The Senate Economics References Committee has recommended legislative amendments which would allow ASIC to immediately suspend a financial adviser if "egregious misconduct" is suspected.
Released today, the committee's report on the agribusiness managed investment scheme crisis in 2009 considers the multiple "culprits" in the losses incurred following the collapse of Timbercorp, Great Southern, Willmott Forests, Gunns Plantation and others, and has made multiple recommendations as to how to prevent similar occurrences in the future.
With regards to financial advisers, the report said that there were "horrifying deficiencies in the way some advisers adhered to the basic requirements to know their client, the product they were recommending and to have a reasonable basis for their advice ... [and put] their own interests above those of their clients."
The report noted that the Future of Financial Advice reforms "may well have remedied one of the most pernicious incentives underpinning poor financial advice" - that is, commissions - but argued that further steps needed to be taken to ensure there were no other "loopholes" for advisers to receive "incentive payments".
As such, the committee recommended ASIC be "vigilant" in monitoring the application of FoFA legislation and advise government on any existing legislative weaknesses.
Part of this would involve new amendments which would both ensure that a banned individual "cannot be a director, manager or hold a position of influence in a company providing a financial service or credit business," and that ASIC should be given powers to immediately suspend a financial adviser "subject to the principles of natural justice, where ASIC suspects that the adviser or planner has engaged in egregious misconduct causing widespread harm to clients."
Furthermore, the report indicated the government should review the penalties for advice breaches to ensure that "the penalties align with the seriousness of the breach and serve as an effective deterrent."
In particular, ASIC should re-evaluate the consequences for advisers operating without licences or who are no longer licensed (in which cases banning would be "redundant") and advisers declaring bankruptcy "as a means to avoid recompensing clients who have suffered financial loss as a result of their poor financial advice."