In an attempt to improve standards across the financial services industry, the Australian Securities and Investments Commission (ASIC) is cracking down on companies and individuals that fail to comply with their obligations.
Failure to comply with the financial services laws can lead to heavy fines and tough penalties for you/or your business. ASIC's recent enforcement action highlights these penalties, including the cancellation of a number of Australian Financial Services Licences (AFSL) and banning of several company directors, financial advisors and responsible managers from operating for significant periods of time.
ASIC cancelled the AFSL of Quattro Capital Group (Quattro). Quattro held an AFSL for 13 years, however after a thorough investigation beginning in 2021, ASIC found that Quattro:
- failed to maintain the necessary competence to provide financial services;
- failed to supervise its representatives and ensure they were adequately trained to provide financial services;
- did not have adequate human and financial resources and risk management systems; and
- failed to lodge its annual financial statements with ASIC for the 2016-2020 financial years within the necessary timeframes.
In addition to cancelling Quattro's AFSL, ASIC also banned Quattro's director, Grant Gibson, from controlling a financial services entity for eight years. During their investigation, ASIC found that Mr Gibson was involved in Quattro's breaches of financial services laws and was not competent to control a financial services business.
Companies such as Rizzak Capital Pty Ltd (Rizzak) and Sterling & Freeman Advisory Pty Ltd (Sterling & Freeman Advisory) have also been penalised by ASIC for failing to comply with their obligations. Rizzak had their AFSL cancelled for not abiding with the key person condition of their AFSL and failing to lodge their audit opinions to ASIC. Similarly, Sterling & Freeman Advisory had their AFSL suspended due to their failure to lodge their audit opinions to ASIC.
ASIC also cancelled the AFS licences of Brendan Kennedy and Old Cold Gold Pty Ltd (Old Cold Gold). Both, Mr Kennedy and Old Cold Gold failed to maintain adequate external dispute resolution membership with the Australian Financial Complaints Authority (AFCA) and failed to lodge the profit and loss statement, balance sheet and compliance certificate for the 2021 financial year.
If you are concerned about preparing and submitting your audit documents to ASIC, Sophie Grace has put together an article outlining the obligations you must comply with.
Individuals, Directors, Advisers and Responsible Managers
In May 2022, ASIC banned financial adviser Walter Guan from providing any financial services or controlling a financial services business for five years. Between March 2017 and August 2021, Mr Guan traded shares on behalf of his clients via the operation of managed discretionary accounts through his company Perennial Growth Pty Ltd, despite not holding an AFSL. ASIC also found that Mr Guan was not competent to provide financial services as he failed to realise that he needed an AFSL to provide financial services in Australia.
Financial adviser Ezzat-Daniel Nesseim was sentenced to a three-year Intensive Correction Order, including one year of home detention for repeated dishonest conduct, including providing falsified documents to ASIC. Between August 2017 and October 2017, Mr Nesseim provided three forged wholesale client certificates to ASIC.
This series of ASIC enforcements are a reminder for licensees to ensure robust compliance procedures are in place. Licensees should:
- review the training requirements of all employees and representatives and ensure training is provided in relation to expected standards of conduct.
- update the training or CPD plans for all employees and representatives, particularly those who are financial advisers and provide personal advice to retail clients;
- consider their human resources – including succession plans, recruitment plans and development of current staff;
- review risk management procedures, including conducting a review of the risks facing the business and how these risks are mitigated or controlled;
- consider your external service providers and review their performance – especially those that deal with your financial resources and audit;
- ensure key dates are diarised and all relevant staff and external service providers are aware of these dates;
- consider the activities of the business as a whole and ensure your licence appropriately covers these activities;
- maintain membership with the relevant external dispute resolution scheme; and
- lodge financial statements to ASIC at the end of every financial year.