House of Representatives

Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

Chapter 3 Ethical standards

Outline of chapter

3.1 Schedule 1 to the Bill amends the Corporations Act to set out the ethical standards for relevant providers.

Summary of new law

3.2 The new law requires all relevant providers to comply with the Code made by the body and to be covered by a scheme which monitors and enforces the relevant provider's compliance with the Code.

3.3 Schemes are developed by monitoring bodies and approved by ASIC. Schemes must be independently reviewed at least every five years.

Comparison of key features of the new law and current law

New law Current law
Relevant providers are required to comply with the Code made by the body. No equivalent.
Compliance with the Code is monitored and enforced under schemes approved by ASIC. No equivalent.
Licensees must ensure that their relevant providers are covered by a scheme. No equivalent.
Monitoring bodies must monitor and enforce compliance with the Code. They have the power to carry out investigations and obligations to notify the licensee and ASIC of any failures to comply with the Code. No equivalent.
A scheme must be reviewed by an independent person at least every five years and made publicly available. No equivalent.

Detailed explanation of new law

The Code

3.4 A relevant provider must comply with the Code. The same Code applies to all relevant providers. [Schedule 1, Part 1, item 12, section 921E]

3.5 The Code sets out the ethical obligations that apply to relevant providers. These ethical obligations go above the legal requirements in the law and are designed to encourage higher standards of behaviour and professionalism in the financial services industry.

3.6 A function of the body is to develop the Code [Schedule 1, Part 1, item 12, paragraph 921U(2)(b)]. The Code will commence at the time determined by the body, but it must not commence earlier than 30 days after it is registered on the Federal Register of Legislation. [Schedule 1, Part 1, item 12, subsection 921W(1)]

3.7 The body must review the Code regularly and revise it where necessary. [Schedule 1, Part 1, item 12, subsection 921U(1)]

3.8 When setting and reviewing the Code, the body must undertake consultation [Schedule 1, Part 1, item 12, subsections 921U(6) to (8)]. Further information about the body's consultation requirements are set out in Chapter 5.

3.9 As the Code is a legislative instrument, it will sunset after 10 years under the Legislation Act 2003. This may mean that the body chooses to remake the Code when it undertakes its regular reviews.

3.10 If the body changes the Code, the body may determine the appropriate transition period that would apply to the changes. However, any change may not take effect earlier than 30 days after it is registered. [Schedule 1, Part 1, item 12, subsection 921W(2)]

Schemes

Definition of a scheme and monitoring body

3.11 Compliance with the Code is monitored and enforced by monitoring bodies in accordance with schemes that are approved by ASIC. A scheme has a name and includes information about the process for resolving disputes between the monitoring body and a relevant provider, and the process for customers to make complaints. [Schedule 1, Part 1, item 12, section 921G]

3.12 A scheme must also name the monitoring body for the scheme. The monitoring body is responsible for seeking ASIC's approval of the scheme, and monitoring and enforcing compliance with the Code in accordance with the scheme. [Schedule 1, Part 1, item 12, subsection 921G(1) and section 921K]

3.13 A monitoring body may be any entity, apart from a licensee or an associate of a licensee. The reason that licensees are prohibited from being monitoring bodies is that licensees already have an obligation to ensure that their financial advisers act honestly and fairly under the general licensing conditions in current paragraph 912A(1)(a) of the Corporations Act and the aim of the new framework is to ensure that there is an additional body that monitors compliance with the Code. [Schedule 1, Part 1, item 12, subsection 921G(3)]

3.14 One example of a person that may develop a scheme is a professional association. Several professional associations already administer ethical codes and professional associations have an important role to play in raising ethical standards across the industry.

3.15 Other independent third parties may also wish to develop schemes. The power for persons other than professional associations to offer schemes preserves relevant providers' freedom to choose whether to join a professional association. If all relevant providers were required to be covered by a professional association's scheme, the relevant provider would effectively be forced to join a professional association. This would reduce efficiency and competition.

Requirement for relevant providers to be covered by a scheme

3.16 Licensees must ensure that relevant providers authorised on their behalf are covered by a scheme. Licensees that are relevant providers (for example sole operators) must also ensure that they are covered by a scheme. A licensee that fails to meet this obligation is in breach of its licensing conditions. [Schedule 1, Part 1, item 12, subsection 921H(1)]

3.17 It is not necessary for all of a licensee's relevant providers to be covered by the same scheme.

Example 3.1 : One scheme covers all of the licensee's advisers Remote Australia Financial Advice is a small licensee with 20 employees, all of whom are members of the Ethical Financial Advisers Association. Some of the employees are also members of the 123 Professional Association.The Ethical Financial Advisers Association and the 123 Professional Association both have schemes approved by ASIC. After internal discussion, all of Remote Australia Financial Advice's employees agree to be covered by the Ethical Financial Advisers Association's scheme.Remote Australia Financial Advice notifies ASIC that its financial advisers are covered by the Ethical Financial Advisers Association's scheme.Remote Australia Financial Advice has complied with its obligation to ensure that all of its financial advisers are covered by a scheme.

Example 3.2 : Multiple schemes cover the licensee's advisers Amazing Fin Advice has 50 financial advisers. Twenty advisers are members of 123 Professional Association. Thirty advisers are members of MYW Professional Association. Both these associations have schemes approved by ASIC.Amazing Fin Advice notifies ASIC that its financial advisers are covered by 123 Professional Association and MYW Professional Association's schemes.Amazing Fin Advice has complied with its obligation to subscribe its financial advisers to a scheme. It is not necessary for all of its financial advisers to be covered by the same scheme.

3.18 A licensee has 30 business days from the date of authorisation to ensure that a new relevant provider, or itself when it is a relevant provider, is covered by a scheme. [Schedule 1, Part 1, item 12, paragraph 921H(2)(a)]

3.19 If a relevant provider ceases to be covered by a scheme, the licensee has 30 business days to ensure that the relevant provider subscribes to another scheme [Schedule 1, Part 1, item 12, paragraph 921H(2)(b)]. A relevant provider may cease to be covered by a scheme because:

·
a relevant provider who is covered by a professional association's scheme does not renew their membership of the professional association; or
·
ASIC revokes its approval of the scheme.

3.20 A scheme covers a relevant provider if:

·
ASIC has approved the scheme;
·
the licensee has notified ASIC that the relevant provider is covered by the scheme; and
·
if the monitoring body is a professional association, the relevant provider is a member of the professional association.

[Schedule 1, Part 1, item 12, section 921J]

3.21 The licensee must meet the requirement to notify ASIC about the scheme that covers the relevant provider by providing a notice in accordance with new section 922D (for a new relevant provider) or new section 922H (for a change in the name of the scheme for a relevant provider who is already authorised). Please see Chapter 4 of this explanatory memorandum for further information about the notice provisions. [Schedule 1, Part 1, item 12, subsection 921J(2)]

3.22 A relevant provider continues to be covered by a scheme even if he or she starts working for a different licensee.

Example 3.3 : Grace period for subscribing a relevant provider to a scheme DEF Licensees authorises a new relevant provider, Mark, on 1 January 2025.DEF Licensees has a grace period of 30 business days to subscribe Mark to a scheme.DEF Licensees must also notify ASIC that it has authorised a new relevant provider within 30 business days of 1 January 2025 under new section 922D.Mark is a member of the Great Financial Advisers Association. Great Financial Advisers Association has a scheme which has been approved by ASIC. Mark tells DEF Licensees that he wishes to be covered by Great Financial Advisers Association's scheme.Within 30 business days of 1 January 2025, DEF Licensees lodges a notice under new section 922D to advise ASIC that it has authorised Mark. It includes the name of Mark's scheme in the notice.

ASIC's approval of schemes

Applications for approval

3.23 A monitoring body may apply to ASIC for approval of its scheme [Schedule 1, Part 1, item 12, subsection 921K(1)]. The application to ASIC must set out:

·
the name of the monitoring body for the scheme;
·
the arrangements for monitoring compliance with the Code by relevant providers covered by the scheme, including details about the monitoring body;
·
the sanctions for failing to comply with the Code;
·
the arrangements for resolving disputes between the monitoring body for the scheme and relevant providers covered by the scheme;
·
the arrangements for making a complaint to the monitoring body for the scheme; and
·
evidence that the monitoring body has sufficient resources and expertise to appropriately monitor and enforce compliance with the Code.

[Schedule 1, Part 1, item 12, subsections 921K(2) and (3)]

3.24 ASIC may only approve a scheme if it is satisfied that compliance with the Code will be 'appropriately monitored and enforced' under the scheme [Schedule 1, Part 1, item 12, subsection 921K(4)]. One of the factors that ASIC must consider is whether the monitoring body has sufficient resources and expertise to appropriately monitor and enforce compliance [Schedule 1, Part 1, item 12, subsection 921K(4)]. Other factors that ASIC may need to consider include:

·
the financial, technological and human resources of the monitoring body and where those resources are situated;
·
the number of advisers that the scheme is designed to cover;
·
whether the location of the advisers that are designed to be covered by the scheme matches the location of the monitoring body's resources;
·
the consultation procedures that the monitoring body intends to use before making any changes to the scheme;
·
the processes and resources that the monitoring body intends to use for administration, data management and reporting (including its capacity to appropriately handle personal information), and to fairly and effectively monitor compliance with the Code and the scheme's rules and decisions;
·
whether the monitoring body outsources any of its functions and how responsibility for these functions is maintained; and
·
the competence of the monitoring body's existing staff and its intended training procedures.

3.25 ASIC may impose conditions on its approval of a scheme. For example, ASIC may state that a scheme cannot cover more than a certain number of relevant providers or can only cover relevant providers whose principal place of business is within a certain number of kilometres from the monitoring body. [Schedule 1, Part 1, item 12, subsection 921K(5)]

3.26 ASIC is required to review applications and notify the applicant of its decision to approve, or refuse to approve, a scheme (and any conditions imposed) within a reasonable period of time. Once all of the initial schemes have been approved and implemented, a reasonable period of time will generally be three months. [Schedule 1, Part 1, item 12, subsection 921K(6)]

ASIC's power to review schemes

3.27 ASIC may review schemes after it has approved them. Monitoring bodies have an obligation to provide ASIC with any information or documents that ASIC requests within the time period specified by ASIC. The time period specified by ASIC must be reasonable in the circumstances. ASIC may consider the amount and ease of accessing the information, the potential consequences of a delay and any other relevant factors when determining an appropriate time period. [Schedule 1, Part 1, item 12, section 921Q]

3.28 ASIC's review power is limited to reviewing the enforcement and operation of schemes, and determining whether the scheme is effective to ensure that compliance with the Code is appropriately monitored and enforced. If the monitoring body is a professional association, ASIC does not have a general power to review the wider operations of a monitoring body in its capacity as a professional association.

Example 3.4 : ASIC's power to request information Fantastic Professional Association has a scheme approved by ASIC. ASIC is informed that Fantastic Professional Association is experiencing financial difficulties, has made over half of its staff redundant and does not have sufficient money to service its IT systems.ASIC may request information from Fantastic Professional Association about its financial resources and capacity to appropriately monitor and enforce the Code.ASIC would not be permitted to request information relating to the content of the technical CPD courses that Fantastic Professional Association runs for its members. This information is not relevant to Fantastic Professional Association's capacity to appropriately monitor and enforce the Code under its scheme.

3.29 ASIC may revoke its approval of the scheme, vary a condition to make it more onerous, or impose a new condition if it is satisfied that compliance with the scheme is not being 'appropriately monitored and enforced' or that the monitoring body does not have sufficient resources or expertise to appropriately monitor and enforce compliance. [Schedule 1, Part 1, item 12, paragraphs 921K(7)(a) and (c), and subsection 921K(9)]

3.30 ASIC may also revoke its approval of the scheme, vary a condition or impose a new condition if the monitoring body:

·
does not comply with a request from ASIC to provide it with information;
·
fails to notify ASIC of a significant change to the monitoring body's resources or expertise; or
·
fails to notify ASIC or the licensee of a relevant provider's failure to comply with the Code.

[Schedule 1, Part 1, item 12, paragraph 921K(7)(b) and subsection 921K(9)]

3.31 ASIC can only revoke its approval, vary a condition or impose a new condition once it has:

·
provided written notice setting out its reasons for considering revoking the approval, varying the condition or imposing a new condition;
·
provided the monitoring body with 90 business days to make submissions to ASIC about the possible revocation, variation or new condition; and
·
considered any submissions made.

[Schedule 1, Part 1, item 12, subsection 921K(8)]

3.32 ASIC may also remove or vary a condition that it has already imposed to make it less onerous if it satisfied that the condition is no longer necessary to ensure that compliance with the Code is effectively monitored and enforced. ASIC must notify the monitoring body within a reasonable period of time if it removes or varies a condition in these circumstances. [Schedule 1, Part 1, item 12, subsections 921K(10) and (11)]

Modification of the Code or a scheme

3.33 From time to time, the standards body may update the Code. Changes to the Code do not require monitoring bodies to seek re-approval for their scheme.

3.34 Monitoring bodies may also wish to modify their schemes. In this case, monitoring bodies must notify ASIC of the proposed change. A change to a scheme could include a change in the sanctions for non-compliance, a change to the name of the monitoring body or a minor change (such as a typographical correction). [Schedule 1, Part 1, item 12, subsection 921R(1)]

3.35 The notification to ASIC must set out the text of the proposed modification and contain an explanation of the purpose of the proposed modification. [Schedule 1, Part 1, item 12, subsection 921R(2)]

3.36 ASIC is not required to approve the changes but it has 28 days to disallow all or part of the proposed change. ASIC may disallow a change if it is not satisfied that compliance with the Code will be appropriately monitored and enforced under the modified scheme. If the proposal is to change the monitoring body, ASIC may also disallow the change if it is satisfied that the monitoring body does not have sufficient resources or expertise to appropriately monitor or enforce compliance with the Code. [Schedule 1, Part 1, item 12, subsection 921R(3)]

3.37 If ASIC disallows all or part of the change, the disallowed part will not take effect. If ASIC does not take any action within the 28 day period, the proposed change will take effect at the end of the period. [Schedule 1, Part 1, item 12, subsections 921R(4) to (6)]

3.38 ASIC's decision to disallow a change is subject to merits review under existing section 1317D of the Corporations Act.

3.39 The notification requirement ensures that ASIC has oversight of changes to schemes. It is broadly modelled on sections 793D and 793E of the Corporations Act, but unlike those sections the change will only take effect at the end of the 28-day disallowance period. This ensures that persons are not adversely affected by an improper change in the 28 day period before the change is disallowed by ASIC, and that the effect of inappropriate changes does not need to be 'undone' when ASIC invalidates the change.

Changes to the resources or expertise of a monitoring body

3.40 A monitoring body must also notify ASIC if there is a significant reduction in the resources or expertise that the monitoring body has available to monitor and enforce compliance with the Code. In general, a monitoring body should notify ASIC if there is a significant change in any of the factors that ASIC considered at the time of approving the scheme (see the list of factors in paragraph 3.24). The question whether a particular reduction is significant is a question of fact and it will depend on various factors, such as:

·
the monitoring body's existing level of resources and expertise;
·
the monitoring body's workload and any changes in its workload; and
·
the size of the reduction in the monitoring body's resources.

[Schedule 1, Part 1, item 12, section 921T]

3.41 If a monitoring body fails to notify ASIC, ASIC may revoke its approval of the scheme. [Schedule 1, Part 1, item 12, section 921K]

3.42 ASIC may also revoke its approval, after receiving information about a change in the resources or expertise of a monitoring body, if ASIC forms the view that the monitoring body is no longer able to appropriately monitor and enforce compliance with the Code. Alternatively ASIC may place additional conditions on the monitoring body. [Schedule 1, Part 1, item 12, section 921K]

Example 3.5 : Changes to a monitoring body's resources Alpha and Beta are both monitoring bodies.Alpha employs 200 staff. Alpha decides that it has surplus resources and makes 5 of its more junior staff redundant. Alpha is not required to notify ASIC of the change because it is not significant.Beta employs 7 staff. It also decides to reduce its staffing level by 5 employs. Beta must notify ASIC of the change as it is significant for Beta, given that Beta has a smaller number of staff.

Failure to comply with the Code

3.43 Monitoring bodies must monitor and enforce compliance with the Code. They are responsible for investigating possible failures to comply with the Code and determining whether a failure to comply with the Code has occurred. [Schedule 1, Part 1, item 12, subsections 921G(2) and 921L(1)]

3.44 The monitoring body must notify a relevant provider if it becomes aware that the relevant provider has or may have breached the Code. Failure to do so is an offence with a penalty of 10 penalty units. [Schedule 1, Part 1, item 12, subsections 921L(2) and 921M(1)]

3.45 To assist monitoring bodies to investigate failures to comply with the Code, there is an obligation on licensees and relevant providers to provide the monitoring body with information, documents or other reasonable assistance. The penalty for failing to comply with the monitoring body's request for assistance is 10 penalty units. [Schedule 1, Part 1, item 12, subsections 921L(3) and 921M(2)]

3.46 Monitoring bodies must conclude an investigation within a reasonable period after becoming aware of the failure or possible failure to comply with the Code. A monitoring body will generally become aware of a possible failure to comply when a customer makes a complaint or the monitoring body makes its own enquiries. An investigation is taken to have been concluded when the monitoring body determines, in writing, that there has or has not been a failure to comply. The investigation period does not include the period when the monitoring body deliberates on the appropriate sanction, or an appeal is heard. The penalty for a monitoring body failing to complete an investigation within a reasonable period is 10 penalty units. [Schedule 1, Part 1, item 12, subsection 921L(1), paragraph 921L(5)(b) and subsection 921M(1)]

3.47 In the financial services sector, there has been a history of financial advisers moving from one licensee to another licensee when potential wrongdoing has been uncovered in order to escape investigation. To prevent this from occurring, relevant providers are prohibited from changing schemes while they are under investigation. The new law states that a relevant provider must not cause a notice to be lodged with ASIC relating to a relevant provider's scheme when the relevant provider is under investigation. Notifying ASIC is one of the preconditions for a relevant provider to be covered by a scheme. [Schedule 1, Part 1, item 12, section 921J and subsection 921L(4)]

3.48 The penalty for a relevant provider who changes schemes while under investigation is 10 penalty units. [Schedule 1, Part 1, item 12, subsection 921M(3)]

3.49 If a relevant provider who is under investigation wishes to change schemes, the relevant provider may notify the monitoring body of its intention. Once the monitoring body has received such a notice, the monitoring body must conclude its investigation within 160 days and failing to do so is an offence with a penalty of 10 penalty units. This ensures that relevant providers' freedom to change schemes (which is restricted during an investigation) is not limited for an unnecessary period of time. [Schedule 1, Part 1, item 12, paragraph 921L(5)(a) and subsection 921M(1)]

Example 3.6 : Timeframe for completing investigations Mark is a relevant provider authorised by GHI Licensees. He is a member of the Perfect Financial Advice Association's approved scheme.Following a number of disagreements with his licensee Mark decides on 1 January 2024 to move to JKL Licensees. He informs GHI Licensees of his decision and comes to an agreement that he will cease his employment with GHI Licensees on 31 March 2024. He also agrees with JKL Licensees that he will as part of the move become a member of the Ethical Financial Advice Association and be covered by their approved scheme.On 15 January 2024, Mark is informed by his existing monitoring body, the Perfect Financial Advice Association, that a complaint has been received and that he is being investigated for a possible breach of the Code. Mark immediately informs the Perfect Financial Advice Association that he wishes to change schemes, and the notice is received by the Perfect Financial Advice Association on the same day, that is, 15 January 2024.Perfect Financial Advice Association now has 160 days, counting from 15 January 2024, to complete their investigation and issue a written determination to Mark.Mark receives the written determination on 13 April, and is then free to change schemes.

3.50 The new law states that a monitoring body's finding that a relevant provider has complied or failed to comply with the Code is not a legislative instrument under section 8 of the Legislation Act 2003. This subsection is merely included to assist readers. It is not an actual exemption from that provision. [Schedule 1, Part 1, item 12, subsection 921L(6)]

Consequences of failing to comply with the Code

3.51 The sanctions for a relevant provider who fails to comply with the Code will be set out in the Code and/or the scheme. The sanctions may involve soft sanctions, such as a warning, additional training, additional supervision, or revoking the relevant provider's membership of the professional association and/or compliance scheme.

3.52 ASIC does not have the power to ban a person for failing to comply with the Code in circumstances where the failure to comply does not also amount to a breach of another legal requirement. Nevertheless, ASIC may take compliance with the Code into account when determining whether it is in the public interest to ban a relevant provider for a breach of another legal requirement. [Schedule 1, Part 1, item 11, paragraph 920A(1)(e)]

3.53 ASIC may choose to investigate a failure to comply with the Code further if it believes that the conduct also amounted to a breach of another obligation in the Corporations Act. To assist ASIC to investigate a breach, the monitoring body must provide ASIC with any information or documents about the scheme that ASIC requests. [Schedule 1, Part 1, item 12, section 921Q]

Notifications of failures to comply with the Code

3.54 Monitoring bodies must notify ASIC of details of failures to comply with the Code and the sanctions imposed. The notice must be provided within 30 business days of the monitoring body determining that a failure to comply has occurred and within 30 business days of the sanction being imposed. If a breach and the related sanction are within 30 business days of each other, a single notice may be provided within 30 business days of the later of the two events. This means that monitoring bodies may choose to combine both notices into a single form and thereby reduce their lodgement fees. [Schedule 1, Part 1, item 16, section 922HD]

3.55 The penalty for a monitoring body that fails to notify ASIC within the specified period is 50 penalty units. [Schedule 1, Part 1, item 16, section 922M]

3.56 Monitoring bodies must also notify the licensee of the details of relevant failures to comply with the Code and the sanctions imposed. This notification must be provided within 30 business days of the monitoring body determining that the licensee has failed to comply or imposing the sanction. There are no further formal conditions imposed on this notification requirement, and monitoring bodies are accordingly free to select the most convenient and cost-effective method of notifying licensees. It is therefore also unnecessary to include a provision allowing notices to be combined, as is the case for the notification provided to ASIC (see subsection 922HD(3)). [Schedule 1, Part 1, item 12, section 921N]

3.57 Information about an adviser's failure to comply with the Code and the sanctions imposed will be noted on the Register. Further information about the Register is in Chapter 4 of this explanatory memorandum. [Schedule 1, Part 1, item 16, subsection 922Q(1) and paragraph 922Q(2)(r)]

Example 3.7 : Failure to comply with the Code Bob is a financial adviser at Remote Australia Financial Advice. Bob is a member of Ethical Financial Advisers Association and is covered by its scheme.One of Bob's customers contacts Ethical Financial Advisers Association on 1 July and alleges that Bob has failed to comply with the Code.Ethical Financial Advisers Association makes its own inquiries. On 6 July, Ethical Financial Advisers Association forms the view that Bob has failed to comply with the Code. While the failure to comply is concerning, Ethical Financial Advisers Association is confident that Bob has not breached any other obligations in the Corporations Act.Ethical Financial Advisers Association decides that Bob's failure to comply with the Code is not sufficiently serious to remove him from the association. Instead it issues Bob with a formal warning on 25 July.Ethical Financial Advisers Association is required to notify Remote Australia Financial Advice of:

·
Bob's failure to comply with the Code within 30 business days of 6 July; and
·
the sanction imposed within 30 business day of 25 July.

Ethical Financial Advisers Association must notify ASIC of the finding that there was a failure to comply with the Code and the sanction imposed. As the sanction was imposed within 30 business days of the finding that there was a breach, the notices may be combined into a single notice. This notice must be provided within 30 business days of 25 July.

Effect of legal proceedings on a related matter

3.58 The same course of conduct may amount to a failure to comply with the Code and a breach of another substantive requirement in the Corporations Act or the criminal law. In these situations, the monitoring body may only make findings about the failure to comply with the ethical aspects in the Code and apply 'soft sanctions'. Monitoring bodies are not courts, nor vested with judicial power. They cannot determine whether there has been a breach of any of the requirements in the Corporations Act (apart from the obligation to comply with the Code), cancel or suspend licences, or impose any civil or criminal sanctions. If the monitoring body suspects that there may be a breach of any obligations other than the ethical aspects in the Code, the monitoring body should refer the matter, for investigation, to ASIC or the appropriate investigative authorities.

3.59 The monitoring body is not required to delay its findings until any related court proceedings have concluded. Findings made by a monitoring body do not determine the matter before the court and the court must make its own decision on the issue before it, after considering admissible evidence and applying the relevant standard of proof. Potential reasons why a court cannot rely on the monitoring body's findings are:

·
the court is considering whether a different obligation has been breached;
·
a higher standard of proof applies to the court proceedings;
·
evidence considered by the monitoring body may be inadmissible in court because the rules of evidence apply; and
·
evidence that was not available to the monitoring body may be produced in court, for example (but not limited to), the availability of discovery procedures in civil proceedings or the execution of a search warrant in criminal proceedings.

Publication of the Code and scheme

3.60 The monitoring body must ensure that the scheme is publicly available. This requirement ensures that relevant providers covered by the scheme are aware of the monitoring and enforcement procedures and consumers can access information about the process for lodging complaints. [Schedule 1, Part 1, item 12, section 921P]

3.61 The penalty for failing to publish a scheme is 10 penalty units. [Schedule 1, Part 1, item 12, subsection 921P(2)]

3.62 It is intended that a professional association or third party can publish the Code along with any additional ethical obligations it has developed for its members if applicable. The monitoring body or third party is able to brand the Code with its logo, but it must not amend any of the provisions in the Code.

Example 3.8 : Publication of the Code The Ethical Advisers Association has developed its own code of ethics which contains additional ethical obligations for its members. The Ethical Advisers Association wishes to publish its code and the Code developed by the body in the same document.The Ethical Advisers Association may publish the body's Code in section 1 of the document and its code in section 2 of the document.However, the Ethical Advisers Association may not publish one provision of its code, followed by one provision of the body's Code, followed by another provision of its code etc. This is because the body's Code must be published in its entirety and provisions of the body's Code cannot be separated.

Independent reviews

3.63 The monitoring body must cause the scheme to be reviewed by an independent person at least every five years. The independent person cannot be an associate of the monitoring body, a person covered by a scheme, a licensee whose advisers are covered by the scheme, or a professional association whose members are covered by the scheme. [Schedule 1, Part 1, item 12, section 921S]

3.64 The monitoring body must arrange for a review even if ASIC completes a review within the five year period. This is because ASIC's reviews are undertaken at ASIC's own instigation, and are not directly caused to occur by the monitoring body.

3.65 The monitoring body must also ensure that the review is made publicly available as soon as reasonably practical after it is completed. It must also provide a copy of the review to ASIC. [Schedule 1, Part 1, item 12, subsection 921S(3)]

Information sharing with the Tax Practitioners Board

3.66 The new law amends the TASA to ensure that the Tax Practitioners Board (TPB) and monitoring bodies are able to share information.

3.67 The TPB is responsible for enforcing compliance with the Code of Professional Conduct in Part 3 of the TASA. The Code of Professional Conduct in the TASA applies to tax agents, BAS agents and tax financial advisers. Many of the approximately 20,000 tax financial advisers are also relevant providers, and as such they will be bound by both the new body's Code and the Code of Professional Conduct in the TASA.

3.68 The TPB will be required to notify the relevant monitoring body of the outcome of all investigations which relate to persons who are also relevant providers. [Schedule 1, Part 1, items 21 to 23, subparagraphs 60-125(8)(c)(iv), (c)(v) and (d)(iv)]

3.69 The TPB also has the power to share any information, including official information, with monitoring bodies if the information is provided to monitoring bodies for the purposes of monitoring or enforcing compliance with the new Code. This is achieved by creating an exemption from the general prohibition on the TPB disclosing official information in existing section 70-35 of the TASA. The general prohibition on 'on-disclosing' official TPB information to another party in existing section 70-45 of the TASA applies to monitoring bodies. Further, the monitoring body must only use or disclose information from the TPB for the purposes of monitoring and enforcing compliance with the Code. Improper use or disclosure of the information is an offence which carries a penalty of 10 penalty units. [Schedule 1, Part 1, item 12, subsection 921L(7) and item 25, subsection 70-40(3AA)]

3.70 Monitoring bodies are not required to notify the TPB of the outcome of their investigations, but if the monitoring body finds that there was a failure to comply with the Code, the information must be provided to ASIC and made available on the Register.

3.71 The TPB has the power to request additional information from monitoring bodies about the:

·
monitoring body's compliance scheme; or
·
the compliance of a relevant provider with the Code or the Code of Professional Conduct in the TASA.

[Schedule 1, Part 1, item 24, section 70-34]

3.72 The TPB must provide the request in writing and specify the period within which the monitoring body must comply with the request. The period must be at least 14 days. Monitoring bodies are required to provide the information within the timeframe requested by the TPB and a note under new section 70-34 makes it clear that the provision of this information is authorised under the Australian Privacy Principles. [Schedule 1, Part 1, item 24, note 2 under subsection 70-34(2) and subsection 70-34(3)]

3.73 The existing law already gives the TPB the power to request information from private persons when it is undertaking a formal investigation in section 60-100. The new law extends this power by removing the requirement for the TPB to be undertaking a formal investigation. In this way, the new law is designed to allow for more expedient information sharing between monitoring bodies and the TPB.

3.74 The penalties for failing to provide the information requested by the TPB under the new law are the same as the administrative penalties that currently apply to breaches of section 60-100 of the TASA.

3.75 Amendments have also been made to the dictionary in subsection 90-1(1) of the TASA to ensure that all terms have the same meaning as in the Corporations Act. [Schedule 1, Part 1, item 26, subsection 90-1(1)]

Application and transitional provisions

3.76 The obligations to comply with the Code and report failures to comply apply from 1 January 2020. [Schedule 1, Part 2, item 27, section 1546F]

3.77 Relevant providers must subscribe to a scheme by 15 November 2019, which is 30 business days before 1 January 2020. Once the 30 business day grace period is taken into account, this means that all relevant providers should be covered by a scheme from 1 January 2020. [Schedule 1, Part 2, item 27, subsections 1546G(1), (2) and (5)]

3.78 The provisions relating to ASIC's approvals of schemes, power to disallow proposed modifications to schemes and information gathering powers apply from commencement. This ensures that monitoring bodies may develop their schemes and seek ASIC's approval before the requirement for relevant providers to be covered by a scheme applies. [Schedule 1, Part 2, item 27, subsection 1546G(3)]

3.79 Schemes must be made publicly available by 1 January 2020. The provisions relating to investigations of a possible failure to comply with the Code also apply from 1 January 2020. [Schedule 1, Part 2, item 27, subsection 1546G(4)]


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