An Australian court has imposed a civil penalty of A$1m (US$766,000, £582,000) against a Melbourne-based advisory business for “breaches of the best interests duty”, in the latest action in a case that began last year, when it was announced to be the first such penalty for such a breach.
The Australian action comes even as the US government and financial services industry continue to agonise over whether a similar regulation, which partially came into force earlier this year, should be fully introduced there.
In a statement today, the Australian Securities & Investment Commission said the A$1m penalty imposed on Melbourne-based NSG Services Pty Ltd represented “the first civil penalty imposed on a financial services licensee” for a breach of the best interests duty since the regulation was introduced as part of Australia’s so-called Future of Financial Advice reforms, which came into force in 2013.
NSG is now going by the name Golden Financial Group Pty, ASIC said.
International Investment reported in June of last year that ASIC said NSG had failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients, and that as a result, “on numerous occasions, NSG advisers did not act in the best interests of their clients”.
According to ASIC, the penalty relates to financial advice provided to retail clients by NSG advisers on eight occasions between July 2013 and August 2015. The clients were sold insurance products and advised to roll over their superannuation accounts,which “committed them to costly, unsuitable and unnecessary financial arrangements”.
The Court found that the failures by NSG to ensure compliance by its representatives were systemic in nature and in his reasons, Justice Moshinsky said, “I regard the contraventions as very serious ones”, the ASIC statement said.
It noted that in March of this year, NSG consented to the making of declarations against it, and after a hearing on 30 March, “the Court was satisfied that declarations ought to be made”.
In a statement today, ASIC deputy chairman Peter Kell said the outcome in the NSG matter “makes clear to the industry the serious consequences of financial services licensees failing to comply with their FOFA obligations”.
“ASIC will continue to pursue licensees who fail to do so,” he added.
NSG, which agreed with ASIC on the amount of the penalty immediately prior to the hearing on penalty, and made joint submissions as to the orders, was also ordered to pay A$50,000 in costs to ASIC, and will also pay A$50,000 towards ASIC’s costs of its investigation into NSG.