Final piece of the puzzle for the Single Disciplinary Body

The government has released for consultation the regulations supporting the implementation of the Single Disciplinary Body for financial advisers.

The bill implementing the Single Disciplinary Body was passed by Parliament on 21 October and will come into effect on 1 January 2022.

The regulations:

  • set the criteria for when ASIC must refer matters to the Financial Services and Credit Panel (this will be the new Single Disciplinary Body)
  • specify the administrative sanctions imposed by a panel that must be included on the Financial Adviser Register (FAR)
  • extend the deadline to complete the financial adviser exam to 30 September 2022
  • propose increased fees for the financial adviser exam and registration of financial advisers from 1 January 2022
  • outline the registration, education and training requirements for financial advisers providing tax (financial) advice services.

Referral of matters to the Single Disciplinary Body

The regulations prescribe certain circumstances warranting peer review in which ASIC must in every case convene a disciplinary panel:

  • Where the financial adviser becomes insolvent under administration, is convicted of fraud, or if ASIC reasonably believes that the person is not a fit and proper person to provide financial advice.
  • Where the financial adviser fails to meet the education and training requirements, fails to supervise a provisional financial adviser or provides financial advice while unregistered.
  • Where the adviser has breached a financial services law or been involved in another person’s breach and ASIC forms a reasonable belief that the breach is serious.
  • Where the adviser has at least twice been linked to a refusal or failure to give effect to a determination made by the Australian Financial Complaints Authority and ASIC reasonably believes that the consequences of those refusals or failures are serious.

Outside of these circumstances, ASIC has discretion to convene a discretionary panel. For example, ASIC may exercise its discretion to convene a panel in response to a minor but repeated breach by a financial adviser of a financial services law or a breach of the Code of Ethics.

What sanctions will be included on the FAR?

The regulations prescribe the following sanctions that must be included on the FAR:

  • Orders to suspend or prohibit a financial adviser’s registration.
  • Directions to undertake specific training, counselling or supervision or to report specified matters to ASIC. However, first time offences will not be listed.

Importantly, warnings or reprimands issued by ASIC or a panel will never be included on the FAR.

Extending the exam deadline and new exam fees

In good news, financial advisers who have sat the exam at least twice before 1 January 2022 will have until 1 October 2022 to sit and pass the exam. Financial advisers who have not sat the exam at all or only sat it once before 1 January 2022 cannot take advantage of the extension of the exam cut-off date. Those advisers must sit and pass the exam by 1 January 2022 to continue to provide personal advice to retail clients after that date.

There will be greater flexibility provided to financial advisers planning to sit the exam in 2022 – the three-month waiting period to register to take the exam again has been removed and alternative methods for taking the exam including in person, virtually or through alternative arrangements are allowed.

Nothing else about the exam has changed except for the cost. The knowledge areas that the exam tests remain the same as do the number of questions and their format as well as the time allowed to complete the exam. The cost to sit the exam has increased significantly to $948 per sitting, up from the existing fee of $540. An additional $218 fee will apply for ASIC to “review the marking of one or more answers to the written-style responses (non-multiple-choice questions) in an exam”. The government has argued that this is due to the increased costs per head to hold the exam next year resulting from the reduced numbers of advisers left to sit.

Registration, education and training requirements for financial advisers providing tax (financial) advice services

The regulations set education and training requirements for the provision of tax (financial) advice services by financial advisers. The additional requirements will not apply to those financial advisers who are registered as tax (financial) advisers before 1 January 2022 or who have lodged their application with the Tax Practitioners Board before that date.

This means that financial advisers (relevant providers) who provide tax financial advice, including incidental tax advice (for example, franking credits, CGT) must be registered with the Tax Practitioners Board before 31 December 2021 to take advantage of the grandfathering provisions. There are complex transitional arrangements that apply to tax (financial) advisers providing tax (financial) advice services from 1 January 2022. Those who provide tax financial advice to wholesale clients need to understand the new pathways set out in the regulations to ensure they can continue to provide such advice.

Tax (financial) advisers should be on the look-out for communications from the Tax Practitioners Board to ensure they do what they need to transition.

Stakeholders had until 15 October 2021 to provide feedback on the exposure draft documents.

The exposure draft regulations and legislative instrument can be found here.

This article is general information only.