Royal Commission reforms ‘a cautionary tale’ for TASA changes, joint bodies warn

A raft of industry associations have warned the government not to repeat the mistakes that were made with the implementation of the financial services industry reforms with the reforms to the TASA.

In a recent submission, the join bodies noted that the Australian Law Reform Commission (ALRC) recently released its report on the financial services industry regulatory reforms in 2019 following the Royal Commission.

“The ALRC considers that those reforms made the legislation a complex, incoherent, confusing maze,” it said.

“ALRC Report 141 provides a cautionary tale for the work that we are about to embark on to reform the sanction and enforcement powers under the TASA.”

The ALRC report stated that the complexity arising from the financial services industry reforms created complexity and increased costs for consumers.

“Complexity costs consumers not only in the expenses that are passed on by financial services providers, but by failing to protect them from misconduct,” the report said.

The report also said that that the existing framework is unnecessarily complex, and the tools used to build and maintain the framework – such as notional amendments, conditional exemptions, and proliferating legislative instruments – often create more problems than they aim to solve.

The joint bodies, including the Tax Institute, SMSF Association and major accounting bodies said it is important the government and Treasury understand, learn from, and apply these lessons in the context of the current TASA reforms.

Civil penalties for breaches of the Code

The joint bodies are opposed to the government’s proposal of integrating civil penalties within the Code of Professional Conduct disciplinary regime for all matters.

“It is important to ensure that the current approach to civil penalties is followed. The current approach expressly prohibits the relevant conduct in a civil penalty provision in order for the civil penalty to apply,” the submission said.

Under the current approach, civil penalties apply as a matter of principle to serious matters or conduct that falls well below professional and ethical standards — with other sanctions being used for lesser breaches.

The joint bodies said Treasury must consider whether specific new civil penalty provisions relating to professional misconduct or serious impropriety, such as fraud or dishonesty, are appropriate and required.

“We support the Treasury examining whether it would be appropriate for the TPB to have the power to impose a ‘monetary penalty’ as one of the available sanctions after an investigation, and a formal determination under Division 30 of the TASA.”

The joint bodies said this power would sit within subsection 30-15(2) of the TASA.

Any such administrative penalty power would be limited to applying in respect of breaches of specific new civil penalty provisions that prohibit specified kinds of significant professional misconduct, the submission said.

“We would support the proposed maximum penalty of up to 12 penalty units for individuals or 60 penalty units for bodies corporate. We understand that this would be the maximum in total, not per contravention, though this may be in addition to other sanctions in more serious cases,” it said.

Our suggested alternative of a power to impose an administrative monetary penalty recognises that the TPB often will not have the resources nor time to apply for proceedings in the Federal Court against conduct alleged to have contravened one or more civil penalty provisions.

“Our suggested alternative of a power to impose an administrative monetary penalty recognises that the TPB often will not have the resources nor time to apply for proceedings in the Federal Court against conduct alleged to have contravened one or more civil penalty provisions.”

Increase in civil penalty amounts ‘unreasonable’

The joint bodies also said the proposed civil penalty maximum amounts are unreasonable and in some cases equate to those penalties applicable for offences under the Australian Competition and Consumer Commission (ACCC) law and under the Corporations Act 2001.

“While in certain aspects, parallels and learnings may be drawn from what is appropriate in the context of other regulatory regimes, a nuanced approach is necessary here, given the unique role of the TPB and those whom it regulates,” the submission said.

“The TASA civil penalties are proposed to be substantially increased and will equate to the promoter penalties, which apply to conduct that is among the most egregious tax practitioner behaviour.

“Transposing penalties of this amount across the whole ambit of the TASA does not recognise the spectrum of wrongdoing that can occur,” the joint bodies said.

The industry bodies warned the government that unreasonably high penalties could increase the cost of professional indemnity insurance and adversely impact tax practitioner’s mental health.