From 1 January 2022, the Australian Securities & Investments Commission (ASIC) must give financial advisers a written warning or reprimand in specified circumstances.
This article explores ASIC’s information sheet covering what warnings and reprimands are, how and when they will be issued, and other key issues.
The requirement for ASIC to give a warning or reprimand was introduced by the Better Advice Act which implements the government’s response to Recommendation 2.10 of the Financial Services Royal Commission.
What are warnings and reprimands?
A warning or reprimand is a letter sent by ASIC to a financial adviser to warn or reprimand them where ASIC reasonably believes that specified circumstances exist.
This letter will include a statement of reasons for ASIC’s decision to give the warning or reprimand and will also be sent to the AFS licensee(s) that currently authorises the financial adviser to provide personal advice to retail clients on relevant financial products.
ASIC can give either a warning or a reprimand to address a specified circumstance; not both.
Warning or reprimand circumstances
The circumstances that must exist for ASIC to issue a warning or reprimand are:
- There has been a contravention of financial services law that ASIC does not believe to be serious.
- There has been a refusal or failure to implement an Australian Financial Complaints Authority (AFCA) determination.
- A financial adviser has been an officer of two or more corporations unable to pay their debts.
- A financial adviser has not complied with an order made by the Tax Practitioners Board (TPB).
The information sheet provides further description of the specific circumstances that would lead ASIC to issue a warning or reprimand. For example, where there has been a refusal or failure to implement an AFCA determination, there are additional requirements that the refusal or failure has not resulted in a loss to the client or a benefit to the adviser, and that the failure does not appear to involve dishonesty or fraud. Presumably, in such instances, ASIC may take more stringent action than issuing a warning or reprimand.
Alternatives to warning and reprimands
Not every concern brought to ASIC’s attention which indicates that one of the warning or reprimand circumstances may exist will lead to ASIC giving a warning or reprimand. Other options available to ASIC include:
- Exercising one of its other powers under the corporations legislation (e.g. to impose a banning order or accept an enforceable undertaking).
- Convening a sitting panel of the Financial Services and Credit Panel (FSCP).
What is the difference between a warning and a reprimand?
- A warning will warn a financial adviser against continuing the conduct or circumstances that led to ASIC giving the warning.
- A reprimand will admonish the financial adviser in relation to the conduct or circumstances that have already ceased.
Are financial advisers entitled to procedural fairness?
Before ASIC gives a warning or reprimand, it must consider providing procedural fairness to any person that will be directly and materially adversely affected if the warning or reprimand is issued. This will be assessed on a case-by-case basis.
When providing procedural fairness, ASIC will generally offer the financial adviser the chance to make a written submission which will be considered prior to issuing the proposed warning or reprimand.
Appealing a warning or reprimand
Decisions by ASIC to give warnings or reprimands are reviewable by the Administrative Appeals Tribunal (AAT).
Financial advisers will be notified in writing of their right to have the AAT review ASIC’s decision.
Financial advisers who engage in misconduct which ASIC does not deem to be objectively serious may receive a warning or reprimand. ASIC must give a copy of the warning or reprimand to the adviser’s AFS licensee(s), which could have a direct, adverse effect on the adviser’s interests, including their reputation and livelihood. While not all financial advisers will necessarily be provided with procedural fairness prior to the issuance of a warning or reprimand, they do have the right to have the AAT review ASIC’s decision.