The Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 (Act) received royal assent on 22 February 2017.
The Act introduces new reforms to raise the professional, educational and ethical standards of financial advisers.
The reforms come amidst prolonged focus and criticism of the Australian financial services industry in recent years. Since the collapse of major financial services firms during the global financial crisis instigating various parliamentary inquires , which in turn identified major deficiencies in the Australian financial sector and investigated highly publicised financial advice disasters, ultimately leading to the Future of Financial Advice (FOFA) reforms, there has been a large regulatory focus to improve the community’s trust and confidence in the financial services sector. Accordingly, the reforms introduced by the Act provide a further layer to widespread efforts to improve the financial services industry in Australia.
Independent standards body and code of ethics
The Act provides for the establishment of a new independent industry-funded standards body which holds broad powers in governing professional standards for financial advisers. Its functions include approving degrees and foreign qualifications for education requirements; setting supervision requirements; approving and administering a compulsory exam; and determining continuing professional development (CPD) requirements.
Another key function of the standards body is to develop, through industry consultation, a new code of ethics. For the first time, the code of ethics will apply industry-wide. In addition to this, professional associations and other independent third parties will develop compliance schemes to monitor and enforce compliance with the code which must be approved by the Australian Securities and Investments Commission (ASIC).
On 10 April 2017, Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced that the standards body will be titled the Financial Adviser Standards and Ethics Authority (FASEA), chaired by Mrs Catherine Walter AM.
Education and supervision requirements
The Act now provides that from 1 January 2019, new financial planners must:
- hold a Bachelors degree or higher
- pass an exam set by FASEA (exam), which aims at setting a industry benchmark
- undertake at least one year of work and training (referred to as “the professional year”).
This represents a stark increase in qualification requirements, where previously financial advisers were only required to complete the RG146 regulation requirements (equivalent of a Certificate III or Diploma), possible of completion through a short three day training course.
Ongoing professional development
For the first time, the Act introduces a requirement that all financial advisers meet yearly continuing professional development requirements. While the CPD requirements will be determined by the new standards body, ultimately Australian Financial Services Licensees (namely, employers) will be required to monitor their employees’ compliance with CPD requirements, as they have an obligation to lodge a notice with ASIC where there has been a failure to comply with the requirements.
What this means for financial advisers
Professionals in the financial advice industry must be aware of the following introductory and transitional periods:
- The standards body, FASEA, will be established from 1 July 2017.
- From 1 January 2019, all new financial advisers will be required to obtain a degree, pass the exam and undertake a professional year.
- All new and existing financial advisers must meet CDP requirements from 1 January 2019.
- All new and existing financial advisers must comply with the code of conduct from 1 January 2020.
- Existing financial advisers must pass the exam by 1 January 2021.
- Existing financial advisers must obtain a Bachelors degree or equivalent by 1 January 2024.
In light of the above, it will be essential for all financial advisers and their employers to effectively prepare for the widespread reforms to ensure adequate compliance. As a first point of reference, professionals should closely monitor the actions of the new standards body, FASEA, as it formally commences its functions from 1 July 2017.