ASIC’s Regulatory Guide 269: Approval and oversight of compliance schemes for financial advisers (“RG 269”) was released on 28 September 2018. It provides guidance on ASIC’s process and criteria for determining whether to grant approval to a compliance scheme.

Background

The Financial Adviser Standards and Ethics Authority (FASEA) is developing a Code of Ethics (Code) as part of the incoming ethics and education reforms for the financial services industry.

The introduction of the Code represents a new addition to the compliance framework for financial advisers. A key element is the introduction of independent monitoring bodies to enforce compliance with the Code.

The Code will be enforced via ASIC-approved compliance schemes which will be developed by entities referred to as ‘monitoring bodies’. Membership of a compliance scheme will be mandatory for financial advisers who provide financial advice to retail clients on relevant financial products.

From 15 November 2019, AFS licensees must ensure that all financial advisers who operate under their licence are covered by a compliance scheme within 30 business days of their appointment. Existing financial advisers must be covered by a compliance scheme by 1 January 2020, (being 30 business days from 15 November 2019).

The purpose of RG 269 is to set out ASIC’s approach to the approval and oversight of a monitoring body’s compliance scheme and ASIC’s expectation of those schemes on an ongoing basis. However, it may also be of interest to Australian financial services (“AFS”) licensees who authorise financial advisers.

What does a monitoring body do?

Under a compliance scheme, a monitoring body’s responsibilities include:

  1. monitoring financial advisers’ compliance with the Code, by conducting proactive monitoring and receiving reports from licensees, financial advisers and members of the public;
  2. determining whether breaches of the Code have occurred; and
  3. if a breach has occurred, imposing sanctions which may include additional training, rectification and, in extreme cases, ejection from the compliance scheme. Breaches of the Code must also be reported to ASIC.

ASIC expects that monitoring bodies will have a role in offering support and education to financial advisers to assist in meeting their ethical obligations.

Who can be a monitoring body?

Entities other than AFS licensees or associates of AFS licensees may be a monitoring body, which may include financial advice professional associations and professional services firms.

In order for a compliance scheme to be approved, a monitoring body will have to satisfy ASIC that it has sufficient resources and expertise to monitor compliance with the Code, and that compliance with the Code will be appropriately monitored under the scheme.

Application process for compliance scheme approval

Expressions of interest from potential monitoring bodies are to be submitted to ASIC during October 2018.

An entity must then submit a draft application for compliance scheme approval to ASIC between 1 November 2018 and 31 December 2018 that contains:

  1. letter of application;
  2. completed ‘if not, why not’ checklist;
  3. draft compliance scheme document for ASIC approval; and
  4. further supporting documentation as set out in RG 269.

ASIC will provide feedback on draft applications from 1 January 2019 to 31 March 2019, following which, applicants are to submit a final application to ASIC between 1 June 2019 and 30 June 2019. The final application should also address any feedback ASIC have provided on the draft application.

ASIC aims to announce all of the initial compliance scheme approvals in early October 2019.

RG 269 is available on ASIC’s website.