February 2025 Financial Advice Update

The Financial advice update is a round-up of regulatory developments and issues affecting financial advice.

It covers all areas of financial advice regulation and includes a broad range of content relevant to Australian financial services (AFS) licensees who are advice licensees and financial advisers.

The topics of this update are:

• professional standards and assessment of qualifications
• experienced provider pathway
• review of compliance with professional standards and professional year programs
• first internal dispute resolution data report and findings
• first report on the adoption of artificial intelligence by licensees
• summary of recent ASIC enforcement matters
• update from the Financial Services and Credit Panel
• review of advice on establishing a self-managed super fund
• update on reportable situations regime
• updates to the ASIC newsroom, and
• recent ASIC news on financial advice.

Professional standards and assessment of qualifications

Since 1 January 2019, certain professional standards have applied to relevant providers (i.e. advisers who are authorised to provide personal advice to retail clients in relation to relevant financial products) and to provisional relevant providers (i.e. individuals in the third or fourth quarter of their professional year).

Among other things, relevant providers and provisional relevant providers must comply with the 'qualifications standard' in section 921B(2) of the Corporations Act 2001 (Corporations Act). Relevant providers who are existing providers have until 1 January 2026 to meet the qualifications standard.

In response to feedback from industry, ASIC has developed additional guidance for assessing an individual's qualifications and training against the qualifications standard.

We created worked examples to show how an AFS licensee should assess and input the qualifications of their relevant providers into the financial advisers register: see Example qualification assessments on the ASIC website.

The webinar hosted by ASIC in November 2024 also provides a practical walkthrough of how to assess a person's qualifications against the requirements, and how to input qualifications information into the financial advisers register. See ASIC webinar on assessing relevant provider qualifications for a recording, slides and consolidated list of answers to questions asked during the webinar.

More information about the qualifications standard for financial advisers is available on the ASIC website:

• Qualification, exam and professional development
• Professional standards for financial advisers, and
• Quick reference guide: Applying the financial adviser professional standards.

Experienced provider pathway

Financial advisers must meet both of the following criteria to be eligible to rely on the experienced provider pathway to meet the qualifications standard in section 921B(2) of the Corporations Act and the professional year standard in section 921B(4) of the Corporations Act.

First, they must meet the definition of 'experienced provider' in section 1684 of the Corporations Act. Specifically, they must have:

• been a relevant provider for at least 10 years (that is, 3,650 days - whether consecutive or not) during the period 1 January 2007 to 31 December 2021, and
• had a clean disciplinary record as at 31 December 2021.

Second, if they are an existing provider and did not pass the financial adviser exam by the exam cut-off day that applies to them (1 January 2022, or 1 October 2022 if they qualified for the exam extension), their authorisation to provide personal advice must have ceased before their exam cut-off day. That is, they must not have been authorised to provide personal advice on their exam cut-off day.

Financial advisers who meet both of the above criteria and wish to rely on the experienced provider pathway to meet the qualifications standard and the professional year standard must make a written declaration confirming that they satisfy the definition of 'experienced provider'. They must then give a copy of their declaration to their authorising AFS licensee(s) as soon as practicable after making the declaration. If the financial adviser is eligible to access the pathway, the AFS licensee(s) must notify ASIC that the licensee has received a copy of a written declaration within 30 business days after the day the declaration was given to them.

To meet the 10 years experience requirement, a financial adviser must demonstrate that they were authorised to provide personal advice to retail clients on relevant financial products for at least 10 years during the relevant period. Other authorisations (for example, an authorisation covering general advice only) do not count towards the 10 years experience requirement.

Existing providers who plan to rely on the experienced provider pathway to meet the qualifications standard should make a written declaration before 1 January 2026 so that they can continue to be authorised and registered to provide personal advice from this date.

For more information on the experienced provider pathway, see Information Sheet 281 FAQs: Relevant providers - Accessing the experienced provider pathway (INFO 281).

Review of compliance with professional standards and professional year programs

ASIC recently reviewed a sample of records retained by AFS licensees in relation to their assessment of the professional standards for financial advisers. We also reviewed a sample of AFS licensee professional year programs.

First internal dispute resolution data report and findings

In December 2024, ASIC released Report 801 Insights from internal dispute resolution data reporting: July 2023 to June 2024 (REP 801) - the first publication of industry-wide data under the internal dispute resolution (IDR) data reporting framework: see also Media Release (24-264MR) ASIC flags key observations from inaugural IDR data publication (3 December 2024).

Under the framework, most licensed financial firms are required to report IDR data to ASIC on a 6-monthly basis. Publishing IDR data promotes transparency by sharing valuable information with consumers, while also helping to drive improvements in IDR practices.

While we do not verify that financial firms' self-reported data accurately reflects their underlying complaints handling, we found variations in the volume of complaints reported by comparable firms as well as gaps in the IDR data. This indicates the data reported to ASIC may not fully reflect the complaints received by some firms. As a result, we are concerned that some firms are not reporting IDR data as accurately as is possible.

Moreover, 5,035 firms declared no complaints to report for the full year. This number is higher than we expected.

We will assess compliance with the reporting requirements, such as by reviewing firms that make a nil submission against other datasets, including reports of misconduct, reportable situations and data from the Australian Financial Complaints Authority. While there may be reasonable explanations for some of these variances, we encourage firms to carefully review our report and guidance to assist in reporting complete and accurate IDR data.

This year we will start publishing data about complaints received by individual firms. It is crucial that firms act now to address any gaps in IDR reporting processes, because we will publish the data as it is reported to us.

More information about IDR reporting obligations is available on ASIC's IDR data reporting page (which includes frequently asked questions) and in Regulatory Guide 271 Internal dispute resolution (RG 271).

First report on the adoption of artificial intelligence by licensees

Artificial intelligence (AI) has the potential to transform the provision of financial services and credit in Australia. It provides opportunities for more efficient, accessible and tailored products and services. However, AI can also amplify existing risks to consumers and introduce new ones. Potential harms include:

• bias and discrimination
• provision of false information
• exploitation of consumer vulnerabilities and behavioural biases, and
• erosion of consumer trust.

To help shape our understanding of risk to consumers and inform our regulatory response, we reviewed the use of AI by 23 AFS and credit licensees and published our findings in Report 798 Beware the gap: Governance arrangements in the face of AI innovation (REP 798).

The report noted a rapid acceleration in the volume of AI use cases and a shift towards more complex and opaque types of AI such as generative AI. The licensees also told us they are planning to increase their use of AI.

We are concerned that not all licensees are well-positioned to manage the challenges of their expanding AI use. Changes in governance and risk management arrangements are slow; it is therefore likely that any gap between AI use and AI governance arrangements will widen as AI adoption increases. This could leave licensees unprepared to respond quickly but safely to innovations from competitors.

ASIC is urging financial services licensees to ensure their governance practices keep pace with their accelerating adoption of AI.

For further information see Media Release (24-238MR) ASIC warns governance gap could emerge in first report on AI adoption by licensees (29 October 2024) and REP 798.

Summary of recent ASIC enforcement action

Table 1 is a summary of recent enforcement action by ASIC. An investigation by ASIC into any person or entity should not be construed as an indication by ASIC that the law has been broken.

Update from the Financial Services and Credit Panel

The Financial Services and Credit Panel (FSCP) makes disciplinary decisions in relation to financial advisers. The FSCP has been in operation for 2 years. The FSCP is a pool of industry participants, appointed by the responsible Minister, that ASIC draws on when forming individual sitting panels.

The FSCP operates alongside but independent of ASIC's existing administrative decision-making processes. A sitting panel will be convened by ASIC to consider certain instances of suspected misconduct by, or circumstances relating to, a financial adviser. Each sitting panel comprises an ASIC staff member and at least two members of the FSCP. For further information on the functions and operation of the FSCP, see Regulatory Guide 263 Financial Services and Credit Panel (RG 263).

ASIC maintains the FSCP Outcomes Register which contains decisions of the FSCP and a brief explanation of the background to the decisions. Some recent outcomes include:

• A written supervision direction to audit the next 10 pieces of advice by an independent person at the relevant provider's cost - The sitting panel found that the relevant provider contravened sections 961B(1), 961G and 921E of the Corporations Act. They gave advice in June 2023 recommending a client roll over $2 million from an untaxed state superannuation scheme. When giving the advice, the relevant provider failed to take into account or disclose that the $2 million exceeded the untaxed cap rollover limit of $1.65 million, that the client had also previously used a portion of this limit, and that tax would be payable at a rate of 47% on amounts exceeding the cap. As a result of accepting the advice, the client paid $201,365 in tax for exceeding the cap.
• A reprimand issued to a relevant provider for contraventions of sections 961B(1), 961G and 921E(3) of the Corporations Act - The relevant provider recommended a client make a non-concessional superannuation contribution of $329,000 in the 2022-23 financial year when the client's non-concessional cap for that year was $220,000. When giving the advice, the relevant provider failed to obtain or take into account superannuation assets in the client's public sector superannuation fund. As a result, the client needed to withdraw $120,735 from their superannuation and pay tax of $13,570 on the associated earning.
• A warning issued to a relevant provider for contravention of section 946A(1) of the Corporations Act - The relevant provider was found to have failed to give a Statement of Advice to a client. Between February 2022 and November 2022, the relevant provider gave Records of Advice to clients, relying on Statements of Advice that had been given to the clients by a different providing entity.

Review of advice on establishing a self-managed super fund

In ASIC's Corporate Plan 2024-25, we announced that we will conduct a surveillance of personal advice provided to retail clients about establishing SMSFs. This will involve a thematic review across numerous AFS licensees and advisers. We will focus on why some consumers are advised to set up an SMSF, even though an SMSF may not be suitable for them and may adversely affect their retirement outcomes.

The project follows a thematic SMSF advice review which led to the release of Report 575 SMSFs: Improving the quality of advice and member experiences (REP 575) in June 2018 and Information Sheet 274 Tips for giving self-managed superannuation fund advice (INFO 274) in December 2022.

The two main streams of work are underway concurrently and involve:

• reviewing client advice files where SMSF establishment advice has been provided - ASIC will assess compliance with the best interest duty and related obligations, and
• observing the role of AFS licensees in monitoring and supervising their representatives who are providing SMSF establishment advice - this includes considering information obtained from licensees about their oversight and the application of their policies and procedures in the context of providing SMSF establishment advice.

Our approach of considering licensees' roles and reviewing advice files is similar to our approach for Report 779 Superannuation and choice products: What focus is there on performance? (REP 779), released in February 2024.

At the conclusion of our project, we expect to release public messages about our findings. Where appropriate, we will take enforcement or other regulatory action against misconduct.

Reportable situations regime update

The reportable situations regime (formerly breach reporting) is a cornerstone of the financial services and credit regulatory regimes. The regime acknowledges that, despite an expectation of compliance, breaches will occur, and AFS licensees then have an obligation to report these to ASIC.

Licensees have a clear role in lifting industry standards as a whole, and part of this role is timely identification of their own breaches. The requirement to report to ASIC also encourages licensees to rectify and remediate issues in a timely manner, and the reports we receive are a critical source of regulatory intelligence for ASIC.

Report 800 Insights from the reportable situations regime: July 2023 to June 2024 (REP 800) is ASIC's third publication of the information we have received under the reportable situations regime. It provides high-level insights into the trends observed in reports lodged by licensees under the regime between 1 July 2023 and 30 June 2024.

We have also published information on how licensees can improve their compliance through finding, fixing and reporting breaches in our news item, Reportable situations: Findings of ASIC's review and how licensees can improve compliance with the regime (4 December 2024).

Updates to ASIC's Newsroom

We updated ASIC's Newsroom subscription function on 1 July 2024 and are making further improvements to the website to make it easier to find relevant information. In the meantime, you can find all newsroom content tagged 'financial advice' using this pre-filtered newsroom link.

To receive relevant regulatory updates:

• go to ASIC's Newsroom
• scroll down to 'Sign up for news alerts' and input your email address
• select your preference for receiving these alerts (weekly or daily)
• select 'ASIC's news round up' and your preferred topics (we recommend selecting 'financial advice' and 'regulatory updates' to receive relevant updates), and
• click the subscribe button (this will override previous subscriptions).

Alternatively, select the 'Review and update your subscription' link in your subscription emails to update your preferred topics.

Recent ASIC news on financial advice

• ASIC releases new and updated guidance in response to the DBFO Act (21 November 2024).
• Promoting ongoing improvements in financial advice, speech by ASIC Commissioner, Alan Kirkland, Financial Advice Association Australia Congress, Brisbane, 28 November 2024.
• Better retirement outcomes: A whole-of-sector responsibility, speech by ASIC Commissioner, Alan Kirkland, Conexus Financial Professional Planner Researcher Forum, 3 December 2024.
• ASIC signals ongoing work to maximise benefits of the reportable situations regime (4 December 2024).