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Accountants’ certificates are increasingly exposing accountants to significant personal risk and should be removed from the wholesale investor tests, accounting bodies say.
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Joint bodies push for ‘problematic’ accountants’ certificates to be scrapped
23 May 2024
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The major accounting bodies and SMSF Association have renewed their calls for accountants’ certificates to be removed from the wholesale and sophisticated investor tests in response to the government’s consultation.
In a recent submission, CPA Australia, CA ANZ, Institute of Public Accountants and SMSF Association said their members have reported a significant increase in requests for certificates from clients and, increasingly, non-clients.
“The increased use and reliance upon accountants’ certificates are deeply concerning. Recent matters managed by the Australian Financial Complaints Authority (AFCA) have highlighted the overreliance, by some, on accountants’ certificates,” the joint bodies said.
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“There is a perception that the holding of an accountant’s certificate removes risk for the advisor or product provider and instead, shifts that risk to accountants.”
The growing compliance burden with retail clients has driven increased use of the wholesale and sophisticated investor regimes as a means of alleviating regulatory burdens and business operating and client acquisition costs, according to the bodies.
“This should occur only where it is appropriate in the client’s circumstances,” the joint bodies said.
The submission also noted that the legislative framework for the provision of financial advice has significantly changed since the wholesale and sophisticated investor regimes were first introduced and needs review.
“Unless an accountant is licensed to provide financial advice, they are 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 a 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 Accounting Professional Ethical Standards Board APES 110 Code of Ethics for Professional Accountants.”
Where there are no avenues available to clients for compensation, the associations warned that any litigation for damages can be awarded against the accountant, requiring access to their professional indemnity (PI) insurance.
“Noting that not all PI policies will insure accountants for the provision of this service, we are justifiably concerned that the quantum of contingent liabilities residing in the system is significantly high,” it said.
“Despite the intention that accountant’s certificates are to be a pure statement of fact, the risk to accountants is high, and the interaction of the law and their obligations highly complex.”
SMSF Association head of policy and advocacy, Tracey Scotchbrook, said the association is seeing an emerging trend where accountants are being asked to attest to information beyond the statement of fact required, placing accountants at significant, personal risk.
“This was not the original policy intent of these provisions,” Scotchbrook said.
“This is an area of growing concern for our members, and we are receiving an increasing number of queries on the application of the regime to SMSFs.
“Some segments of the market appear to be placing an over-reliance on the use of accountant’s certificates. We have also heard of circumstances where accountants have been approached, unsolicited, by non-clients, who have been referred to the accountant, seeking the completion of an accountant’s certificate.”
Scotchbrook said issues are also arising around the loss of capacity and requests for certificates for individuals subject to enduring power of attorneys.
The joint bodies said the determination of whether a client satisfies the requisite financial threshold and has the appropriate knowledge, experience and risk appetite should instead be made by either the adviser making the recommendation, or the product issuer.
The associations also support the introduction of consent requirements, which clarify that a client must specifically acknowledge instances when they will be classed as a wholesale client and ensure they understand they will not receive the benefit of protections provided to retail clients.
“This would ensure that clients are more engaged in their financial product investments and more aware of the protections and disclosures to which they are specifically entitled,” the submission said.
“Advisers and intermediaries would also be held to a higher standard of care and required to provide more frank and open communication with their client about their legal entitlements.”
The obligation of the adviser or intermediary should be to obtain informed written consent from their client before any financial product advice or service is provided, the associations said.
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