Australia: Regulation Of Financial Advisers

Last Updated: 19 December 2008
Article by Sue Brown, Tracey Cross, Alasdair McBeth and Rachel Taylor


The Financial Advisers Act 2008 (Advisers Act) was passed at the end of September and already work is underway on the detail that is required for the Advisers Act to become fully operational in 2010. With this objective, the Financial Advisers Act Commencement Order (Order) took effect on 5 December 2008. The Order sets in place the administrative provisions that enable officials to get started on some of the 'real work' behind the Advisers Act. In addition, the Securities Commission has already established a team to undertake much of the early consultation and drafting work and is currently in the process of meeting with interested parties to discuss the various timeframes and proposals for the Regulations and the Code moving forward.


Our September Update outlined the requirements of the Advisers Act. In summary, the Advisers Act:

  • Regulates the provision of 'financial adviser services' where a person gives financial advice, makes an investment transaction, or provides a financial planning service in the course of his or her business, and whether to members of the public or to 'wholesale' clients.
  • Establishes two categories of financial adviser with advisers in each category being permitted to provide advice only in relation to particular products. Those advisers in Category 1 (which relates to products deemed to be of higher risk and therefore in need of greater protection) will need to be both registered pursuant to the newly introduced Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP Act) and authorised by the Securities Commission. Category 2 advisers (advising in relation to products that are perceived to be lower risk, such as a call debt security or bank term deposit) need only be registered.
  • Introduces the concept of the 'Qualifying Financial Entity' (QFE). Employees of QFEs will not be required to be either authorised or registered and are permitted to provide financial advice or to make investment transactions in respect of Category 2 products or Category 1 products of which their employer QFE is the issuer.
  • Introduces the new role of Commissioner for Financial Advisers (Commissioner) who will be responsible for establishing a Code Committee (Committee), approving a Code of Professional Practice (Code) and for ongoing monitoring and discipline, including chairing the disciplinary committee also established under the Advisers Act.

The steps to be taken in 2009

Appointment of the Commissioner

The first step will be the appointment of the Commissioner, a role that sits within the Securities Commission. The Minister of Commerce is responsible for the formal appointment of the Commissioner and has already received a number of applications from interested parties in response to its advertisement of the position. It is likely that the formal appointment of the Commissioner will be made early in the New Year.

The Committee and the Code

Once appointed, the Commissioner's first task will be to form the Code Committee. The Committee must consist of between seven and eleven members made up of one consumer representative with the balance being industry representatives. It is likely that the Committee will be formed early in the first quarter of 2009. The initial role of the Code Committee is to produce a draft Code of Professional Practice for approval by the Commissioner. The Committee will then be responsible for ongoing review of the Code and recommending any changes to the Code that it thinks may be appropriate.

The Securities Commission has already commenced work on a draft of the Code and has been consulting with interested parties on its content. Upon the formal appointment of the Code Committee, the Committee will assume responsibility for the drafting of the Code. While the final decision as to the content of the draft Code is for the Committee and the Commissioner, it is likely that the work of the Securities Commission will form the basis of the Code. It is therefore important for interested parties to involve themselves in discussions with the Securities Commission as early as possible.

Once a draft of the Code is finalised it will subsequently be released for consultation. Indications are that a draft of the Code will be released for consultation towards the end of the first quarter of 2009.

The Code will set minimum standards of competence, knowledge and skills required of advisers and dictate standards of ethical behaviour and client care. The Code must also provide for continuing professional training, including specifying the minimum requirements that advisers must meet, and may specify different standards for different classes of authorised adviser. Once the Code has gone through its required consultation process, it will be forwarded to the Commissioner for consideration - again there will be an opportunity for consultation but this will likely be limited to parties who have already involved themselves in earlier consultation. Once the Commissioner is satisfied with the Code, it will be forwarded to the Minister of Commerce for approval.

The Securities Commission is expected to issue consultation papers on the competencies that will need to be demonstrated in order for advisers to become 'authorised' early in the New Year. We understand that competencies are likely to be based on the unit standards that are part of existing educational qualifications. This means that they will be National Qualifications and form part of the Qualifications Framework that is administered by the New Zealand Qualifications Authority.

The qualifications are currently being developed by ETITO, an industry training organisation, and the National Certificate in Financial Services (Level 4) was registered on the National Qualifications Framework in August. While still to be finalised, it is thought that this level may be suitable for Category 2 advisers. Further levels will be developed in respect of advisers wanting to provide advice in relation to Category 1 products. In any event, the competencies will require advisers to prove themselves on both a practical and a theoretical level.

Timing issues will arise if, as seems likely, the competencies have not been finalised by the time in late 2009/early 2010 when advisers must apply for authorisation to meet the expected 2010 implementation date. It may be necessary for initial authorisations to be granted conditional on satisfaction of the competencies, when finalised.

Development of authorisation procedures and conditions

In addition to the practical and IT aspects of the application process, the Securities Commission may authorise a financial planner 'subject to terms and conditions'. The extent and purpose of the conditions remain to be developed, but they could include, for example, insurance requirements and restriction of the authorisation to particular types of financial products (eg superannuation or derivatives).


All financial advisers (authorised or not) must be registered, and be a member of a dispute resolution scheme under the FSP Act - see below.

In summary

The Advisers Act is expected to be fully in force by the end of 2010. However, much of the detail will be finalised throughout 2009. All indications are that a draft of the Code will be released for comment early in 2009. Given the timeframes involved, it is likely that the consultation period will be brief meaning that interested parties should ready themselves to review and provide feedback on proposals as drafts and discussion papers are released.

The impact of these changes on the industry is significant and the importance of getting the Regulations and Code right cannot be overstated. It is crucial, therefore, that industry members take the opportunity to have their say in these upcoming rounds of consultation and in ongoing discussions with the Securities Commission and MED.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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