Two strikes and advisers will face disciplinary body

Mike Taylor

Managing Editor and Publisher

30 September 2021

Financial advice firms now know that they are going to be working under a two strikes mechanism with respect to finding themselves before a panel of the new Single Disciplinary Body (SDB).

The exposure draft regulations attaching to the Government’s Better Advice legislation makes clear how the new regime will work, particularly where determinations made by the Australian Financial Complaints Authority (AFCA) are concerned.

There are circumstances where the Australian Securities and Investments Commission (ASIC) can simply warn or reprimand advisers, but there are circumstances where it will be compelled to convene a Financial Services and Credit Panel.

And amongst those circumstances will be occasions when “the relevant provider has, at least twice, been linked to a refusal or failure to give effect to a determination made by AFCA relating to a financial services business; or credit activities”.

The regulations state that a referral to a panel has to occur where ASIC reasonably believe that the refusal or failure has resulted or is likely to result in material loss or damage to a client of the relevant provider or is likely to result in a material benefit to the relevant provider or involves dishonesty or fraud.

Indeed, the regulations make clear that wherever there has been “material loss or damage to a client” then advisers or advice firms are likely to find themselves facing a panel.

While some people in the financial advice industry were looking to the cessation of the Financial Adviser Standards and Ethics Authority (FASEA) as a route to meaningful change to the regime, they will be bitterly disappointed.

Virtually nothing has changed. FASEA may cease to exist but the exposure draft regulations attaching to the Government’s Better Advice legislation makes clear that the FASEA regime and the associated exam simply continue.

Line by line the exposure draft regulations amount to a carbon copy of the existing FASEA regime with the only significant difference being that it will be directly overseen by the Australian Securities and Investments Commission (ASIC) and it will cost more.

The exam will be no shorter than it has ever been, with the regulations stipulating that it must contain at least 70 questions comprising at least 64 multiple choice questions and with at least six written response questions requiring short answers or report writing.