Our insights - Henry Davis York

ASIC shifts evidentiary burden to advice licensees

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Advice licensees may already be feeling the impact of ASIC's amended Class Order 14/923 (CO 14/923), which expands the obligations on advice licensees to maintain records. Prior to the release of CO 14/923, the Financial Ombudsman Service (FOS) indicated that where there is uncertainty as to a particular piece of advice, if there are insufficient records to establish the position, it may find in favour of the customer. This shifts the evidentiary burden onto the advice licensee, rather than the complainant.

CO 14/923 may have significant consequences for advice licensees where customers raise disputes. Beyond enhancing their records management and monitoring and ensuring that their authorised representative agreements oblige their representatives to comply with the 7 year retention requirements, licensees may need to reconsider their enforcement strategies. A lack of records may incentivise licensees to settle complaints at the internal dispute resolution stage, as it appears that FOS may favour the customer in circumstances where the licensee does not hold adequate records. This reflects ASIC's intentions in Regulatory Guide 256 (which requires a customer's version of events to be preferred in the absence of documents in the context of remediation) and highlights the rising impact of "soft law". However, it remains to be seen whether the courts will take a similarly strict approach to records management.

ASIC have amended CO 14/923 to clarify that:

  • Advice licensees must ensure not only that client records are kept, but also that they continue to have access to these records during the required retention period (generally 7 years).
  • Advice licensees will need to assess their ability to satisfactorily access client records during the period they are required to be retained—even if the records are retained by another person, and even if that person is no longer authorised by, or related to, the advice licensee.
  • Authorised representatives who are advisers must keep records in relation to the advice they provide to clients, and to give these records to the advice licensee if the licensee requests the records.

    In order to facilitate process change, ASIC will provide advice licensees with a grace period of 6 months where they must make a good faith attempt to fully comply with the obligations under CO14/923. The compliance period will end on 26 April 2017. However, it appears that licensees may already be feeling the additional burden.

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