ASIC makes proposals for approval of Code of Ethics Compliance Schemes

Background

The code is being developed by the Financial Adviser Standards and Ethics Authority (FASEA) for financial advisers as part of the incoming ethics and education reforms. Consultation on the code closed on 1 June 2018.

The code will be enforced via ASIC-approved compliance schemes which will 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 will have an obligation to 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).

On 15 May 2018, ASIC released Consultation Paper 300: Approval and oversight of compliance schemes for financial advisers (CP 300) which contains ASIC’s proposals for the approval process of compliance schemes.

What does a monitoring body do?

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

• monitoring financial advisers’ compliance with the code, by conducting proactive monitoring and receiving reports from licensees, financial advisers and members of the public;

• determining whether breaches of the code have occurred; and

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

Who can be a monitoring body?

Entities other than an AFS licensee or an associate of an AFS licensee may be a monitoring body. Entities such as financial advice professional associations and professional services firms have been identified as possible monitoring bodies.

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

A monitoring body must apply to have their compliance scheme approved by ASIC. ASIC has proposed that a compliance scheme approval application will contain:

• a letter of application, including key information about the applicant;

• a completed ‘if not, why not’ checklist, a draft of which is annexed to CP 300. This will require the monitoring body to explain if it will not comply with certain expectations in ASIC’s guidance, why not and the alternative approach the monitoring body will take;

• a draft compliance scheme document; and

• further supporting documentation requested by ASIC. This may include statements, internal policies and procedures, or template agreements that are referred to elsewhere in the application.

Proposed timeline

CP 300 is open for consultation until 28 June 2018.

If you have any questions or require assistance with ASIC’s application process for compliance scheme approval, please contact a member of our Financial Services team.