Be warned (or reprimanded) – ASIC has new powers against financial advisors – Financial Services

Earlier this year, we provided an overview of the Financial Sector Reform (Hayne Royal Commission Response – Better Advice) Act 2021 (Cth) (Better Advice Act). We reviewed the main provisions of the Better Advice Act, particularly in relation to the Australian Securities and Investments Commission’s (ASIC) new power to convene a Financial Services and Credit Panel (Panel).

ASIC has now provided further guidance on its powers under the Better Advice Act by publishing Information Sheet 270 – Warnings and Reprimands (INFO 270). INFO 270 focuses on ASIC’s power to issue warnings or reprimands to financial advisors where their conduct does not warrant the convening of a panel.

What is a ‘warning’ and ‘reprimand’?

The Better Advice Act introduced a requirement for ASIC to give any relevant financial advice provider (including their employees and representatives) a warning or reprimand where ASIC reasonably believes certain circumstances exist (see Corporations Act section 910A ‘relevant provider’). ASIC considers that the purpose of a:

• warning is to caution an advisor to discontinue whatever actions of the adviser led to the warning




• reprimand is to reproach an advisor in relation to previous actions that have since ceased.

ASIC will issue the warnings and reprimands as letters to be sent electronically and must provide a statement of reasons for its decision to issue a warning or reprimand.

When will ASIC issue a warning or reprimand?

ASIC will issue warnings or reprimands where the threshold of convening a panel or the exercise of ASIC’s other powers is not met¹ and ASIC does not and does not propose to exercise any of its powers under the corporations legislation against the relevant provider in relation to the circumstances.² If this is the case, warnings or reprimands will be issued where ASIC reasonably believes the financial advisor:

• is not a fit and proper person to provide personal advice to retail clients in relation to relevant financial products




• has contravened a financial services law




• has become insolvent under administration




• has been involved in the contravention of a financial services law by another person




• has, at least twice, been linked to a refusal or failure to give effect to a determination made by the Australian Financial Complaints Authority




• has been an officer of two or more corporations unable to pay their debts; and / or




• has not complied with an order made by the Tax Practitioners Board under section 30-20 of the Tax Services Act 2009. Such orders may be in relation to continuing professional development or supervision requirements.

ASIC has indicated in INFO 270 that it will conduct its usual triage, investigative work and referral process when determining whether it must issue a warning or reprimand. Warnings or reprimands will only be given in relation to conduct that occurred from 1 January 2022 onwards.

What is the process for issuing a warning or reprimand?

If the financial advisor is an authorized representative of a licensee, a copy of the warning or reprimand will also be provided to the licensee, regardless of whether the advisor was a representative of that licensee at the time the conduct occurred. However, ASIC will consider the impact the warning or reprimand may have on the advisor’s livelihood or reputation before deciding to issue it.

Significantly, ASIC will not record warnings and reprimands on the Financial Services Register.

ASIC will generally provide procedural fairness to financial advisors before sending warnings or reprimands. Advisors will have the opportunity to make written submissions before a warning or reprimand is made. Financial advisors will also have a right of review at the Australian Administrative Tribunal.

Although INFO 270 only provides guidance in relation to ASIC’s powers to give warnings and reprimands, financial advisors should still be aware that any panel convened by ASIC will also have the ability to issue warnings and reprimands in certain circumstances. Advisors should also be aware of ASIC’s other powers concerning the regulation of financial advisors, including by imposing banning orders or seeking enforceable undertakings.

How can we help?

We have extensive experience in regulatory investigations (including by ASIC) and can assist practitioners in responding to a range of professional disciplinary bodies. We are well-placed to assist you in this rapidly changing regulatory and disciplinary environment.

Footnotes

¹ See Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) section 139 (2) and Australian Securities and Investments Commissions Regulations 2001 regulation 12N for circumstances where ASIC must convene a panel.

² See section 921S (1) (b) of the Corporations Act.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.