Not all regulation is bad –
in the right place red tape can look quite attractive
As accountants who have worked in one of the professional bodies and picked over corporate carcasses in our forensic and litigation support work, it is saddening to see some of the hard fought financial reforms of the previous government being consigned to the garbage bin.
The FoFA reforms were a long time in the making with extensive and wide-ranging consultation throughout the industry and affected professions. There were compromises struck, but the overall objective was to ensure that financial advice provided to clients and customers by advisers takes into account the personal circumstances of the client/customer and is in their interests. A model where the adviser earns his or her money from selling a product which earns them commission, and sometimes trailing commissions that can continue for many years, is fraught with conflicts of interest and should not be described as “financial advice”; it is merely selling products and consumers need to be aware of the difference.
Time after time we see financial collapses where mums and dads were advised to go into dubious investment schemes by someone they thought was a trustworthy adviser, who was earning a substantial commission stream. To take an example, Westpoint was indeed developing apartment blocks, but a read of the small print in the disclosure documents reveals that the mums and dads were investing their retirement savings in mezzanine debt instruments with low level security – the first ranking mortgages were all in favour of the major lenders. Had their financial advisers really explained the frailties of what they were investing in so they could assess whether they were comfortable with that level of risk?
In the same bundle of repeals, but on a completely different topic, we see the demise of the Australian Charities and Not-for-profits (nfp) Commission (ACNC). The ACNC was again the result of extensive consultation and the culmination of years of research and lobbying by the charity and not-for-profit sector. As the privatization of social services continues, the sector grows by the year. It has its own complexities, such as its reliance on grant funding, donations in cash and kind and reliance on volunteers in its governance and also in its work force. A single regulator was seen as the first stage towards simplifying a maze of state and federal legislation, compliance with which costs funds that could be used in furthering the charity or nfp’s objectives.
The Tax Office is not the right regulator for the sector. Their focus is on revenue raising and their interest in the nfp sector is driven by a desire to ensure that deductible gift recipient status is strictly regulated. The ACNC however has a broader brief to educate the sector and raise standards of governance as well as to regulate. In an environment where small nfp treasurers are generally volunteers and there is little spare cash to pay for professional advice, the ACNC’s focus on education was designed to reduce the incidence of accidental non-compliance with the law.
As a small business, when we fight with our government form filling, we are as keen as the next person to reduce red tape, but not all regulation is bad. Hard fought regulation, designed to protect those who cannot look after themselves, should be retained and with these proposed repeals the Abbott government runs the risks of alienating some of its natural supporters.
Chris and Stephanie act as consultants and experts (“clean” and “dirty” experts) in the context of dispute resolution on a variety of financial reporting and audit issues.
Westworth Kemp Consultants can provide support to businesses, professional practices and regulators seeking to implement systems designed to foster compliance
Independent advice on the interpretation of auditing (or assurance) and accounting (or financial reporting) standards can be hard to find.