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FMA overstepping bounds: Weatherston

[ADDS FMA COMMENT] Financial adviser Murray Weatherston says the Financial Markets Authority does not have the legal standing to offer the exemption it is proposing, to clear the way for roboadvice.

Thursday, July 20th 2017, 6:00AM 2 Comments

by Susan Edmunds

The FMA has been taking submissions on its proposed class exemption for roboadvice providers from the requirement that personal advice to retail clients be given by a natural person.

The idea has been generally well received, particularly by big providers who want to start offering roboadvice ahead of the introduction of the new Financial Services Legislation Amendment Bill. The bill would make it possible, but not until 2019.

But Weatherston said, if the FMA was to finalise the proposal, it would be usurping Parliament’s right to amend the current law or make new laws.

He said his view was unlikely to be widely shared – “A number of institutions and legal firms made early permission to introduce personalised roboadvice to retail customers a focus of their submissions on the Exposure Draft of FSLAB.

“Several of the large legal firms have since been public cheerleaders for the early adoption of an amendment to the regulatory regime to allow firms to provide personalised advice to retail clients even though they themselves are most unlikely users of the exemption – however their institutional clients will certainly be beneficiaries of the exemption if granted.”

He said even the FMA itself did not seem to have given much thought to whether what it was proposing was proper use of its exemption powers.

He said, in effect, the FMA was proposing to amend the current law to allow persons currently prohibited from performing an activity under the statutory occupational licensing scheme to perform that activity.

“That cannot be what Parliament intended. Taken to the extreme, FMA could apply the same logic to any prohibition under the Financial Advisers Act 2008, and make everything that the Act currently prohibits lawful,” Weatherston said.

“It is the prerogative of Parliament to make the law. FMA would be usurping that right. In all the previous exemptions that I can find the FMA has made under the FAA, the FMA has granted an exemption to an obligation that arises only after a permission has been exercised.

“This line of thinking is therefore new. I know institutions want to be able to offer personalised robo, it seems clear that FMA wants institutions to be able to offer personalised robo, and FSLAB when it finally reaches the debating chamber of Parliament presumably will allow firms to do anything. But that is no excuse for sloppy process and the turning of a Nelsonian eye to the constitutional principles. The end certainly does not justify the means.”

He said he was not against roboadvice itself, which was a reality for the industry.

“What I am opposed to is the incessant creep I see by Government departments and agencies to amend existing law or make new laws by administrative fiat.”

An FMA spokesman said Weatherston's claim was inaccurate.

"The Financial Advisers (Australian Licensees) Exemption Notice 2011 exempted Australian licensed entities from the ‘prohibition’ in section 17(1), which has the broad effect of exempting those entities from acting only through certain types of permitted individual advisers under section 18.  This is the same provision that the robo-advice exemption would apply to, if granted."

He said there had been interest from start-ups and AFAs in providing roboadvice.

“Our exemption powers recognise that legislation cannot foresee and cater for all eventualities, and are designed to provide a mechanism for us to respond in an agile way when this occurs to address rigidities in the law.

"However, we can only grant an exemption if we are satisfied that the statutory test in the Financial Advisers (FA) Act for granting an exemption is met; and that the exemption will be consistent with the purpose of the legislation.

"The FMA’s statutory powers under the FA Act empower us to grant exemptions from compliance with any obligations under the Act – in this case, not to provide personalised advice to retail clients unless you are one of the specified types of natural person.  This is a negative obligation - obligations can be requirements to do something, or not to do something. We can use our exemption powers in either case.

"The FMA decided to consult on a possible exemption to enable robo-advice in response to approaches from several start-up firms, existing financial advisers, and institutions. We have specifically sought comment on whether people think it is appropriate for us to put an exemption in place or whether they think we should wait for broader law reform, and we welcome feedback on that question.”

READ MORE: Roboadvice is coming

Tags: Financial Advisers Act FMA roboadvice

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Comments from our readers

On 20 July 2017 at 2:31 pm Pragmatic said:
I was under the impression that the FMA was the primary regulator and enforcer of the law, not the law maker themselves.

If an interpretation of the law is required (ie: resulting in an exemption or not), then perhaps this would be more aligned with parliament or the courts.

I think Murray's argument here is fair - and interestingly - has very little to do with Roboadvice.
On 21 July 2017 at 7:45 am MPT Heretic said:
An interesting parallel for me was the doco I happened to be watching last night on the legislative manoeuvring by the US investment banks and their political cronies to allow the explosion of CDOs and extended leverage in the run up to the GFC. All in the name of the common good of course.
I note the FMA reference start-ups twice in their comments alongside established market providers. Interesting that the FMA seem in a rush to place potentially thousands of investors future wealth in the hands of an unproven advice provider. All in the name of the common good of course.

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