ASIC has successfully defended its interpretation of the FOFA laws in the Federal Court, with a Melbourne-based advice licensee found to have breached the FOFA laws in the first case of its kind.
In a statement today, the Federal Court declared that NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) breached the best interests obligations of the Corporations Act introduced under the Future of Financial Advice (FOFA) reforms.
In June 2016 ASIC took NSG Services to court alleging that the licensee failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients.
The case is the first finding of liability against a licensee for a breach of the FOFA reforms. In a separate matter, Westpac is defending a civil case in which ASIC alleges the bank's employees provided personal advice related to superannuation rollovers without a proper licence.
The Federal Court has found that NSG’s representatives breached section 961B of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that complied with the best interests obligations and also breached section 961G of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients, the statement said.
“Those breaches amounted to a contravention by NSG of s961L of the Corporations Act, which provides that a financial services licensee must ensure its representatives are compliant with the above sections of the act,” the statement said.
The court made the declarations based on deficiencies in NSG's processes and procedures.
The court found that NSG’s new client advice process was insufficient to ensure that all necessary information was obtained from, and given to, the client.
NSG’s training on legal and regulatory obligations was insufficient to ensure clients received advice that was in their best interests, the court found.
Further, NSG did not routinely monitor its representatives nor identify deficiencies in the knowledge or skills of individual representatives.
NSG did not conduct regular or substantive performance reviews of its representatives and its compliance policies were inadequate, the statement said.
The court also said that NSG had a “commission only” remuneration model, which meant that representatives would only be compensated by way of commission for sales of life insurance products and superannuation rollovers.
ASIC deputy chairman Peter Kell said, “This finding, the first of its kind, provides guidance to the industry about what is required of licensees to ensure representatives comply with their obligations to act in the best interests of clients and provide advice that is appropriate."
ASIC has sought orders that NSG pay pecuniary penalties in relation to the declarations made. A date for the hearing on penalty will be fixed by the court.
The corporate regulator has told the Hayne royal commission that it is at a loss over how to successfully prevent misconduct in financial se...
APRA has announced the terms of reference for the upcoming review that will examine the regulator’s enforcement strategy. ...
APRA has proposed changes to the application of the capital adequacy framework for authorised deposit-taking institutions to support orderly...