ASIC admonitions of financial advisers – You can’t say you weren’t warned!

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Posted By , and on 12/07/22 at 11:45 AM

KHQ Lawyers - ASIC admonitions of financial advisors

The Australian Securities and Investments Commission (“ASIC”) recently (in June 2022) released Information Sheet 270 (Warnings and reprimands) (“INFO 270”)[1], setting out the circumstances in which ASIC must give financial advisers a written ‘warning’ or ‘reprimand’, under laws which came into effect on 1 January 2022. This article is essential reading for financial advisers and financial services licensees more broadly.

So, what has changed?

INFO 270 follows on from legislative changes made under the Financial Sector Reform (Hayne Royal Commission Response – Better Advice) Act 2021 (Cth) (the “Better Advice Act”), which introduced a disciplinary system for financial advisers, in response to the findings of the recent Financial Services Royal Commission. Most notably, the Better Advice Act expanded upon ASIC’s powers to convene a Financial Services and Credit Panel for the purposes of reviewing a financial adviser’s misconduct. The relevant changes also afford ASIC the capacity to issue a ‘warning’ or ‘reprimand’ to financial advisers in specified circumstances. The changes are all part of the Government’s push to ‘restore trust in Australia’s financial system’.

What is INFO 270 all about?

INFO 270 explains that the purpose of a warning is to warn a financial adviser about continuing certain conduct, whereas a reprimand admonishes the financial adviser in relation to past conduct.

ASIC may issue a warning or reprimand to a financial adviser when the regulator ‘reasonably believes’ that a ‘specified circumstance’ has arisen.

‘Reasonably believes’ in this context means that ASIC must have ‘more than just a suspicion’. ASIC may develop such a ‘reasonable belief’ following a complaint and subsequent investigation into a financial adviser’s conduct.

‘Specified circumstances’ in this context means that ASIC can issue a warning or reprimand when it reasonably believes that the financial adviser:

  • is not a fit and proper person to provide personal advice to retail clients in relation to relevant financial products;
  • has contravened or been involved in a contravention of a financial services law (including a restricted civil penalty provision);
  • has become insolvent;
  • has been convicted of fraud;
  • has been an officer of two or more corporations that were unable to pay their debts; OR
  • has been linked at least twice to a refusal or failure to give effect to a determination made by the Australian Financial Complaints Authority (AFCA) relating to a complaint.

ASIC will only issue a warning or reprimand when the regulator believes convening a panel is not justified and also only in circumstances where ASIC believes exercising its powers under the broader Corporations legislation is not appropriate. The warning and reprimand powers afford ASIC enforcement powers that ensure less serious matters can be addressed in an efficient and proportionate manner.

Generally, ASIC will send warnings or reprimands to a relevant financial adviser (or financial services licensee) by means of an electronic letter, which must state ASIC’s reasons for issuing the warning or reprimand. Whilst warnings and reprimands will not generally be recorded in the Financial Advisers Register, ASIC must disclose issued warnings and reprimands in the regulator’s annual report.

ASIC will provide procedural fairness to financial advisers it is considering providing a warning or reprimand to, generally by giving the adviser a chance to make a written submission, which ASIC will consider before making its decision. Affected financial advisers can seek a review of ASIC’s decision to issue a warning or reprimand by the Administrative Appeals Tribunal (AAT).

For more information, or to discuss financial services queries in general, please contact a member of KHQ’s Corporate & Commercial or Superannuation & Financial Services teams, on +61 (0)3 9663 9877 or contact@khq.com.au.

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[1] https://asic.gov.au/regulatory-resources/financial-services/financial-advice/how-asic-regulates-financial-advice/warnings-and-reprimands/#Whatwarningsandreprimandsare

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