduct shows deliberate criminal intent for personal gain, to avoid the requirements of the law which have been put in place to protect consumers. This leaves retail consumers completely exposed to the wrongdoing by a person who more than likely does not meet the high competency requirements of the licensing regime, with no or little course for redress.
  • Unlicensed misconduct should be punished far more harshly than actions of license and authorised operators – The regime should also be tough on offenses of fraud, dishonesty and gross professional misconduct.
  • Penalties should not perpetuate an over-cumbersome focus on compliance – The current regulatory framework for financial advice has been built around a very compliance driven disclosure regime. However evidence shows that disclosure does not lead to improvements in the quality of financial advice. Consumers will be better served by professional quality advice in their best interests, than reams of incomprehensible disclosure. Such disclosure aims to address every possible technical risk of breaching the law and does not serve the consumer need for readable advice documentation.
  • Tolerance for unintentional mistakes – A breach of the financial advice disclosure provisions may not be intentional or even in the control of the provider. For those who meet the high entry standards and continuing participation standards necessary to earn the privilege to professionally advise, there should be tolerance for when they make unintentional mistakes, when their conduct is directed or controlled by others, or by systems of work they are obliged to follow.
  • Penalties should be designed to incentivise good conduct, and strongly disincentivise misconduct. Overall, incentives and disincentives ought to be purposefully designed to encourage and support the emergence of an independent financial planning profession in Australia. Professionalisation is the best strategy to ensure Australian consumers experience high quality financial advice in their best interest. Professionalisation is a powerful normative force for modifying individual behaviour.
  • Penalties should be appropriately scaled and applied based on the circumstances and severity of the misconduct – The purpose of the changes must be to address wrongdoing, not to be heavy handed with compliance and penalising those providing quality professional services to consumers.

Mr Marshan concluded: “We believe the enforcement options within the law should incentivise individual professionalisation, rather than focus on imposing disproportionate penalties for disclosure matters of mere negligence, which will continue to feed the compliance driven culture of financial services.”