Federal Court declares Melbourne licensee breached FOFA laws
The Australian Securities and Investments Commission (ASIC) announced thathe Federal Court has found that Melbourne-based financial advice firm NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) breached the best interests obligations of the Corporations Act introduced under the Future of Financial Advice (FOFA) reforms.
This is the first finding of liability against a licensee for a breach of the FOFA reforms.
This matter relates to financial advice provided by NSG advisers on eight specific occasions between July 2013 and August 2015. On these occasions, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements.
NSG consented to the making of declarations against it and after a hearing on 30 March 2017 the court was satisfied that declarations ought to be made.
The court found that NSG's representatives:
- breached s 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
- breached s 961G of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.
Those breaches amounted to a contravention by NSG of s 961L 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 court made the declarations based on the following deficiencies in NSG's processes and procedures:
- 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 which was in their best interests;
- 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;
- NSG's compliance policies were inadequate, and did not address its representatives' legal or regulatory duties, and in any event, were not followed or enforced by NSG;
- there was an absence of regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor recommended changes implemented; and
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 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.