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The documents are no longer fit for purpose and create increased litigation risk for accountants, three professional bodies caution.
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Scrap ‘problematic’ accountants’ certificates, Canberra told
06 October 2023
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CA ANZ, CPA Australia, the IPA and the SMSF Association have urged the government to end accountants’ certificates over concerns that product issuers and advisers are increasingly reliant on them.
“The increased use and reliance upon accountants’ certificates are of concern. Recent matters managed by the Australian Financial Complaints Authority (AFCA) have highlighted the overreliance, by some, on accountants’ certificates,” the associations said in a recent joint submission to the review into managed investment schemes.
“There is a perception that the holding of an accountant’s certificate removes risk for the adviser or product provider and instead, shifts that risk to accountants.”
The submission said that the legislative framework for the provision of financial advice had changed significantly since the wholesale and sophisticated investor regimes were first introduced.
“Unless they are licensed to provide financial advice, an accountant is prohibited from providing personal financial advice. This includes advice to not invest in or dispose of a financial product,” it said.
“This is problematic where it is clear to an accountant that it is inappropriate for the client to be moved away from the retail client environment. A conflict arises as the accountant has a duty to act in the best interests of the client and comply with the Accounting Professional Ethical Standards Board APES 110 Code of Ethics for Professional Accountants.”
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The use of accountants’ certificates also posed potential litigation risks, the professional bodies warned.
“Where there are no avenues available to clients for compensation, any litigation for damages can be run against the accountant, seeking access to their professional indemnity (PI) insurance,” the submission said.
“Noting that not all PI policies will insure accountants for the provision of this service. We are therefore concerned that the quantum of contingent liabilities residing in the system is significantly high.”
The submission said while accountants’ certificates were intended to be a pure statement of fact, the risk to accountants was still high and the interaction of the law and their obligations highly conflicted.
“In line with other professions, whether a client satisfies the requisite financial threshold, and has the appropriate knowledge, experience and risk appetite, should be determined by the adviser making the recommendation or the product issuer,” it said.
The associations highlighted in the submission that there were no minimum education or training standards to be authorised as a wholesale adviser, nor did they have to comply with the best interests duty or code of ethics.
The cost of ASIC’s regulatory oversight for the 2022–23 financial year for the 1,817 entities providing only wholesale advice was estimated to be $34,000 compared to an estimated $56 million for 2,655 entities providing personal advice to retail clients on relevant financial products, the submission said.
“While outside of the scope of this consultation, we believe this demonstrates a clear regulatory gap that warrants a review of the investor protections and regulatory oversight for this sector,” it stated.
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