ASIC defends actions against Commonwealth

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ASIC has gone public regarding its approach to the systemic issues at Commonwealth Financial Planning Limited (CFPL).

The regulator released its main submission to the Senate inquiry yesterday, and in defending its actions against CFPL, it says that FOFA has made substantial ground – but not enough.

Problems at CFPL stemmed from “a sales-driven culture based on a conflicted remuneration structure and an environment where, in some cases, advisers failed to act in their clients’ best interests”, ASIC said in its submission.

However, the regulator says that despite securing $50m in compensation, banning seven advisers, and changing the manner and culture of advice provided by CFPL, ASIC is still being criticised for not taking an active role in the matter.

“This view overlooks the wide range of other regulatory tools that we commonly use – a number of which we were using in the CFPL matter – in response to whistleblower complaints and wider concerns ASIC had about CFPL.

“The view that we were inactive also disregards the fact that we do not generally publicly comment on whether we are looking at a matter until we have begun civil or criminal action.”

ASIC says it was already engaged with CFPL at the time that the whistleblowers approached it, but acknowledges that it “could have and should have spoken to the whistleblowers earlier, sought more information from them and…provided them with some assurance that ASIC was interested and active in the matter…”

ASIC says that “poor financial advice practices were at the heart of the problems in CFPL”.

It says that it has been concerned about the quality of financial advice for a long time, and as a result, has taken a strategic approach to focus on the larger players in the industry.

On average, ASIC calculated that it would take 0.8 years to cover the top 20 AFSLs with high-intensity surveillance. The next 30 would take 1.8 years. The remaining 3,344 AFSLs authorised to provide personal advice are primarily reactive surveillances, as are the 1,395 AFSLs authorised to provide general advice only.

In its defence, ASIC says that it can only achieve what it is resourced to do. According to its annual report, ASIC’s budgeted staff and supplier costs totalled $341.2 million. The costs were broken up into:

·         Enforcement – 39%

·         Registry – 24%

·         Surveillance – 19%

·         Engagement – 8%

·         Policy advice – 4%

·         Guidance and education – 3% each

ASIC says that although FOFA reforms should go a considerable way to improve the quality of advice, it is still pushing to improve:

a.       The competency of advisers – by introducing a national exam and higher qualification standards

b.      The ability of ‘bad apple’ advisers to freely move within the industry – by mandating reference-checking practices and record-keeping

c.       The fact that AFS licensing regime focuses on entities to the exclusion of their managers or directors – ASIC is seeking greater powers to stop people operating in the financial services industry