FSC calls for tougher oversight of advice licensees

The Financial Services Council (FSC) has called for a significant overhaul of ASIC's supervisions of financial advice licensees, arguing stronger regulatory oversight is needed to better protect consumers following recent industry failures.

In a white paper on the future of advice licensing, the FSC stopped short of recommending structural changes to Australia's AFSL framework, instead proposing 19 reforms aimed at strengthening supervision, improving regulatory intelligence and enabling earlier intervention where risks emerge.

Among its key recommendations are annual AFSL renewals, biannual supervisory engagement between ASIC and every advice licensee, a dedicated risk-based supervision program for high-risk firms, and changes to the ASIC industry levy to fund the expanded oversight.

FSC chief executive Blake Briggs said consultation on the organisation's earlier green paper had shifted the debate from replacing the licensing framework to ensuing it operated as intended.

"The consultation process shifted the focus from redesigning the licensing framework towards ensuring it is operating as intended with effective supervision," Briggs said.

He said the collapses of Shield and First Guardian highlighted weaknesses that may have been identified earlier through more proactive supervision.

"The AFSL framework places responsibility on licensees to supervise advisers, manage risk and protect consumers. The challenge is ensuring those responsibilities are continually met, which can be tested through supervisory oversight, rather than assumed after a licence is granted," he said.

Rather than introducing new legislation, Briggs said the priority should be on improving the administration of the existing framework.

"The solution is not new laws, but more effective administration and supervision of the existing licensing framework so that licensees are more rigorously held to account in fulfilling their statutory duties to consumers," he said.

The FSC also recommended modernising ASIC's register infrastructure, including the Financial Adviser Register, improving the use of existing licensing and enforcement powers, and strengthening oversight of professional indemnity insurance, including a review of minimum cover requirements.

FAAA chief executive officer Sarah Abood warned the proposals could increase regulatory costs for smaller licensees.

"The FAAA will be reviewing the FSC's proposals carefully, however we expect they will not be well received by smaller advice licensees who would be hit hard by increased regulatory intervention and ASIC costs under the proposals," Abood said.

"It's important to be aware of the context of these recommendations. The FSC does not represent financial advice, or financial advisers. It represents the interests of five large advice licensees, with the vast majority of its membership being made up of large product issuers (such as managed investment schemes). Its proposals should be considered in this light."

To support the supposed supervisory uplift, the FSC suggested redesigning ASIC's financial advice levy by increasing the minimum licence fee to $25,000 while proportionately reducing the per-adviser levy, arguing regulatory costs should be more closely aligned with where risk is managed.