Journal

Posted June 5, 2023

Posted By Meghann Cannon

What can we learn from ASIC’s recent actions?

ASIC recently released its enforcement and regulatory update covering the first quarter of 2023, and so we thought it would be a good time to look at some of the key things we’ve learned from ASIC’s actions over the past months.

Cookie-cutter advice: National Advice Solutions

ASIC went hard in banning two responsible managers from National Advice Solutions (NAS) for 10 years and cancelling NAS’ licence for contraventions relating to their ‘layered advice’ strategy. ASIC later also successfully brought charges against NAS for breaching anti-hawking laws.

Under the layered advice strategy, NAS would provide its clients with advice under pre-determined topics, resulting in what ASIC called ‘templated’ advice that failed to identify or take into account the client’s circumstances.

Usually this meant the NAS adviser would provide the client with advice on super first, while specifically scoping out insurance – even if the client’s insurance premiums were paid out of super.

ASIC appeared to take particular umbrage with this approach, saying it was inappropriate ‘as the products are so intrinsically linked that advice regarding the two topics cannot appropriately be delivered in isolation.’

The case also shows:

  • ASIC’s continued interest in targeting advisers who fail to appropriately tailor their advice to their clients’ goals and circumstances, following on from the cases brought against Ultiqa Lifestyles and Dixon Advisory (both covered in separate news stories). Those cases went to court, resulting in huge fines on the licensees.
  • How ASIC digs into advice documents – their reasons referred to errors in the projections included in SOAs, including those created by omitting costs which may have led clients to believe they would have more funds on retirement than they would have in reality.
  • How ASIC sees the role of RMs in overseeing the business – ASIC said NAS failed to adequately monitor and supervise its representatives and failed to maintain competence to provide financial services on the basis that the two RMs didn’t carry out their roles appropriately. ASIC said: ‘A responsible manager is expected to assess strategies and policies used within the business and ensure that they are consistent with the obligations of the licensee.’ As such, the RMs also carried part of the responsibility for the layered advice strategy.

AFCA obligations have teeth

Earlier this year ASIC also had success in court against two home finance companies (and their directors) for failing to cooperate with AFCA. The cases were against credit licensees, but the same principles apply to AFSL holders.

The judge found the companies had contravened their obligation to act efficiently, honestly and fairly and the obligation of licensees to cooperate with AFCA.

Both companies were fined $50,000 and restrained from engaging in credit activities for 12 months. The two directors were also fined ($30,000 for one and $20,000 for the other) and are also individually restrained from being involved in a business carrying on credit activities.

So what did they actually do?

  • They repeatedly refused to provide documents and information to AFCA and were unprofessional and inappropriate in the dealings with AFCA.
  • They failed to pay an AFCA determination of $11,492.71.
  • They commenced legal proceedings against an AFCA staff member after that staff member requested documents related to a complaint.
  • They threatened AFCA complainants with legal proceedings unless they withdrew their complaint, and commenced legal proceedings against AFCA complainants in the Queensland Civil and Administrative Tribunal.

It’s clear their behaviour was completely inappropriate. However, it does serve as a reminder that working with AFCA to resolve a complaint is a legal obligation and not just a professional nicety.

ASIC: 1, Finfluencers: 0

In its first major case against a finfluencer, ASIC successfully argued that Tyson Scholz (aka ASX Wolf) should be banned generally from carrying on a financial services business and specifically from hosting paid online groups without an AFSL.

Scholz posted Instagram stories that mentioned specific securities and gave members tips in a private Discord group. Because he didn’t hold an AFSL, anyone who acted on his tips did not have the usual protections that come with dealing with a licensed adviser.

The AFR reported that one witness recalled a post featuring a Ferrari and a bottle of Dom Perignon champagne. The same witness could not recall which company’s shares were mentioned. Images can be powerful indeed.

While at the time of writing we still don’t know the government’s position on the Quality of Advice Review recommendations, this case is an interesting example of what the current regime can deal with.

Connect

Receive regular updates.