FAE · ASIC Financial Adviser Exam
Lesson 3 of 3 in Conduct, breach reporting and complaints
The Part 7.10 prohibitions an adviser is most likely to meet, including insider trading, market manipulation and misleading statements, and what follows a breach: offences under Part 9.4 and the court orders available under Part 9.4B.
Financial advice regulatory and legal obligations10 min read8 sections
Checked against: Corporations Act 2001 (Cth), compilation No. 149 (19 Sep 2026): ss912D(3)-(4), 993B, 1041A, 1041B, 1041E, 1041F, 1041G, 1041H, 1041I, 1042A, 1042C, 1042D, 1042F, 1043A, 1043F, 1043M, 1311, 1311B, 1311C, 1317E (table), 1317F, 1317G, 1317GAB, 1317GAD, 1317GA, 1317GB, 1317H, 1317HA, 1317J, 1317K, 1317M and Sch 3; ASIC Fines and penalties page (penalty unit value for offences on or after 1 July 2026, read 25 Oct 2026); ASIC Financial adviser exam: Exam preparation guidance v6.0 (Sept 2026).. Independent prep, not endorsed by ASIC.
This lesson serves three learning outcomes in ASIC's curriculum (Exam preparation guidance v6.0, Sept 2026): applying Chapter 7 to scenarios to identify obligations and breaches, knowing the legal requirements for both the individual and the licensee, and identifying misconduct and explaining why it is inappropriate.
The reading list names Part 7.10 (market misconduct and other prohibited conduct), Part 9.4 (offences), Division 1 of Part 9.4B (declarations, pecuniary penalty, relinquishment, refund and compensation orders) and ASIC's Fines and penalties page. The exam supplies relevant statutory extracts with questions, so the skill is matching facts to the right provision and consequence.
A scenario question here asks whether information is inside information, which provision a statement breaches, and whether the result is an offence, a civil penalty or only damages. Our practice questions drill those choices.
Part 7.10 applies to everyone, not just licensees. Watch the consequence column: it is what most questions turn on.
| Provision | What it prohibits | Consequence |
|---|---|---|
| s1041A Market manipulation | Taking part in one or more transactions that create or maintain an artificial price on an Australian financial market | Offence; civil penalty |
| s1041B False trading | Acts that create a false or misleading appearance of active trading, or of the market or price; trades with no change in beneficial ownership are caught (s1041B(2)(a)) | Offence; civil penalty |
| s1041E False or misleading statements |
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Case study FAE-C69, question 5 of 5: The complaint about Ellie. Seabreeze Advice Pty Ltd is an AFS licensee in Adelaide with six advisers. One of its clients, Henry Lau, 70, is a widowed retired engineer. He owns his home, draws an account-based pension from a balance of A$410,000 and holds A$90,000 in term deposits. His risk profile is recorded as 'conservative', and his stated goal is a steady income without losing capital. In 2025 his adviser, Ellie Marsh, recommended that he move A$60,000 from maturing term deposits into a listed hybrid security, telling him it was 'as safe as a term deposit'. The hybrid's price has since fallen by 20%. On Wednesday 4 March 2026, Seabreeze receives a written complaint from Mr Lau by email. He asks for his A$12,000 loss to be repaid. Seabreeze's complaints officer acknowledges the complaint on Friday 6 March, then goes on leave, and nobody takes over the file. On 1 April Seabreeze still has not responded, and Mr Lau rings to say he will 'go to the regulator'. When the complaint is finally reviewed, Seabreeze finds that Ellie made similar statements, recorded in her own file notes, to five other clients who bought the same hybrid. Ellie says she 'was only simplifying' and did not mean to mislead anyone. Standard 9 of the Code of Ethics says: 'All advice you give, and all products you recommend, to a client must be offered in good faith and with competence and be neither misleading nor deceptive.' Ellie tells Seabreeze she was 'only simplifying' for clients who find hybrids confusing. Under Standard 9, her 'as safe as a term deposit' statements are BEST described as…
| A materially false or misleading statement likely to induce people to apply for, buy or sell products, or to move a market price, made by someone who does not care whether it is true or knows, or ought reasonably to know, it is false |
| Offence; damages (s1041I) |
| s1041F Inducing persons to deal | Inducing dealing by a statement known to be, or made recklessly as to whether it is, misleading, false or deceptive, or by dishonestly concealing material facts | Offence; damages (s1041I) |
| s1041G Dishonest conduct | Dishonest conduct about a financial product or service while carrying on a financial services business | Offence; damages (s1041I) |
| s1041H Misleading or deceptive conduct | Conduct about a financial product or service that is misleading or deceptive, or likely to be | Not an offence; damages (s1041I) |
| s1043A Insider trading | Trading, procuring or tipping while holding inside information | Offence; civil penalty |
Section 1041H does not cover conduct in relation to Part 7.7 disclosure documents such as an SOA or FSG, or a Part 7.9 PDS, which have their own liability rules (s1041H(3)(b)-(c)).
Answer: D. a breach: the statements were misleading, whatever she intended
Answer: a breach: the statements were misleading, whatever she intended. Whether a statement misleads depends on the impression it leaves, not on intent, so Ellie's motive does not save it.Why not the others:• a breach of competence only…: the competence limb is engaged as well, not instead, and misleading conduct needs no intention to mislead.• a breach of Standard 5…: Standard 5 is also in play, as clients did not understand the risks, but the false comparison itself breaches Standard 9.• acceptable: a hybrid pays…: a hybrid's distributions can be deferred, it can convert into shares and its price can fall, as this one did by 20%, so it does not behave like a term deposit.Watch out: The same conduct is misleading conduct under s1041H of the Corporations Act.Rule: Standard 9 requires all advice and product recommendations to be offered in good faith and with competence and to be neither misleading nor deceptive.Source: Financial Planners and Advisers Code of Ethics 2019 (F2019L00117), Standards 5 and 9; Corporations Act 2001 (Cth) s1041H (compilation No. 149, 19 Sep 2026)
On Friday, Kwame Osei, 58, hands his adviser, Leah, a cheque for A$50,000 made out to her licensee, Fernhill Advice. It is to be invested in a managed fund on Wednesday, once his application is checked. Leah suggests Fernhill keep the money 'somewhere safe' until then. Until Wednesday, Fernhill must…
Answer: B. pay it into a designated client money account with an ADI
Answer: Pay it into a designated client money account with an ADI. Section 981B requires a licensee to pay client money, on the day it is received or the next business day, into an account with an Australian ADI (or another prescribed account) designated for that purpose and holding only client money and permitted interest.Why not the others:• deposit it into its operating account until the fund issues units: an operating account mixes client money with Fernhill's own funds.• hold it in Leah's personal account with Mr Osei's written consent: a personal account mixes his money with Leah's own, and client consent cannot authorise that.• invest it in a cash management trust in Fernhill's own name: investing the money in a product in Fernhill's own name is not paying it into a designated client money account.Rule: Client money is taken to be held in trust for the client (s981H), and failing to pay it into a designated account is an offence (s993B) and a civil penalty contravention (s981B(3)).Source: Corporations Act 2001 (Cth) ss981B, 981H, 993B (compilation No. 149, 19 Sep 2026)
Case study FAE-C70, question 4 of 4: Hector's client money. Hector Ruiz, 52, is a sole-practitioner AFS licensee and relevant provider in Darwin. He has about 80 retail clients and one part-time administrator, and his cash flow has been tight since two large clients left last year. To 'save time', Hector has clients transfer money they want to invest into his business operating account, which also pays the practice's wages, rent and suppliers. He then pays the money on to fund managers in monthly batches. One client, Ana Silva, 63, is a recently retired teacher. She sold an investment unit and, on Hector's advice, sent him A$80,000 to invest in a balanced managed fund. Her money sat in Hector's operating account for six weeks. During that time Hector used A$15,000 of it to pay office rent and other bills, planning to replace it from ongoing fees due the next month. He kept no separate record of which money in the account belonged to which client. The fund manager later queries the delay in receiving Ms Silva's application money, and Ms Silva rings to ask why her investment has not appeared on her statement. Hector tells her it was 'an administrative delay' and that 'no one has lost anything'. The Code of Ethics says it imposes 'ethical duties that go above the requirements in the law'. Two months later, ASIC asks Hector for his client money records. Hector tells his administrator to build a spreadsheet, dated back to January, showing Ms Silva's money held separately from the start. Which standard does this instruction MOST directly breach?
Answer: C. Standard 8 – You must ensure that your records of clients, including former clients, are kept in a form that is complete and accurate
Answer: Standard 8 (complete and accurate client records). A spreadsheet backdated to show money held separately when it was not is a false record, so this standard's words fit most directly.Why not the others:• Standard 3 – You must not…: Hector's conflict between his cash needs and his client's interests makes Standard 3 relevant to the original misuse of her money, but not to the instruction about records.• Standard 7 – You must satisfy…: Standard 7 concerns fees and benefits, not falsifying records.• Standard 10 – You must develop…: Standard 10 concerns knowledge and skills, not falsifying records.Watch out: Handing the backdated spreadsheet to ASIC would compound the wrong.Rule: Standard 8 requires records of clients, including former clients, to be kept in a form that is complete and accurate.Source: Financial Planners and Advisers Code of Ethics 2019 (F2019L00117), Standards 3, 7, 8 and 10
