AFA News 28 October 2021. The new breach reporting regime commenced on 1 October 2021, as a result of the implementation of one of the Royal Commission recommendations.  We have anticipated that these new breach reporting rules would lead to a significant increase in the number of reportable financial advice breaches.  The greatest factor is undoubtedly going to be Best Interests Duty breaches.

Under the new regime, any breach of a Civil Penalty Provision, other than those that are exempted by regulation 7.6.02A(2), is reportable to ASIC.  The Civil Penalty Provisions within the Corporations Act are listed in Section 1317E, however, this is a long list and includes many Sections that are completely unrelated to financial advice.  The new breach reporting regime is incredibly complex.

The obligations to act in the Best Interests of the client, to provide appropriate advice and to prioritise the interests of the client, are all Civil Penalty Provisions.  It is these obligations, and particularly the Best Interests Duty that is likely to generate the most reportable breaches.

In conversations with ASIC, they have confirmed that where there has been a failure to comply with all the steps in the Best Interests Duty safe harbour (Section 961B(2)), this does not necessarily mean that there has been a breach of the Best Interests Duty (Section 961B(1)) if the client file otherwise demonstrates that the advice does meet the Best Interests Duty.  The assessment of the advice meeting the Best Interests Duty and being appropriate is based upon the client being in a better position if they follow the advice and that the financial product is fit for purpose (please refer to ASIC Regulatory Guide 175).

For any questions on breach reporting and the Best Interests Duty, please email policy@afa.asn.au

Issued 28.10.2021. AFA Policy & Education Update

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