Recent ASIC License Cancellations

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Recent ASIC License Cancellations

By Lex Yaranu | Friday, August 28th, 2020

The Australian Securities and Investment Commission (ASIC) is continuing its renewed focus on the retail Over the Counter (OTC) derivative market in Australia, which is where margin spot FX and binary options fall into.

As a result, a number of decisions have been taken concerning brokers operating in this market space.

Below is a list of recent outcomes of ASIC investigations and punitive actions taken against certain brokers.

1) The AFS licence of FX provider Rainbow Legend Group Pty Ltd (operating under the Rainbow Legend brand) has been suspended for presenting false and misleading statements and failing to cmply with ASIC requirements.

2) Following an ASIC investigation which revealed some misleading statements on its website, Advanced Markets has agreed to remove this material from its website.

3) The suspension of AFS licence of AGM Markets Pty Ltd (AGM) has been confirmed by ASIC, which has also asked investors not to do business with the brand of this company known as Grandegoldens as it is not licensed to offer OTC products in Australia.

4) The AFS license of one of Australia’s earliest binary options brokers, Enfinium, has been cancelled due to inadequate risk management systems.

5) Following extensive surveillance, ASIC found out that Calibre Investment altered the way it offers OTC products to retail clients, different from ASIC guidelines. The company, its brand and its former director and general manager, Quinten Hunter, have been banned from carrying on a financial services business in Australia.

6) An investigation by ASIC showed that Vault Market had only one director, Mr MD Anamul Amin, in contravention of ASIC guidelines which mandate that companies offering financial services must have a minimum of three directors with relevant industry experience. Vault Market and its sole director have been banned from operating in the Australian financial services industry.

7) Pepperstone has agrred to stop providing financial services in Japan as part of collaborative efforts by both agencies to root out companies that are not licensed to offer such services in their individual countries. Pepperstone had claimed to be licensed by the JFSA but investigations by ASIC revealed that they do not hold any license from the JFSA.

8) The AFS licence of online OTC broker Global Derivative Services has been cancelled after an investigation revealed that the company failed to comply with a number of its licensing obligations.

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9) The AFS licence of Australian Capital Advisory Services Pty Ltd was suspended on the grounds that it had stopped providing financial services following a change in shareholding structure and ownership.

We will continue to bring you more news about actions of regulators in sanitizing the binary options marketplace as they break.

ASIC cancels AFS licences for failing to lodge annual statements

ASIC has cancelled the Australian financial services (AFS) licences of four licensees that failed to lodge audited annual statements.

These cancellations are the result of ASIC’s most recent proactive review of the conduct of 14 AFS licensees operating in the financial advice industry that had failed to lodge their audited annual statements.

ASIC first announced its review of AFS licences in July 2020 (refer: 14-172MR).

As part of this most recent review, in addition to the cancellations, ASIC has:

  • suspended one AFS licence for failing to lodge audited annual statements until the outstanding documents were lodged
  • achieved voluntary compliance by seven AFS licensees who have lodged all outstanding documents, and
  • prompted two entities to voluntarily cancel their AFS licences because they are no longer operating a financial services business.

The requirement to lodge annual audited accounts is an important one. Through it, the licensee can demonstrate it has adequate financial resources to provide the services covered by its AFS licence and to conduct its business in compliance with the Corporations Act.

Deputy Chairman Peter Kell said, ‘In our experience, a licensee’s failure to comply with reporting obligations can indicate a poor compliance culture.

‘After our last review, ASIC warned licensees that their failure to lodge audited annual statements may result in the cancellation or suspension of their AFS licences and we are disappointed that some licensees do not seem to be heeding this message.

‘Be clear, ASIC will continue to contact AFS licensees who have not lodged audited financial statements and take action where they fail to lodge these statements,’ Mr Kell said.

Background

ASIC has cancelled four AFS licences and suspended one for failing to comply with the financial services laws by:

  • failing to lodge with ASIC its annual profit and loss statement and balance sheet, together with an auditor’s report for each outstanding year, and
  • failing to advise ASIC in writing, within 10 business days, of becoming aware of this significant breach.

The cancelled and suspended licensees are:

  • Ken Hart Insurance Brokers Pty Ltd Pty Ltd (AFS Licence 253565)
  • McDouall Stuart Corporate Finance Pty Limited (AFS Licence 282131)
  • Marshall Lawrence Pty Ltd (AFS Licence 275471)
  • Green Stride Investment Management Pty Ltd (AFS Licence 408153), and
  • Navigate Funds Management Pty Ltd (suspended 23 December 2020 to 27 February 2020) (AFS Licence 299940).

FPA Professionals Congress

A speech by ASIC Commissioner Danielle Press at the FPA Professionals Congress, Melbourne, 28 November 2020.

Introduction

Good afternoon everyone. Thank you for having me here to speak to you.

The seven strategic priorities for ASIC identified are:

  • High deterrence enforcement action.
    ASIC is focused on effective enforcement action, particularly cases that have a high deterrence value and those responding to egregious misconduct.
  • Prioritising the recommendations and referrals from the Royal Commission.
    This will involve working with Parliament, the Government, APRA and other regulators.
  • Delivering as a conduct regulator for superannuation.
    A priority is to establish ASIC as the primary regulator of conduct in superannuation, consistent with the Government’s response to the Royal Commission.
  • Addressing harms in insurance.
    We will take enforcement and other regulatory action against mis‐selling of insurance products, particularly to vulnerable consumers, and review concerning product features and practices.
  • Improving governance and accountability.
    We are conducting enhanced and intensive supervision of key firms, including via our Close and Continuous Monitoring program and our Corporate Governance Taskforce.
    These supervisory approaches are aimed at identifying cultural, organisational and management failings that may lead to conduct problems, breaches of the law and unfair outcomes.
  • Protecting vulnerable consumers.
    Considering the impact of harm to consumers, particularly those who are vulnerable, is central to how ASIC prioritises its work.
    Our new product intervention powers and the design and distribution obligations will be vital to the protection of vulnerable consumers.
  • Addressing poor financial outcomes.
    We will support measures to improve the professionalism of financial advisers and target the potential misconduct and harms to consumers that may arise from the industry’s shift towards ‘general advice’ models.

ASIC’s Financial Advisers Team – who we are and what we do

ASIC’s Financial Advisers Team consists of 60 dedicated staff. Our regulated population is large and consists of over 25,000 individuals authorised to provide personal advice and listed on the Financial Advisers Register and over 6,000 AFS licensees.

Our staff have a variety of skills with about half having worked in industry as financial planners.

In the financial advice space, we regulate the industry in the following ways:

  • We seek regulatory outcomes directly through adviser banning’s, licence cancellations and licence suspensions.
  • We negotiate sophisticated compensation schemes. This includes schemes to compensate clients for FFNS and inappropriate advice. To date, over $500 million has been paid to affected clients and we anticipate billions more will be paid
  • We conduct thematic surveillances to address issues impacting on the quality of financial advice. For example, we’ve just looked at the quality of advice provided by superannuation.
  • We engage regularly with industry and we also have a Financial Adviser Consultative Panel made up of industry practitioners that meets 3 times a year.
  • We consider applications for relief.
  • And we provide advice on the application of the law, on law reforms and inquiries.

FASEA Code of Ethics

Now to the issue I know everyone is keen to hear about – FASEA’s code of ethics.

Given that Stephen is here, I’ll save all the difficult questions for him, but I just wanted to make a few key points first:

  • The community is absolutely right to expect higher professional and ethical standards from the industry. ASIC supports the professional standards reforms.
  • However, we understand that there is concern about the code and what it means.
  • As you are aware, the law requires advisers to comply with the code from 1 January 2020.
  • And AFS licensees need to take reasonable steps to ensure that their advisers comply with the code.
  • When the reforms were passed by Parliament, responsibility for monitoring and enforcing the code was to rest with code monitoring bodies operating ASIC‐ approved compliance schemes.
  • However, the Government’s recent announcement regarding the acceleration of the new disciplinary system, and the withdrawal of compliance scheme applications, means there will not be any compliance schemes.
  • As you know, FASEA is still consulting on key aspects of its guidance.
  • While ASIC does not oversee FASEA and does not have any role – and I stress – any role ‐ in developing or interpreting the code, we were concerned that there was still a considerable amount of confusion about how the code was to operate.

After consultation with FASEA on this issue, ASIC has decided to take a facilitative approach to compliance with Standards 3 and 7 of the code until the new single disciplinary body is operational. We announced this position earlier this week.

We have taken this approach to allow FASEA and industry time to work through, in particular, what Standards 3 and 7 mean.

By taking a facilitative approach, we are saying to industry that we understand there is uncertainty and that we don’t expect licensees to make changes to their remuneration models until it is clear what changes are required.

In regards to the rest of the code, we will take a measured approach. We will not take action where licensees have taken reasonable steps to ensure that their financial advisers comply with the code. We have outlined the reasonable steps that we expect licensees to take.

As a licensee we expect you to:

  • make sure that your advisers are aware that they need to comply with the code from 1 January 2020 onwards;
  • provide training and/or guidance to your advisers on the types of conduct that is consistent/inconsistent with the code;
  • facilitate individual advisers’ ability to raise concerns with you about how your systems and controls may be hindering an adviser’s ability to comply with the code, and acting on those concerns where appropriate;
  • consider whether advisers are complying with the code as part of your regular, ongoing monitoring of adviser conduct; and
  • when it is in place, consider the decisions of the new disciplinary body and make any necessary changes to your systems and processes.

In determining what constitutes reasonable steps, we have said that we will take into account the context in which AFS licensees are operating. This includes:

  • the current dynamic regulatory environment;
  • the timing of guidance provided by FASEA about the meaning of the code; and
  • the evolving industry understanding about the meaning and implications of the code.

Projects the Financial Advisers Team is working on

Unmet Advice Needs

Next year, we’ll be undertaking a large piece of work looking at whether there are Unmet Advice Needs. We will test whether consumers have unmet advice needs and if so, the reasons why their advice needs are not being met and some possible solutions to the problem.

As part of this work, we’ll be looking at:

  • The current state of the financial advice industry (environmental scan);
  • The demand for advice, specifically:
    • What advice services consumers currently access;
    • What unmet advice needs, if any, consumers have;
    • The reasons why consumers have unmet advice needs (i.e. cost, access, low levels of financial literacy etc);
  • The supply of advice, specifically:
    • Who is currently supplying advice;
    • What kind of advice services are being supplied;
    • Whether there are any impediments to supplying advice services;
    • The gaps, if any, between supply and demand; and
    • Ideas for reducing the gaps, if any, between supply and demand.

We will be looking for input from industry on this important project.

Advice by superannuation funds project

This year, we looked at the advice provided by super funds.

We looked at what advice services 25 superannuation funds across the retail, corporate, public and industry sectors offered members and we also tested a sample of that advice.

We expect to publish our findings shortly.

What I can say is that our advice review findings show that overall superannuation funds are providing members with generally appropriate advice and the level of harm we saw was low.

We did not see a particular difference in the quality of advice provided by retail and industry funds.

We have highlighted some areas for improvement and we have provided some practical tips in our report.

Ending Grandfathered Remuneration Project

ASIC received a direction under section 14 of the ASIC Act from the Treasurer which required ASIC, for the period 1 July 2020 to 1 January 2021, to investigate the extent to which product issuers are acting to end the grandfathering of conflicted remuneration and whether they are passing on the benefits to clients. The direction requires ASIC to deliver a final report to the Treasurer by 30 June 2021.

ASIC is conducting both a quantitative and qualitative review.

For the quantitative review, we are surveying all entities known to pay grandfathered conflicted remuneration to AFS licensees or their representatives.

The qualitative review involves a smaller sample of entities that pay and receive grandfathered remuneration. We are initially focusing on annuities because we think there is increased complexity in ending grandfathered remuneration for these products. The qualitative review will however, extend to multiple types of products and arrangements.

ASIC will analyse the information we collect and will report to the Treasurer by 30 June 2021. The report will also be released publicly. ASIC expects to provide an update on its investigation to the Treasurer and industry as appropriate during the review period.

General Advice Review Project

ASIC released Report 614 Financial advice: Mind the gap (REP 614) on 28 March 2020, summarising its key findings into consumer awareness and understanding of the distinction between general and personal advice.

We have been rethinking the scope of our upcoming consumer research based on the insights set out in ASIC Report 632 Disclosure: Why it shouldn’t be the default (REP 632).

The report explored the limits of disclosure in improving consumer outcomes. While REP 632 recognised that disclosure remains necessary, it emphasised that we cannot rely on disclosure alone, including warnings, to protect consumers. Moreover, it highlighted that warnings can sometimes backfire, and should be rigorously tested.

As a result, our research will focus firstly on testing the effectiveness of alternative levels within the context of the existing warning. We consider that the research on alternative labels must be conducted in the context of the existing warning because consumers generally only encounter the label in the context of the warning.

The research will consist of discussion groups and a nationally representative survey of at least 2,000 participants. It will explore whether any alternative labels might be more effective in helping consumers to understand the limitations of general advice across a range of general advice scenarios.

Life Insurance Framework (LIF) Review

Prior to the Financial Services Royal Commission, when the LIF reforms were introduced in 2020, the Government asked ASIC to conduct a review in 2021 to establish whether the reforms were effective.

We will be conducting a large surveillance looking at the quality of advice provided to consumers. The surveillance will involve a representative and random sample of life insurance advice.

The findings of the 2021 review will likely be finalised and published by ASIC in 2022. Our report will comment on whether the LIF reforms have been effective.

Update on Financial Services Royal Commission recommendations

There is of course a lot happening in the law reform space.

As you all would be aware, the Government announced on 19 August a condensed timetable for implementation of the recommendations from the Financial Services Royal Commissions Final Report. Treasury is leading the policy development and law design process.

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