Testing accountants' compliance with licensing requirements: 5 key areas

Here are five key areas to look at to ensure you’re meeting your compliance obligations.

In August 2016, the Australian Securities and Investments Commission (ASIC) started a new project to test how effectively the new accountants' limited licensing regime was working, and to identify any systemic problems in the industry. Here are the findings.

By Louise Macaulay and Joanna Bird, Senior Executive Leaders, Financial Advisers team, ASIC

This project involved a surveillance of accountants not operating under an Australian financial services (AFS) licence but who had been identified as potentially providing financial product advice in relation to establishing a self-managed superannuation fund (SMSF), in breach of the new licensing requirements. 

Surveillance methodology

This project took a systematic approach to identifying potential targets for surveillance. We relied on a range of sources of intelligence, both internal and external, to identify the targets. These sources included:

  • ASIC licensing data regarding accountants whose applications for limited licences had been withdrawn or rejected
  • reports of misconduct received
  • information collected in the course of another SMSF-focussed project
  • referrals from the Australian Taxation Office (ATO)
  • use of a regulatory technology tool that scans and provides analysis of information on the internet 
  • use of a social media analytics platform that scans and provides analysis of information on social media platforms and blogs 
  • search results from publicaly available information on accountants who advertise themselves as providing SMSF services. 
Using all of these sources, we identified more than 600 potential targets. We were able to refine the list by initial direct contact with the accountants listed. Ultimately, we compiled a list of 94 targets for surveillance.

Findings

The surveillance indicated that instances of accountants providing unlicensed financial product advice in relation to SMSFs are not as widespread as may be generally perceived.

Read more: ASIC reviews accountant compliance with changes to SMSF advice licensing

There are two major factors that appear to be contributing to a perception of non-compliance:

  • a number of accountants are authorised representatives under an AFS licensee, or have referral arrangements with an AFS licensee, but do not provide licensing or referral details on their websites. This may cause others to assume that they are providing unlicensed financial advice; and 
  • a number of accountants have failed to update their website content in relation to the SMSF services they provided prior to 1 July 2016. This meant that we found statements referring to services that are no longer offered by the accountant.
The outcomes of our surveillance so far are: 
  • We took no further action on 26 targets because the surveillance identified that they are operating under an AFS licence. Some of these accountants did not have licensing information on their websites and one licensee had no advisers recorded on the Financial Advisers Register (FAR). We sent letters to accountants who were operating under an AFS licence, asking them to add their licensing details to their websites. Following those letters, all those who were encouraged to amend their websites have done so and the AFS licensee with no advisers recorded on FAR has updated their details. 
  • We took no further action on 51 targets because the surveillance indicated that they are not providing financial product advice in relation to SMSFs. Following letters from ASIC, 13 of these accountants have now updated their websites to clarify the services they provide. 
  • We referred five targets to the ASIC Misconduct and Breach Reporting (M&BR) team where we identified misconduct or potential misconduct that is out of scope for this surveillance. 
  • We have kept surveillance activities open on five targets where we continue to have concerns about the provision of unlicensed financial advice about SMSFs. 

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Key compliance areas to note

For those accountants who now hold a limited AFS licence, or are an authorised representative of an AFS licensee, ASIC's work in this project indicates that there are a few key areas to consider to ensure you're meeting your compliance obligations. 

Keep FAR up to date

AFS licence holders are required to maintain information on FAR. FAR contains information about financial advisers who are authorised to provide personal advice to retail clients on investments, superannuation (including SMSFs) and life insurance (“relevant financial products”). 

Directors, employees, authorised representatives and employees or directors of a related body corporate will need to be added to FAR if any of these people are authorised to provide personal advice to retail clients on any relevant financial products. If an AFS licence is held by an individual, this individual must also be registered on the FAR. 

If the licence is held by a company, the company itself does not need to be listed on the FAR, but authorised representatives or employee representatives of the company who are authorised to provide personal advice to retail clients on relevant products will need to be listed.

Updating FAR is the responsibility of the AFS licensee, but check with your licensee if you're not sure whether your information is on FAR and is up to date. 

Keep your website up to date

Websites are a key communication tool. Consumers will use your website to assess what services you provide, and if that information is inaccurate it may cause confusion and a misalignment of expectations — both for potential customers and for regulators such as ASIC. 

For example, there are many accountants who would not have had to respond to a notice or enquiries from ASIC recently if their website accurately reflected the services they provide. 

Ensure you maintain good record keeping

Good record keeping is an essential component of providing any kind of advice and, if you provide personal advice, a legal obligation. If your record keeping is so minimal that a file reviewer or ASIC can't tell whether you are meeting your obligations when giving personal advice, then you will be assessed as not meeting your obligations. 

Comprehensive records protect you, protect your clients and are the hallmark of professional advice. 

Respond to ASIC notices

If ASIC sends you a notice requiring information, you must comply, and you must provide all the information by the date set out in the notice. While it may seem inconvenient in some circumstances, it is an important part of maintaining standards in the advice industry. 

Remember — being sent a notice does not imply you have done something wrong, but failure to respond to it is an offence. Your failure to comply may create real problems for yourself and your business. 

Familiarise yourself with ASIC's guidance for accountants

ASIC has released a range of guidance for accountants who provide advice on setting up an SMSF — if you make sure you're familiar with it, and have it handy to refer back to, it will help you meet and maintain compliance with all the relevant obligations, and help you provide compliant advice. There is a large amount of information, and links to guidance, available on the Limited AFS licensees page on the ASIC website. 

Conclusion

Overall, while our work is ongoing, it appears that concerns that there are a large number of unlicensed accountants providing SMSF product advice may be unfounded. ASIC will continue to monitor the provision of SMSF product advice, and should any individual or industry-wide issues be identified in the future, we will act on that as appropriate.

Read next: ASIC: How to help your clients set up an SMSF


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