Explanatory Memorandum(Circulated by authority of Senator the Hon. Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy, Minister for Women's Economic Security)
Chapter 2 - Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Financial Sector Reform (Hayne Royal Commission Response-Better Advice) Bill 2021
2.1 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
2.2 The Bill implements the Government's response to recommendation 2.10 of the Financial Services Royal Commission Final Report by:
- expanding the role of the Financial Services and Credit Panel within ASIC to operate as the single disciplinary body for financial advisers to ensure that less serious misconduct does not go unaddressed;
- creating new penalties and sanctions for financial advisers who have breached their obligations under the Corporations Act;
- introducing a new registration system for financial advisers to improve the accountability and transparency of the financial services sector; and
- transferring functions from FASEA to the Minister responsible for administering the Corporations Act and to ASIC to streamline the regulation of financial advisers.
2.3 The Bill also implements the Government's response to recommendation 7.1 of the Tax Practitioners Board Review by introducing a single registration and disciplinary system under the Corporations Act for financial advisers who provide tax (financial) advice services and removing duplicate regulation.
Human rights implications
2.4 This Bill engages the following rights:
- Article 14 of the International Covenant on Civil and Political Rights (ICCPR);
- Article 15 of the ICCPR;
- Article 17 of the ICCPR;
- Article 19 of the ICCPR; and
- Article 6 of the International Convention on Economic, Social and Cultural Rights (ICESR).
Strict liability offences
2.5 The strict liability offences in this Bill may engage the right to a fair trial, as well as the presumption of innocence in Article 14 of the ICCPR. Article 14 of the ICCPR provides that everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.
2.6 The Bill introduces the following new strict liability offences:
- a person fails to comply with a summons - 50 penalty units;
- a person fails to comply with a requirement to take an oath or make an affirmation - 50 penalty units;
- a person fails to answer a question or produce a document - 50 penalty units;
- a person is present at a hearing, or part of a Financial Services and Credit Panel hearing, that is to be conducted in private without permission - 30 penalty units;
- publication of evidence, or matters contained in documents lodged with a Financial Services and Credit Panel and a direction restricting the publication of that evidence or those matters is in force -120 penalty units; and
- a financial adviser provides personal advice to retail clients in relation to relevant financial products while unregistered, and at the time, the financial services licensee, on whose behalf that advice is provided, has not ceased to authorise the person - 20 penalty units.
2.7 Strict liability offences engage with this right as they involve the imposition of criminal liability without a mental fault element. However, strict liability offences are compatible with the presumption of innocence if they are reasonable, necessary and proportionate in pursuit of a legitimate objective.
2.8 Strict liability offences are appropriate in these circumstances, as they are necessary to strongly deter misconduct that can result in serious financial detriment for consumers of financial services and reduce non-compliance by ensuring that the panel can efficiently and expeditiously deal with low-level offending. This in turn bolsters the integrity of the regulatory regime for financial advisers and maintains public confidence in the regime.
2.9 The offence provisions for being present at a hearing of a Financial Services and Credit Panel without permission or publication of material restricted by the panel are the same as the offence provisions that currently apply to hearings conducted by ASIC under Divisions 6 and 7 of Part 3 of the ASIC Act.
2.10 Each of the remaining strict liability offences (for failing to comply with a summons, take an oath or make an affirmation, to answer a question or produce a document and for continuing to authorise a financial adviser who is unregistered (for Stage 1 registration only)) impose a penalty that is below the amount recommended in the Guide to Framing Commonwealth Offences, which provides that fines for strict liability offences should not exceed 60 penalty units for individuals or 300 penalty units for a body corporate.
2.11 The application of strict liability preserves the defence of honest and reasonable mistake of fact to be proved by the accused on the balance of probabilities. This defence maintains adequate checks and balances for persons who may be accused of such offences.
2.12 According to the Guide to Framing Commonwealth Offences, strict liability does not apply to offences punishable by imprisonment.
2.13 These new strict liability offences apply prospectively, therefore upholding article 15 of the ICCPR. A Financial Services and Credit Panel has the power to consider matters where the relevant conduct occurs on and after the commencement of the legislation on 1 January 2022. Article 15 of the ICCPR provides that no one shall be held guilty of any criminal offence for any act or omission which did not constitute a criminal offence at the time when it was committed.
2.14 Given the need to deter misconduct, and the potential harm that could arise from non-compliance with these obligations, these new strict liability offences are considered a reasonable and proportionate means of achieving the legitimate objective of strengthening the regulation of the financial advice industry.
2.15 The Bill introduces new civil penalty provisions, which may engage the right to a fair trial, as well as the presumption of innocence in Articles 14 and 15 of the ICCPR. Article 14(2) of the ICCPR recognises that all people have the right to be presumed innocent until proven guilty according to the law.
2.16 The Bill introduces the following new civil penalty provisions into the Corporations Act and provides that for contraventions of these provisions a Financial Services and Credit Panel can make an instrument taking administrative action against the adviser, issue an infringement notice or make a recommendation to ASIC to apply for a civil penalty:
- comply with education and training standards for financial advisers;
- comply with the additional education and training standards (if any) for the provision of tax (financial) advice services;
- comply with the requirements for provisional financial advisers and supervisors of provisional financial advisers;
- comply with a direction or order made by a Financial Services and Credit Panel;
- be registered while providing financial advice; and
- cease to authorise a person to provide financial advice on the licensee's behalf at the time a financial adviser provides financial advice while unregistered - this civil penalty provision applies to financial services licensees.
2.17 ASIC may apply to the court for a civil penalty for alleged contraventions of these civil penalty provisions, either as an alternative to, or in addition to an instrument taking administrative action against the adviser for the matter, subject to consideration being given to the nature, purpose and severity of the penalty.
2.18 If a court makes a declaration of contravention, the maximum penalty for a contravention of these civil penalty provisions, as for other existing civil penalty provisions in the Corporations Act, is the greater of 5,000 penalty units for individuals, or if the court can determine the benefit derived and detriment avoided because of the contravention-that amount multiplied by three. Consistent with the existing civil penalty regime in the Corporations Act, it is expected that the maximum penalty will only be applied in the most serious cases, as determined by the court.
2.19 These civil penalty provisions are regulatory and protective in nature and are aimed at encouraging compliance by financial advisers and financial service licensees. The purpose of these provisions is to ensure the integrity of the new disciplinary system for financial advisers.
2.20 The civil penalty provisions contained in this Bill are not 'criminal' for the purposes of human rights law. While a criminal penalty is deterrent or punitive, these provisions are regulatory and disciplinary, and they do not result in the same stigma or condemnation as criminal offences. Further, the provisions do not apply to the general public, but to a sector or class of regulated people (financial advisers and financial services licensees) who should be aware of their obligations under the Corporations Act.
2.21 These civil penalty provisions apply prospectively for conduct that occurs on or after commencement of the legislation on 1 January 2022 and therefore upholds article 15 of the ICCPR.
2.22 The Bill may engage the right to a fair and public hearing in Article 14 of the ICCPR by extending the existing infringement notice regime in Part 9.4AB of the Corporations Act to provide for the Financial Services and Credit Panel to be able to issue infringement notices where a financial adviser is alleged to have contravened a restricted civil penalty provision.
2.23 Infringement notices are part of a range of administrative and civil sanctions available to a Financial Services and Credit Panel as part of the creation of a new disciplinary system for financial advisers. This is intended to enable a Financial Services and Credit Panel to impose a sanction that is appropriate and proportionate to the nature, severity and consequences of the alleged contravention.
2.24 In accordance with the Guide to Framing Commonwealth Offences, infringement notices are not available for matters punishable by imprisonment.
2.25 However, if a Financial Services and Credit Panel reasonably believes that a financial adviser has contravened a restricted civil penalty provision, the panel cannot issue an infringement notice unless the panel gives the financial adviser a proposed action notice, which includes:
- details of the alleged contravention;
- the infringement notice amount;
- the adviser's right to request a hearing or make a submission within 28 days of the notice being given; and
- when the details of the infringement notice would be included on the Register of Relevant Providers (Financial Advisers Register).
2.26 If a financial adviser requests a hearing, or makes a submission, in response to a proposed action notice, the panel must hold a hearing or consider the submission before it is able to take action. In this way, the Bill does not limit the adviser's right to a fair and public hearing by a competent, independent and impartial adjudicator.
2.27 Furthermore, if an infringement notice is issued, the adviser has the right to request the withdrawal of the notice.
2.28 The Bill also protects the right of the adviser to refuse to comply with an infringement notice by providing that details of the infringement notice may only to be made publicly available on the Register of Relevant Providers (Financial Advisers Register) if the adviser has complied with the infringement notice within the payment period. In such a case, ASIC must publish all of the following information:
- details of the infringement notice;
- a statement that the adviser has complied with the notice;
- a statement that compliance with the notice is not an admission of guilt or liability; and
- a statement that the financial adviser is not regarded as having contravened the provision specified in the notice.
2.29 As for the existing infringement notice scheme under the Corporations Act, a financial adviser may choose not to pay the infringement notice, which may result in ASIC commencing court proceedings for a declaration of contravention and pecuniary penalty in relation to the alleged contravention of a restricted civil penalty provision.
2.30 Given these protections, the new infringement notice scheme in this Bill is considered a reasonable and proportionate means of achieving the legitimate objective of introducing a new disciplinary system for financial advisers.
The right against self-incrimination
2.31 The new information-gathering powers in the Bill may engage the right against self-incrimination under Article 14(3)(g) of the ICCPR because they provide that a Financial Services and Credit Panel may require:
- a person to appear before the panel at a hearing to give evidence or produce specified documents, or both; and
- a person appearing at the hearing to answer a question put to the person or produce a document.
2.32 These provisions do not apply to a financial adviser who is the subject of the hearing, but only to witnesses who have access to information or documents pertinent to the proceedings.
2.33 In circumstances where a hearing is held (e.g. before making a banning order), the adviser may choose to attend the hearing, not attend the hearing and be represented at the hearing by a lawyer or another approved person, make one or more written submissions to the panel before the day of the hearing, or take no action.
2.34 In regard to witnesses, a Financial Services and Credit Panel has the power to give a written summons to a person to appear at a hearing, answer questions and/or produce specified documents. This provision is not intended to abrogate the privilege against self-incrimination.
2.35 Engaging the right against self-incrimination in this way is necessary and justified as the public benefit in removing the liberty outweighs the loss to the individual. The information sought from witnesses may only be available from certain individuals and is critical to the panel being able to perform its regulatory functions. The panel's regulatory functions are important to protect consumers and others by taking disciplinary action against financial advisers for misconduct and ensure the integrity of Australia's financial advice sector.
2.36 However, individual rights against self-incrimination are protected by ensuring that information obtained by the panel using these powers cannot be used against the individual in criminal proceedings or in proceedings where the person may be liable to a criminal penalty.
2.37 The Bill also protects the rights of persons by granting the Financial Services and Credit Panel the power to restrict the publication of evidence given before the panel or matters contained in documents lodged with the panel. In determining whether to exercise this power, the panel must have regard to whether the evidence or material concerns the commission, alleged, or suspected commission of an offence against an Australian law. The publication of evidence or material when such a direction is in force is an offence of strict liability, the penalty for which is 120 penalty units.
2.38 The Bill also protects persons and businesses from possible damage to their reputation by making the unauthorised use or disclosure of information by members, or former members, of a Financial Services and Credit Panel an offence. The penalty for this offence is two years imprisonment.
2.39 Overall, the information gathering powers in the Bill are considered to be consistent with the right against self-incrimination under Article 14(3)(g) of the ICCPR.
Right to privacy
2.40 The Bill engages the right to protection from unlawful or arbitrary interference with privacy under Article 17 of the ICCPR because it provides for:
- ASIC to disclose information to a Financial Services and Credit Panel and the Tax Practitioners Board;
- a Financial Services and Credit Panel to disclose information to ASIC, the Tax Practitioners Board and another Financial Services and Credit Panel as required or permitted by a law of the Commonwealth or state or territory, or for the purposes of performing the panel's functions or exercising its powers; and
- the Tax Practitioners Board to disclose information to a Financial Services and Credit Panel for the purposes of the panel performing its functions or exercising its powers.
2.41 The right in Article 17 may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. In order for an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.
2.42 The amendments establish a mutual information sharing arrangement between ASIC, a Financial Services and Credit Panel and the Tax Practitioners Board to improve the ability of each of these bodies to perform their functions and to conduct timely compliance activity and better protect the integrity of Australia's financial and taxation advice sector. These amendments are considered a reasonable change as they will allow these bodies to work together more effectively to ensure compliance with financial services and taxation laws. These new provisions are also appropriate as they will ensure that the process for sharing information is consistent with other existing disclosure provisions in the ASIC Act and the Tax Agent Services Act 2009.
2.43 Any information that is shared between ASIC, a Financial Services and Credit Panel and the Tax Practitioners Board is subject to strict protections and requires all reasonable measures to be taken to protect confidential information from unauthorised disclosure. This protection is reinforced by offence provisions, which provide that current or former members of a Financial Services and Credit Panel or the Tax Practitioners Board commit an offence if they use or disclose information other than as authorised. The penalty for these offences is two years imprisonment.
Right to freedom of expression
2.44 The Bill engages the right to freedom of expression in Article 19(2) of the ICCPR, which stipulates that all individuals shall have the right to freedom of expression, including the freedom to seek, receive and impart information 'of all kinds'.
2.45 Article 19(3) of the ICCPR provides that interferences with the right to freedom of expression may be permissible if they are provided by law and necessary for respect of the rights or reputations of others, for the protection of national security, public order, or public health or morals.
2.46 This Bill engages these rights by:
- providing a Financial Services and Credit Panel the power to restrict the publication of evidence given to, or matters contained in documents lodged with the panel;
- making it an offence to publish evidence or information in breach of a direction that is in force; and
- making the unauthorised use or disclosure of information an offence where it was obtained in connection with the performance of the panel's functions or the exercise of its powers by an individual who is or was a member of a Financial Services and Credit Panel.
2.47 These provisions limit freedom of expression in a manner that is reasonable, necessary and proportionate to a legitimate objective, namely for respect of the rights or reputation of others, as provided for in article 19(3) of the ICCPR.
2.48 The restriction on the publication of specified information or material is essential to the proper functioning of a Financial Services and Credit Panel, noting that the information is provided for the limited purpose of proceedings before the panel. Restrictions on disclosure in this context are intended to protect confidential information given for the purposes of the panel's examination of a particular issue. In deciding whether to make an order restricting the publication of specified material, the panel must take into account considerations such as public interest and privacy concerns, including protection of the reputation of persons and businesses.
2.49 It is therefore considered that the Bill is compatible with the right to freedom of expression in Articles 19(2) and (3) of the ICCPR.
Right to work
2.50 The Bill may engage the right to freely choose and accept work under Article 6(1) of the ICESR, which provides that everyone must be able to freely accept or choose their work and not to be unfairly deprived of work. The right to work also requires that state parties provide a system of protection guaranteeing access to employment. This right must be made available in a non-discriminatory manner pursuant to article 2(1) of the ICESCR.
2.51 The Bill provides that an individual will not be able to work as a financial adviser unless they meet the education and training standards prescribed by the Minister. Additional competency requirements may also apply for persons who intend to provide tax (financial) advice services. In this way, the Bill restricts individuals from working as financial advisers unless they comply with these requirements. The restrictions are however justified as they create a minimum competency standard for the provision of financial advice, which is intended to improve the quality of advice given to consumers and instil confidence in the industry.
2.52 The Bill also engages this right by introducing a fit and proper person test as part of the registration process for financial advisers. This is appropriate as it ensures that persons who provide financial advice in Australia are persons who are trustworthy and have the required integrity. Ensuring that only individuals who meet fitness and propriety requirements can be financial advisers is necessary to protect consumers given the sensitive nature of the service delivered.
2.53 Participation in Australia's financial services sector is not a right; participation is only possible if relevant standards are met and is only granted by the Commonwealth to suitable persons. A person seeking the benefit of participation in this industry will do so in the knowledge that the existence of certain circumstances may result in their registration as a financial adviser being refused, suspended or cancelled, or another administrative action being taken against them. This is appropriate as it remains necessary to protect consumers and the integrity of Australia's financial services sector against misconduct.
2.54 Including a fit and proper person test in the Bill ensures that the Regulator receives notification of any advisers who pose a potential risk and is intended to allow action to be taken to ensure the integrity of financial services to retail clients is not compromised.
2.55 Accordingly, to the extent that the Bill engages rights under Articles 14, 15, 17 and 19 of the International Covenant on Civil and Political Rights and Article 6 of the International Convention on Economic, Social and Cultural Rights, it is compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 as the limitations are appropriate, proportionate and achieve a legitimate objective.