ASIC has updated regulatory guidance to confirm restrictions, that were announced in June 2017, on the use of terminology that implies independence.
ASIC has updated Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175), to include guidance that terms such as ‘independently owned’, ‘non-aligned’ and ‘non-institutionally owned’ are restricted under the Corporations Act (the Act). Financial services providers can only use these terms if they meet the requirements set out in s923A of the Act, including that they do not receive commissions, volume-based payments, or other gifts or benefits, and operate without any conflicts of interest.
ASIC Deputy Chairman, Peter Kell said, ‘We want to ensure that those providing financial services to consumers are accurately describing their services. Consumers should not be misled into thinking a person is free from conflicts of interest solely because they use terms such as “independently owned”‘.
The guidance in RG 175 on s923A reflects ASIC’s announcement in 17-206MR ASIC clarifies its position on the use of independently owned under s923A.
That announcement included a six month facilitative compliance period for financial service providers who were using the terms ‘independently owned’, ‘non-aligned’, and ‘non-institutionally owned’. ASIC reminds those who are still using these terms but who cannot meet the conditions in s923A that the six month facilitative compliance period will come to an end on 31 December 2017.
The update to RG 175 also reflects the introduction of s923C into the Corporations Act by the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017, to restrict the use of the titles ‘financial adviser’ and ‘financial planner’. This restriction commences on 1 January 2019 for new advisers, while existing advisers have until at least 1 January 2021 to satisfy the first of their training requirements.
ASIC has also made minor changes to RG 175 to reflect the changes that will be made to Regulatory Guide 90 Example Statement of Advice: Scaled advice for a new client (RG 90). As explained in Consultation Paper 284: Example Statement of Advice for life insurance: Update to RG 90, ASIC is going to replace the example Statement of Advice (SOA) in RG 90 with a new example SOA. The updated RG 90 will be released shortly.
Section 923A of the Act prohibits a person from using certain restricted words and expressions in relation to a financial services business or in the provision of a financial service unless:
- the person (including anyone providing a financial service on their behalf or anyone on whose behalf they are providing a financial service) does not receive:
- commissions (apart from commissions that are rebated in full);
- forms of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product; or
- other gifts or benefits from product issuers which may reasonably be expected to influence that person;
- the person operates free from direct or indirect restrictions relating to the financial products in respect of which they provide financial services; and
- the person is free from conflicts of interest that might arise from any relationships with product issuers and which might reasonably be expected to influence the person.
Section 923A(5)(a) specifies that the words ‘independent’, ‘impartial’, and ‘unbiased’, or any other words “of like import” are restricted words for the purposes of s923A. Use of those words as part of another word or expression is also restricted: s923A(5)(b). RG 175 confirms that terms such as ‘independently owned’, ‘non-aligned’ and ‘non-institutionally owned’ are “of like import” to the specified words in s923A(5)(a), and therefore, restricted under s923A.
© Australian Securities & Investments Commission. Reproduced with permission.