FSC proposes major licensing shake-up

The Financial Services Council (FSC) released a white paper Thursday detailing a series of recommendations to overhaul the licensing framework for financial advisers. The proposals aim to improve the current system through modernization rather than replacement, following recent failures in the sector.

The document states that the existing licensing architecture retains support but requires modernization and greater transparency. It notes that the current system needs more proactive regulatory supervision to continue protecting consumers. The recommendations include introducing a universal minimum standard of supervision, a dedicated risk-based program for higher-risk licensees, and redesigning the advice levy.

Modernizing supervision standards

The FSC outlined seven specific sections for the reform package. These include retaining and strengthening the Australian Financial Services License (AFSL) framework, implementing a minimum standard of universal supervision, and supporting more intensive supervision for higher-risk entities.

The proposals come as regulators and licensees face increased pressure to identify and respond to risks. The FSC emphasizes that the solution involves more effective administration of the existing framework so that licensees are held to account in fulfilling their statutory duties to consumers.

Shifting funding to licensees

The FSC suggests lifting the ASIC financial advice levy to a minimum of $25,000 while reducing the per-adviser fee. The current model charges a licensee $1,500 plus $2,300 per adviser, which the report argues can cause a disproportionate supervisory risk for small firms while larger firms may pay more despite having stronger systems.

Treasury should recalibrate the industry funding model to fund the proposed supervisory uplift. The fixed licence-level component should increase materially while the variable per-adviser component should reduce, better aligning levy incidence with risk.

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Improving public data access

The group wants the Moneysmart Financial Advisers Register (FAR) interface upgraded so users can search an AFSL and see an enhanced licensee view in one place. The new system should include all advisers operating under the licence, corporate authorised representatives where applicable, and trading names associated with the licence.

Clarity is also needed regarding which types of advice an adviser can provide, as the current system is not consumer-readable. Responsible managers should be more visible since they are central to an organization’s competence and may be connected to multiple AFSLs. Greater transparency about these governance persons connected to a licensee would improve visibility of the structure supporting that licence and assist in identifying repeated patterns of movement between failed or higher-risk entities.