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16-187MR ASIC takes first action against licensee for alleged breaches of 'best interests duty'
ASIC has commenced proceedings against Melbourne-based NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) for breaches of the 'best interests duty' introduced under the ‘Future of Financial Advice’ (FOFA) reforms.
This is the first civil penalty action ASIC has taken against a licensee alleging breaches of the best interests duty and is seeking declarations of breaches and financial penalties.
Since 3 April 2008, NSG has been licensed to provide personal advice on risk insurance and superannuation products to retail clients. NSG employs advisers to provide financial services advice on its behalf as its representatives and authorised representatives (NSG advisers).
ASIC alleges that:
- NSG failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients; and
- as a result, on numerous occasions, NSG advisers did not act in the best interests of their clients.
In addition, ASIC alleges that:
- NSG has not provided appropriate training to its advisers to ensure clients receive advice in their best interests. Instead, ASIC contends that NSG has trained its advisers that it is almost always in a client's best interest to take out some form of life risk insurance, regardless of a client's financial situation;
- NSG's written policies relating to legal and regulatory compliance and risk management have been inadequate, and in any event, not followed or enforced;
- since 1 July 2013, on eight specific occasions, and because of advice provided by NSG advisers, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements; and
- regular and or substantive performance reviews of advisers have not been conducted, and disciplinary action against advisers who do not act in compliance with their obligations under the Corporations Act has not been taken.
The first hearing of the matter is listed before the Federal Court of Australia on 8 July 2016.
Part 7.7A of the Corporations Act 2001 (Cth) was enacted as part of the FOFA reforms which are aimed at ensuring that financial advice companies and their advisers act in the best interests of the client. ASIC alleges in this case that NSG has breached s 961L of the Corporations Act.
Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure provides guidance to help licensees understand ASIC's expectations for meeting the best interests duty, and to ensure that it is consistent with ASIC's guidance in Regulatory Guide 244 Giving information, general advice and scaled advice.
Editor's note 1:
A further case management hearing is scheduled for 11 November 2016.
Editor's note 2:
This matter has been re-scheduled for a directions hearing on 9 December 2016.
Editor's note 3:
The directions hearing set down for 9 December 2016 has been re-scheduled until 19 December 2016.
Editor's note 4:
The matter will be listed for hearing on liability, on a date to be fixed after 10 March 2017.
Editor's note 5:
This matter has been listed for a hearing on liability on 30 March 2017.