Industry body questions legal standing of FASEA consultation

In its submission to the authority around its latest code of ethics guidance, the Stockbrokers and Financial Advisers Association (SAFAA) suggested FASEA needed to “abide by section 17 of the Legislative Instruments Act, which sets out the key preconditions before a legislative instrument can be made and registered in Parliament, and ensure that any proposed changes to the code are subject to public consultation”.

Section 17 of the act states that “before a rule-maker makes a legislative instrument, and particularly where the proposed instrument is likely to ... have a direct, or a substantial indirect, effect on business ... the rule-maker must be satisfied that any consultation that is considered by the rule-maker to be appropriate and that is reasonably practicable to undertake, has been undertaken”.

When defining an “appropriate” consultation, the act goes on to say that “the rule-maker may have regard to ... the extent to which the consultation drew on the knowledge of persons having expertise in fields relevant to the proposed instrument; and ensured that persons likely to be affected by the proposed instrument had an adequate opportunity to comment on its proposed content”.

The comments follow the continued rejection of the wording of Standard 3 – which was updated in a later draft of the code of ethics to state that advisers “advise, refer or act in any other manner if you have a conflict of interest or duty” – by legal experts and major industry associations.

The original wording of Standard 3 in a late 2018 draft of the code stated that “you must not advise, refer or act in any other manner if you would derive inappropriate personal advantage from doing so”.

SAFAA stated that “this significant amendment to Standard 3 was undertaken without consultation and the Standard remains unworkable in practice, particularly in light of the lack of a test of materiality or proportionality”. 

The association suggested that wording around the client’s best interests be added to the standard, to provide context through which any conflicts of interest could be assessed in legal disputes.

“The code should utilise the wording of the intent of Standard 3, so that the standard states: ‘advisers must not advise, refer or act in any other manner where they have a conflict of interest or duty that is contrary to the client’s best interests’,” SAFAA said.