ASIC frequently takes action in relation to breaches of obligations of Australian Financial Services License holders (AFSL holders). ASFL holders must be aware of the compliance risks, particularly for their authorised representatives, which can be managed through adequate training. This article deals with the general obligations of financial services providers, click here for information about misrepresentation in financial services advice.
ASFL holders are required to comply with the Corporations Act 2001 (Cth); significantly, they must ensure that their financial services are provided ‘efficiently, honestly and fairly’. Furthermore, AFSL holders must take reasonable steps to ensure that its authorised representatives comply with the financial services laws. They must also ensure that authorised representatives are adequately trained, have the competency to provide financial services, and have available adequate resources to provide the financial services covered by their AFSL.
In 2013, ASIC cancelled the AFSL of Australian Public Trustees Limited after it was found that they breached financial and reporting obligations that they held as a licensee. The services the Australia Public Trustees Limited provided included issuing, acquiring and disposing of interests in managed investment schemes. Commissioner Greg Tanzer stated in relation to the cancellation that ‘ASIC imposes financial conditions on licensees to help ensure that they have adequate financial resources to provide the services covered by their licence. ASIC will not hesitate to take action where licensees fail to meet these requirements’.
In 2014, ASIC accepted an enforceable undertaking from online FX broker who managed discretionary accounts. Forex FS made misleading or deceptive representations on its website and during presentations to potential clients. For example, they made representations in relation to target returns in excess of 30% per annum for certain products. These were based on the past performance of those products. The result of this misconduct prevents Forex FS from offering MDA services to retail clients for 10 years.
Furthermore, in April 2017, ASIC banned two Melbourne men for breaches of best interests duty which was introduced by Future of Financial Advice (FOFA) reforms. The AFSL holders provided financial services for a period of five years each following an ASIC investigation. ASIC found that the men failed to act in the best interests of their clients for two reasons. Firstly, the advice provided did not leave the clients in a better position. Secondly, they failed to provide advice that was appropriate to the clients’ needs. Furthermore, the ASFL holders did not provide financial services guides, product disclosure statements and statements of advice.
AFSL holders should see these examples and be aware of the compliance risks inherent in financial services. Authorised representatives need to be adequately trained to control compliances breaches. This is particularly evident in the recent Federal Court case of ASIC v NSG Services Pty Ltd  FCA 345 (30 March 2017). In this case, NSG contravened s 961K(2) and s 961L of the Corporations Act. At paragraph 51, His Honour stated that ‘the inadequacy of the training about NSG Representatives’ individual obligations under the Act meant that they were not adequately made aware of their personal responsibility for compliance with the best interests duty, including the safe harbour provisions, the appropriate advice duty, or of the legal consequences of non-compliance’. This demonstrates the importance of adequate training, and rigorous procedures ensuring financial advice the provisions of the Corporations Act, and the FOFA requirements. Click here for information about reporting breaches of these requirements.
ASFL holder should be astutely aware of their obligations under the Corporations Act and FOFA. Compliance is strictly regulated, and can be managed through adequate training.
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This article was authorised by Warwick Heeson.