“My life has taking another turn again. The days move along with regularity, one day indistinguishable from the next, a long continuous chain, Then suddenly, there is a change.”
— Travis Bickle, Head of Regulatory Affairs (and Taxi Driver)
Regulatory action and schadenfreude
Whether out of genuine interest, or from the pleasure they derive from another person’s misfortune, advisers frequently ask after ASIC and seek information about their activities and focus. ASIC, to its credit, is a transparent organisation and, in a manner consistent with its objective, shares enforcement information both to reassure consumers and deter general misconduct.
The ASIC website is the best source of objective information of this type, but we understand you may be too busy to graze and offer this selection of regulatory actions for your consideration. By all means enjoy our summaries, but please appreciate that it’s a curated list, we have no specific insight into the listed matters and our summaries are simply our interpretation of the matters published by ASIC.
For everyone’s convenience, we’ve used the date of the ASIC media release as the date of the outcome or enforcement action.
We hope these incomplete summaries, covering July to September 2021, are useful to you but they may not be entirely reliable. To mitigate this risk, we’ve linked each summary to the original release.
21-182MR Trade Wind Financial Services
Representative Adam John Bevan was banned from providing financial services, or performing any function in financial services, for 5 years as a result of his failure to act in the best interests of his clients (3). ASIC asserted that he failed to make reasonable enquiries about his clients’ existing superannuation funds and did not put in place measures to ensure their funds were transferred in accordance with his advice. Further, as a result of his refusal/failure to give effect to AFCA determination, ASIC concluded that he was not a fit and proper person. ASIC also cancelled Trade Wind’s AFSL because of its failure to lodge audited financial accounts and comply with licence conditions.
TAKE OUT: For an adviser, even a small number of best interest failures can be problematic which is why they need to ensure that (a) their advice is regularly, robustly and objectively reviewed and (b) that identified failures are quickly rectified and remediated (and, since 1 October 2021 lodged with ASIC as reportable situations). We can help with reviews and regulatory reporting. If you’re a licensee, consider engaging an external party to do a licensee review, review your compliance arrangements and the technology you use to ensure compliance, and pay attention to your financial adequacy and reporting requirements.
21-182MR Fentborough Pty Ltd
Also in July 2021, ASIC cancelled AFS licence of Fentborough Pty Ltd.
Fentborough held a limited AFSL and had failed to lodge its annual accounts and compliance certificates for years ended 30/06/2019 and 30/06/2020 and failed to maintain membership with AFCA.
TAKE OUT: This is a useful reminder of ASIC’s power to cancel licences where core obligations have not been met. Fentborough was no longer carrying on a financial services business and, luckily, did not intend to carry on business. In any event, surrendering their AFSL might have been a cheaper and less traumatic option.
21-169MR RI Advice
We’ve addressed this matter elsewhere on our site, but, essentially the Court found that RI Advice Failed to take reasonable steps to ensure that John Doyle provided appropriate advice, acted in the best interest of clients, put clients’ interests ahead of his own. In addition, RI Advice did not have adequate processes to identify when advisers were avoiding advice quality checks. These contraventions of s961L were breaches of their obligations as a financial services licensee.
TAKE OUTS: We don’t intend to summarise Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2)  FCA 877 but, essentially, Mr Doyle’s non-compliance (and the licensee’s response to his misconduct) raised questions about advisers and Licensees obligations to comply, and ensure compliance, with the best interest duty. Section 961L requires a “financial services licensee [to] take reasonable steps to ensure that representatives of the licensee comply with sections 961B, 961G, 961H and 961J.” If you’re a licensee, consider engaging an external party to do a licensee review, review your compliance arrangements and the technology you use to ensure compliance, and pay particular attention to pre-vetting activity as well as any discrepancies between attributed income and declared activity. Ensure that your first-line staff are trained to detect and escalate issues and ensure that your consequence management framework works and works effectively.
21-198MR Gold Coast Advisers banned
Trent Allan and Fabrizio Urrutia banned from providing any financial services for 5 years because they were found to have failed to act in their clients’ best interests; they provided advice without a thorough investigation of clients’ needs and objectives, did not make adequate enquiries about clients’ existing products, failed to provide reasoning for recommending the replacement of existing products.
TAKE OUTS: Contraventions of best interest failures attract a minimum banning period of three years so it’s better to take reasonable steps to prevent these failures occurring or to detect failures before they become systemic. Given that even a small number of best interest failures can be profoundly disruptive, you need to ensure that (a) your advice is regularly, robustly and objectively reviewed (b) you properly understand your professional obligations when recommending the replacement of financial products and (c) any identified process failures are quickly rectified and remediated (and conduct failures quickly reported).
21-199MR Corporate officers banned from financial services
Although they were officers of a Corporate Authorised Representative, neither Mr Parry nor Mr Price were financial advisers. Nevertheless they were banned from controlling a financial services business or performing any function as an officer of an entity that carries on a financial services business for six years, as a consequence of breaching their duties. ASIC alleged that these officers failed to fulfil their responsibilities, had undertaken unsatisfactory due diligence when purchasing client book, failed to comply with financial services laws, failed to ensure that their representatives complied with the law and their Licensee’s compliance manual.
TAKE OUT: Some advisers might be horrified to learn that inadequate due diligence and a failure to comply with their Licensee’s Compliance Manual is the basis for a six year banning. Although businesses should follow an adequate due diligence process before acquiring other advice businesses (or recruiting representatives), the broader issue is the need to identify the services you are required to provide to charging fees for for services not provided. If you are a Licensee, consider whether, and to what extent, your Authorised Representative Agreement requires you to approve any transfer because, if it does, you may need to consider your liability for any subsequently identified issues.
21-222MR Adviser banned for issues of character
The specific circumstances that led to this action were widely covered in the popular press and do not need to be rehashed here. Mr Pusey was banned from providing financial services and engaging in credit activities, controlling financial services or credit business, or performing any function in relation to financial services or credit business for 10 years. This is a significant ban and was justified by ASIC on the basis that Mr Pusey provided false statements to ASIC, lacked attributes of good character, honesty, judgement, and had no regard for the law. He was, in ASIC’s view, not a fit and proper person to participate in financial services and was (reasonably) likely to contravene credit legislation and financial services legislation in the future.
TAKE OUTS: The obligations to act efficiently, honestly and fairly and to comply with the financial services laws applies to both licensees and their representatives. Neither ignorance, nor mitigating factors, can excuse reckless or deliberate non-compliance with these obligations. Licensees, and advisers, should take extraordinary care to ensure that any statements provided to ASIC are neither inaccurate, incomplete, misleading or deceptive. Engage counsel to assist you and ensure that any proposed statements are critically reviewed before submission to ASIC.
21-227 Former adviser PROSECUTED for breaching ban
The fact that Mr Lawrence Toledo was a “former Queensland financial adviser” is, hopefully, less relevant to his prosecution than the advice and dealing he undertook in direct contravention of his seven year banning order. Mr Toledo had been banned from the financial services industry until 2024 because of previous contraventions of his best interest duty and related obligations.
TAKE OUT: As a result of the Royal Commission, ASIC have a range of significantly strengthened powers and a range of contraventions attract significant penalties including, but not limited to, fines, civil penalties and custodial sentences. No compliance arrangements can prevent deliberate misconduct but, to minimise recklessness, ensure that your representatives understand their obligations and duties, regulatory expectations of their conduct and the likely consequences of their misconduct.
21-252MR Former adviser permanently banned
Earlier, in May 2021, Mr Hopkins was convicted of 15 dishonesty offences and sentenced to six years’ imprisonment with a non-parole period of four years (21-114MR) for misconduct including 167 unauthorised transfers, using stolen funds personally, making false representations to third parties about the transfers to conceal his dishonest conduct and failing to assist AFCA in resolving client complaints. ASIC consider that a permanent ban was required because of the seriousness of the misconduct and the need to prevent future harm.
21-253 Banned for market manipulation
Mr Rands was banned for five years for entering into uncommercial transactions with the intent of creating an artificial price for the shares of Clearview Wealth. In addition to the allegation that he was trying to create a false and misleading appearance of active trading, ASIC alleged that Mr Rands was neither adequately trained nor competent and was, as a result, likely to contravene the financial services laws.
21-261 Banned for BID failures
In September 2021, ASIC banned Queensland adviser, Frederick Ackerman, for four years.
Mr Ackerman, the authorised representative and sole director of Pure Strategy Pty Ltd, was banned for 4 years from providing financial services and performing any function in a financial services business. ASIC alleged that Mr Ackerman was neither competent nor a fit and proper person because, in the course of his two year authorisation, he failed to provide appropriate advice or act in the best interest of his clients. In addition, he failed to:
- identify his clients’ relevant objectives, financial situation or needs;
- identify the subject matter of the advice sought;
- conduct a reasonable investigation and assessment of financial products;
- base all judgements on his client’s circumstances; or
- place his clients in a better position were they to follow his advice.
ASIC also cancelled Australian financial services licence of Pure Strategy Pty Ltd because the licensee failed:
- to have adequate resources to carry out financial services business;
- to maintain competence;
- to ensure its representatives complied with law; and
- to have a ‘key person’.
TAKE OUTS: As previously mentioned, even a small number of best interest failures (over a relatively short period) can be disastrous which is why advisers need to ensure that (a) their advice is regularly, robustly and objectively reviewed (b) they properly understand their professional obligations when recommending the replacement of financial products and (c) any identified process failures are quickly rectified and remediated (and conduct failures quickly reported). If you are a Licensee, particularly a small licensee, consider engaging an external party to do a licensee review, review your compliance arrangements and the technology you use to ensure compliance, and pay attention to your financial adequacy and reporting requirements.
It’s tempting for advisers to dismiss these actions as morality plays or outliers. Like most modern horror stories, they have enough similarities to be illustrative but enough differences to be dismissed or ignored. That might be imprudent. While there’s no doubt that these advisers don’t reflect the character and conduct of the vast majority of professional advisers, there’s also no doubt that ASIC will pursue contraventions of the best interest duty and related obligations (s961B, s961G, s961H and s961J). Licensees might conclude that while recklessness and deliberate intent were factors in some of these actions, preventable process failures and easily identifiable contraventions underpinned the vast majority of these matters.
Most compliance issues are preventable and easily identifiable, it just requires the willingness and capability to do so. If you need help, reach out to us.
This post covered July to September 2021, if you’d like us to publish a regular quarterly update, let us know.