Reforming regulation of financial advisers

Summary

How should financial advisers be regulated and how are the best interests of investors best protected?

Researchers

Project background and aims

Following the Future of Financial Advice (‘FoFA’) reforms, the ‘suitability’ and ‘appropriateness’ focus for financial advice has been relocated and supplemented by a ‘best interests’ focus in s961B of the Corporations Act 2001 (Cth).  Yet, as the Royal Commission into Banking and Financial Services has pointed out, structural issues may often work against best interests being paramount.  Further, moves to make the statutory obligation replicate a fiduciary obligation have been resisted in the consultative process that developed the sections and any replication is far from clear.  Another key issue is the extent to which aspects of the obligation are satisfied by a ‘box ticking’ approach.  This aspect of the section is said to provide ‘safe harbour’ for advisers yet has been criticised by the Royal Commission as overly procedural rather than substantive. Yet removing the safe harbour altogether may create more problems than it solves. It may be that a catch all provision in s961B(2)(g) preserves substantive flexibility, and caution is needed in relation to any reform that leaves no procedural guidance for financial advisers to anchor their behaviour in fulfilling the best interests duty.

Methodology

The analysis will combine traditional legal doctrinal including analysis of relevant legislation and court decisions.

Output

  • Han Wei Liu, Toan Le, Weiping He, and Michael Duffy, ‘In whose best interests? Regulating financial advisers, the royal commission and the dilemma of reform’ (2020) 42(1) Sydney Law Review 32