Posted April 17, 2020

Posted By Meghann Cannon

AFSL policies and procedures are not a ‘set-and-forget’ item

Published 17 November, 2017

The Federal Court recently imposed a $1 million civil penalty against financial planning firm NSG Services Pty Ltd (NSG) for 20 contraventions of the best interests duty. This is the first time that an AFS licensee has been penalised for breaches of the best interests duty since the introduction of the duty in July 2013. Two of NSG’s representatives have also been banned by ASIC from the financial services industry.


On 8 separate occasions between July 2013 and August 2015, NSG’s representatives advised clients to roll over their superannuation accounts which committed them to costly, unsuitable and unnecessary financial arrangements. When providing this advice, NSG’s representatives did not consider alternative strategies for the client to implement, the fees and costs associated with the recommended fund and appropriate levels of life insurance cover for the client (amongst many other things).


The Federal Court declared that NSG had breached its best interests duty and its duty to provide appropriate advice to clients.

These declarations were not made just because poor advice was given; the Federal Court noted that NSG’s internal processes and procedures were deficient (which ultimately led to the breaches). The Federal Court criticised the following aspects of NSG’s compliance processes:

  • NSG’s internal training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests;

  • NSG did not conduct regular or substantive performance reviews of its representatives (in the form of file reviews or face-to-face meetings);

  • NSG’s compliance policies were inadequate, and did not address its representatives’ legal or regulatory duties, and in any event, were not followed or enforced by NSG; and

  • there was an absence of regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor recommended changes implemented.


Particular things you should consider include:

  • At the end of the day – the advice must satisfy the best interests test and be appropriate to the client. The Corporations Act sets out a safe harbour test which is a legislated list of factors that must be considered and met when providing advice to the client. Evidence that the safe harbour test has been satisfied must be contained in the SOA and the client’s file. Providing sound tax advice does not necessarily mean that the advice will meet the safe harbour test, which is why understanding and applying the safe harbour test is so critical. The advice must also be appropriate for the client, which essentially requires the adviser to have a reasonable basis for the recommendations made.

  • Do your written policies/procedures reflect what is actually done in practice? For most of the readers, we have implemented your policies and procedures which have been tailored to reflect your current business practices and structures. However internal behavior will evolve over time, so you must ensure that all written policies/procedures are amended to reflect this. Not doing so will put you in risk of breaching your AFSL as a result of a technical breach of the terms of your policies/procedures.

  • Do you hold internal training sessions on recent legislation changes? Legal changes to processes underpinning financial advice or subject areas relating to advice (e.g. superannuation or tax changes) should be addressed in regular internal training sessions. Advisers’ training plans should also be amended to include any changes as an area of development.

  • Are there systems in place to review the advice that your advisers are providing? In this respect, you could consider conducting regular internal and external audits of your client files to highlight any areas of non-compliance by advisers. Audits should be supported with a face-to-face meeting with the adviser to discuss the non-compliance issues and what must be done to prevent them from occurring again in the future. A consideration of whether those non-compliance issues need to be reported to ASIC or whether an amendment to the policies and procedures is required (particularly if systemic non-compliance issues are identified) would also be required. Any issues should also be discussed at your quarterly compliance meetings.

  • Does everyone understand their role within the business, and are there clear lines of accountability? To ensure that all policies/procedures are enforced within the business, everyone should understand what compliance decisions they are responsible for and who they must report to. If a particular action is not completed, there should be a clear line of accountability to deter non-compliance.

Now is also a perfect opportunity to ensure that your breach reporting and complaints handling procedures are well understood within your business. Refresher training on these procedures should be conducted on a regular basis.

If required, we can help you review your existing policies and procedures and conduct audits on your client files to ensure that your business is healthy from a compliance perspective. Please let us know if you would like to discuss this further.


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