Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2)
[2021] FCA 877
•2 August 2021
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) [2021] FCA 877
File number: VID 1170 of 2019 Judgment of: MOSHINSKY J Date of judgment: 2 August 2021 Catchwords: CORPORATIONS LAW – financial services and markets – best interests obligations – responsibilities of holder of Australian financial services licence – obligation of licensee to take reasonable steps to ensure that its representatives comply with the best interests obligations – obligation of licensee to do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly – whether the first defendant, a licensee, contravened these obligations Legislation: Corporations Act 2001 (Cth), ss 761A, 766B, 769B, 910A, 911A, 912A, 912C, 912D, 916A, 947B, 961, 961B, 961G, 961H, 961J, 961K, 961L, 961Q
Evidence Act 1995 (Cth), s 140
Cases cited: Australian Securities and Investments Commission v AGM Markets Pty Ltd (In Liq) (No 3) (2020) 275 FCR 57
Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) (2020) 377 ALR 55
Australian Securities and Investments Commission v Financial Circle Pty Ltd (2018) 131 ACSR 484
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345
Australian Securities and Investments Commission v NSG Services Pty Ltd (2017) 122 ACSR 47
Australian Securities and Investments Commission v Westpac Securities Administration Ltd (2019) 272 FCR 170
Briginshaw v Briginshaw (1938) 60 CLR 336
Jones v Dunkel (1959) 101 CLR 298
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361
Payne v Parker [1976] 1 NSWLR 191
Westpac Securities Administration Ltd v Australian Securities and Investments Commission (2021) 387 ALR 1
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 499 Date of last submissions: 29 April 2021 Date of hearing: 1, 2, 3, 4, 10, 11, 15, 16, 17, 22 and 23 March 2021 Counsel for the Plaintiff: Ms CM Kenny QC with Mr DJ Snyder, Mr GB Ayres and Mr PE Annabell Solicitor for the Plaintiff: Australian Securities and Investments Commission Counsel for the First Defendant: Mr PD Crutchfield QC with Dr CO Parkinson and Ms S Hogan Solicitor for the First Defendant: Gilbert + Tobin Counsel for the Second Defendant: Mr D Mence Solicitor for the Second Defendant: Assembly Law ORDERS
VID 1170 of 2019 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND: RI ADVICE GROUP PTY LTD (ACN 001 774 125)
First Defendant
JOHN DOYLE
Second Defendant
ORDER MADE BY:
MOSHINSKY J
DATE OF ORDER:
2 AUGUST 2021
THE COURT ORDERS THAT:
1.The proceeding be listed for a case management hearing, in relation to the further conduct of the proceeding, on a date to be fixed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
INTRODUCTION
[1]
THE PLEADINGS
[10]
The statement of claim
[10]
The defence
[32]
The reply
[45]
THE HEARING AND WITNESSES
[48]
FACTUAL FINDINGS
[59]
RI
[59]
Key individuals
[63]
RI’s shared services arrangements with ANZ
[70]
Relevant ANZ and RI standards
[72]
The Advice Vetting Standard
[74]
The Advice Assurance Standard
[82]
The Consequence Management Standard
[87]
RI Advice Procedures and Policies
[95]
The period before 8 May 2013
[99]
The Strategy and Voyage platforms
[99]
ANZ considers how to retain FUM (March 2013)
[102]
RI’s offer to Carrington (March 2013)
[112]
RI carries out due diligence (April to May 2013)
[118]
RI and ANZ review Carrington’s FUM (April to May 2013)
[133]
The period 8 May 2013 to 30 October 2013
[137]
RI appoints Carrington and Mr Doyle as authorised representatives (8 May 2013)
[137]
Requests for approval of the Macquarie and Instreet Products (April to June 2013)
[142]
Kaplan test (July 2013)
[150]
Other facts relating to the period from 8 May 2013 to 30 October 2013
[152]
The first period (1 November 2013 to 31 January 2014)
[165]
The second period (1 February 2014 to 14 November 2014)
[175]
Chronological summary of facts relating to this period
[175]
Financial reports
[233]
The third period (15 November 2014 to 3 March 2015)
[241]
The fourth period (4 March 2015 to 18 June 2015)
[250]
The fifth period (19 June 2015 to 30 June 2016)
[287]
The period after 30 June 2016
[342]
EXPERT EVIDENCE
[345]
Ms Birkensleigh’s first report
[346]
Mr Unicomb’s first report
[349]
Ms Birkensleigh’s reply report
[351]
Mr Unicomb’s reply report
[354]
Observations on the expert evidence
[358]
APPLICABLE PROVISIONS AND PRINCIPLES
[370]
Ch 7 generally
[370]
Part 7.6 of Ch 7
[373]
Part 7.7A of Ch 7
[379]
CONSIDERATION
[397]
Overview of ASIC’s case
[397]
General matters raised by RI
[403]
The first period (1 November 2013 to 31 January 2014)
[418]
The second period (1 February 2014 to 14 November 2014)
[445]
The third period (15 November 2014 to 3 March 2015)
[459]
The fourth period (4 March 2015 to 18 June 2015)
[469]
The fifth period (19 June 2015 to 30 June 2016)
[480]
Witnesses not called
[491]
CONCLUSION
[498]
MOSHINSKY J:
INTRODUCTION
The plaintiff, the Australian Securities and Investments Commission (ASIC), seeks declarations, pecuniary penalties and other relief against the first defendant, RI Advice Group Pty Ltd (RI) for alleged contraventions of ss 961L and 912A(1) of the Corporations Act 2001 (Cth) during the period 1 November 2013 to 30 June 2016 (the Relevant Period).
During the Relevant Period, RI was a subsidiary of Australia and New Zealand Banking Group Ltd (ANZ), the holder of an Australian Financial Services Licence (AFSL) and conducted a business that included providing financial advice through authorised representatives to retail clients. Further, throughout the Relevant Period, the second defendant, John Doyle, and his company, The Carrington Corporation Pty Ltd (Carrington), were authorised representatives of RI.
ASIC alleges that, in contravention of s 961L, RI failed to take reasonable steps, at various times during the Relevant Period, to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J (the Best Interests Obligations). Section 961L provides:
961L Licensees must ensure compliance
A financial services licensee must take reasonable steps to ensure that representatives of the licensee comply with sections 961B, 961G, 961H and 961J.
Note: This section is a civil penalty provision (see section 1317E).
ASIC also alleges that, during the Relevant Period, RI contravened s 912A(1)(a), (c) and (ca). There is a substantial overlap between ASIC’s case that RI contravened s 961L and its case based on s 912A. Section 912A(1) relevantly provided during the Relevant Period:
912A General obligations
(1)A financial services licensee must:
(a)do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and
…
(c)comply with the financial services laws; and
(ca)take reasonable steps to ensure that its representatives comply with the financial services laws; …
It will not be necessary to deal in these reasons with ASIC’s case against Mr Doyle as, on the second day of the hearing (which related to issues of liability), Mr Doyle made full admissions in relation to ASIC’s case against him. In brief outline, ASIC’s case was that Mr Doyle contravened the Best Interests Obligations in recommending structured financial products known as Macquarie Flexi 100 Trust (Macquarie Product) and Instreet Masti (Instreet Product) to retail clients. On the fourth day of the hearing, 4 March 2021, Mr Doyle filed a second amended defence reflecting the fact that he had made full admissions. Subsequently, on 23 March 2021, I made a declaration that, on various occasions during the Relevant Period (as set out in a schedule to the order), Mr Doyle contravened s 961Q(1) of the Corporations Act in that he contravened the Best Interests Obligations.
ASIC’s case against RI, in broad outline, is that:
(a)RI knew or ought to have known that Mr Doyle was not meeting RI’s advice standards and was not complying with its business rules, such that there was a substantial risk that he was breaching the Best Interests Obligations;
(b)despite repeated warning signs, RI failed to take any significant steps to investigate Mr Doyle until mid-2015, after ANZ reviewed a selection of Mr Doyle’s advice files and gave them the worst possible rating on its advice “scorecard”;
(c)as a result, ANZ undertook further file reviews, which identified similar issues with Mr Doyle’s advice;
(d)even then, RI kept Mr Doyle on as an authorised representative for another year; and
(e)by doing so, RI ensured that Mr Doyle’s clients and their funds under management (FUM) – also referred to as funds under advice (FUA) – would stay with RI; it also ensured that Mr Doyle could keep advising clients where there was a substantial risk that he would breach the Best Interests Obligations.
ASIC’s case addresses five separate time periods within the Relevant Period:
(a)1 November 2013 to 31 January 2014;
(b)1 February 2014 to 14 November 2014;
(c)15 November 2014 to 3 March 2015;
(d)4 March 2015 to 18 June 2015; and
(e)19 June 2015 to 30 June 2016.
In response, RI contends, in summary, that:
(a)this is not a case where RI’s compliance systems did not work; they picked up that Mr Doyle was circumventing RI’s business rules, caused an investigation into Mr Doyle’s conduct that identified potential risks of breach of the Best Interests Obligations, and resulted in a remediation program for any affected clients;
(b)from the time Mr Doyle failed his first audit in February 2015, he was placed under close supervision until his authorisation was suspended, and eventually terminated;
(c)ASIC’s approach to this case is to ask what, with the benefit of hindsight, RI should have done to ensure that Mr Doyle complied with the Best Interests Obligations;
(d)but the statutory requirement under s 961L is that a financial services licensee must take reasonable steps to ensure that representatives of the licensee comply with the Best Interests Obligations; it does not require the licensee to ensure that representatives of the licensee comply with those obligations; it only requires the licensee to take reasonable steps to ensure compliance; and the assessment of what is reasonable is not to be undertaken with hindsight bias.
For the reasons that follow, I have concluded that ASIC’s case against RI is substantially made out. I have concluded that RI contravened s 961L of the Corporations Act by failing to take reasonable steps during each of the five periods of time comprising the Relevant Period to ensure that Mr Doyle complied with the Best Interests Obligations. I have also concluded that, during each of the five periods of time, RI contravened s 912A(1)(a) of the Corporations Act. Further, it follows from my conclusion in relation to s 961L that RI also contravened s 912A(1)(c) and (ca). Given the level of factual detail involved in this case, it is not practicable to summarise my reasons for reaching the above conclusions in respect of each of the five time periods. The balance of these reasons will be structured under the following main headings:
(a)The pleadings;
(b)The hearing and witnesses;
(c)Factual findings;
(d)Expert evidence;
(e)Applicable provisions and principles;
(f)Consideration; and
(g)Conclusion.
THE PLEADINGS
The statement of claim
ASIC’s case is set out in its statement of claim save that, in its outline of opening submissions filed in advance of the hearing on liability, ASIC indicated that it did not press the allegation in paragraph 132(a) of the statement of claim. It is relevant to refer in some detail to ASIC’s pleaded case because at various times during the hearing and in closing submissions (both oral and written) RI submitted that ASIC’s submissions went beyond its pleaded case. It is therefore important to set out the key allegations pleaded by ASIC. I made clear during the hearing that I would hold ASIC to its pleaded case.
After referring to the parties, the statement of claim contains a section relating to the Macquarie and Instreet Products. The statement of claim sets out the basic terms of these products. It is alleged that the products were complex and difficult for unsophisticated investors to understand, and that the products constituted risky and speculative investments.
Section C of the statement of claim deals with the recruitment of Mr Doyle as an authorised representative of RI. It is pleaded that Mr Doyle began working in the financial services industry in approximately 1967 and that he worked as a financial adviser under the AFSL of Australian Financial Services Limited (AFS) between approximately May 1988 and April 2013 (allegations that are admitted). It is alleged that in March and April 2013, RI: identified that AFS would soon surrender its AFSL; developed and implemented a strategy to recruit authorised representatives of AFS to become authorised representatives of RI; targeted Mr Doyle and Carrington for recruitment as authorised representatives of RI; knew that ASIC had imposed additional conditions on the AFSL of AFS as a result of adviser misconduct; and knew that ASIC had raised concerns with ANZ and/or RI about the compliance framework of AFS.
It is alleged that RI or ANZ indicated to ASIC that RI would only take on advisers from AFS who met enhanced due diligence standards. It is alleged that, prior to authorising Mr Doyle to be an authorised representative, RI conducted due diligence with respect to Mr Doyle and that, in the course of carrying out the due diligence:
(a)RI obtained a report on Mr Doyle’s files prepared by AFS (AFS report) that identified deficiencies in the process by which Mr Doyle provided and recorded advice to clients, including inter alia inadequate investigation of clients’ objectives and inadequate recording of those objectives in statements of advice;
(b)on or around 23 April 2013, Ricki-Lee Rundle, an ANZ employee, conducted a review of a selection of Mr Doyle’s files;
(c)Ms Rundle identified various deficiencies in respect of Mr Doyle’s record keeping and documented advice;
(d)RI sought and received information regarding the financial products in which Mr Doyle’s clients were invested;
(e)the information referred to in the preceding sub-paragraph included:
(i)a document dated 29 April 2013 showing that more than 30 of Mr Doyle’s clients were invested in earlier issues of the Macquarie Product; and
(ii)a document showing that more than 40 of Mr Doyle’s clients were invested in earlier issues of the Instreet Product; and
(f)an ANZ investment research manager reviewed Mr Doyle’s book of clients and reported to RI that future approval for Mr Doyle to recommend structured products, including the Macquarie Product, to his clients would require:
(i)a clear demonstration that the product achieves a specific objective and is in the best interests of the client; and
(ii)a “highly recommended” rating from a preferred research provider of ANZ.
Section D of the statement of claim deals with the period from 8 May 2013 to 14 November 2014. (On 8 May 2013, Mr Doyle and Carrington were appointed as authorised representatives of RI.) It is alleged in paragraph 19 that it was a condition of RI’s authorisation of Mr Doyle that he complete a financial planning knowledge test (Kaplan test) within 30 days of the date of authorisation, being 8 May 2013. It is alleged that Mr Doyle took the test on 15 July 2013 and failed it. (As discussed below, RI disputes that it was a requirement that Mr Doyle pass the test.)
It is alleged that RI placed new authorised representatives on a program known as pre-vetting (pre-vetting or pre-vetting program) and that the program had the following features:
(a)within three months of becoming an authorised representative of RI, an authorised representative was required to submit files to ANZ’s Advice Assurance Team (Advice Assurance Team) for approval;
(b)the files were to relate to each type of advice that was covered by the authorised representative’s authorisation and specialist accreditations (authorisation areas);
(c)the Advice Assurance Team assessed the files against a scorecard on which advice documents would be rated between 1, indicating “no issues identified”, and 5, indicating seven or more “high rated” issues identified;
(d)a file would be approved by the Advice Assurance Team if the file had no “high rated” issues and fewer than three “medium rated” issues;
(e)to pass pre-vetting in relation to a particular authorisation area, the authorised representative needed a result of “approved” for at least two out of three files submitted to the Advice Assurance Team (minimum pass requirement);
(f)files that received a result of “not approved” could be re-submitted to the Advice Assurance Team, but re-submitted files did not count towards the minimum pass requirement;
(g)if the authorised representative failed his or her first round of pre-vetting, the authorised representative was to be given formal coaching, after which the authorised representative could submit further files for a second round of pre-vetting;
(h)if the authorised representative failed to pass second round of pre-vetting in relation to a particular authorisation area, the authorised representative was not permitted to provide advice in that authorisation area;
(i)authorised representatives were not permitted to provide any advice documents to clients until the advice had been approved by the Advice Assurance Team; and
(j)RI expected new authorised representatives to pass pre-vetting within three months of authorisation or shortly thereafter.
It is alleged in paragraph 23 of the statement of claim that the pre-vetting program did not provide for an authorised representative on pre-vetting to be dealt with under RI’s Consequence Management Standard if deficiencies in the authorised representative’s advice practices were identified in the course of pre-vetting.
In paragraphs 24 to 30, allegations are made concerning Mr Doyle’s initial submissions to pre-vetting. At paragraph 25, reference is made to Marie-Aimée Collins, a practice development manager employed by RI. It is alleged that in mid-2013 RI assigned Ms Collins to assist Mr Doyle to prepare files for pre-vetting. The balance of paragraphs 24 to 30 contain factual allegations regarding the failure of Mr Doyle’s files to obtain approval as part of the pre-vetting program.
In paragraphs 31 to 42, allegations are made concerning the appointment of a ‘paraplanner’, who I will refer to as Ms B. (I refer to her as Ms B as serious allegations are made against her in this proceeding, but it is not clear whether she has been apprised of these allegations and thus given the opportunity to respond to the allegations.) It is alleged that in or about January 2014, RI appointed Ms B to provide assistance to Mr Doyle and Carrington with the preparation of files for submission for pre-vetting. It is alleged that during 2014, Ms B and Ms Collins provided extensive assistance to Mr Doyle and Carrington employees with the preparation of files for submission for pre-vetting, and that this was done with the knowledge of RI officers and employees, including:
(a)Darren Whereat (the Chief Executive Officer of RI);
(b)Peter Ornsby (the Senior National Manager – Advice & Operations at RI); and
(c)Graeme Hyland (the Southern Regional Manager of RI).
This part of the statement of claim contains factual allegations regarding files submitted by Mr Doyle for pre-vetting and the failure of such files to gain approval. There are allegations that RI did not comply with its own pre-vetting program. In particular, in paragraph 36 it is alleged that on or about 24 March 2014, Mr Hyland asked ANZ’s Advice Assurance Team to count a file of Mr Doyle’s that had failed the first round of pre-vetting, but passed the second round of pre-vetting, towards Mr Doyle’s minimum pass requirement, contrary to one of the requirements of the pre-vetting program.
Allegations are also made concerning the number of files that Mr Doyle had submitted to pre-vetting. In particular, in paragraph 37 it is alleged that by 6 June 2014, more than a year after Mr Doyle had become an authorised representative of RI, Mr Doyle had submitted a total of only six files for first-round pre-vetting and only one of these six files had been approved in first-round pre-vetting.
After referring to the date by which Mr Doyle obtained clearance from pre-vetting with respect to all relevant authorisation areas (14 November 2014), it is alleged in paragraph 42 that:
(a)Mr Doyle did not pass pre-vetting for more than 18 months after being authorised as an authorised representative of RI;
(b)the above period was far longer than RI expected an authorised representative to remain on pre-vetting;
(c)during the above period, Mr Doyle was not subject to RI’s Consequence Management Standard; and
(d)during the above period, RI did not conduct an audit of Mr Doyle’s files.
Paragraph 43 of the statement of claim, which appears under the heading “Circumvention of advice vetting requirement by Mr Doyle and RI’s knowledge thereof”, contains important allegations. Paragraph 43 (omitting particulars) is in the following terms:
During the period from 8 May 2013 until 14 November 2014 in which Mr Doyle was required to submit files to pre-vetting:
(a)RI received regular reports of inflows of funds that Mr Doyle was generating from business he had written as an [authorised representative] of RI;
(b)Mr Doyle was writing large volumes of business on behalf of RI;
(c)RI knew, or ought to have known, of the volumes of business being written by Mr Doyle by reason of its receipt of the above regular reports of inflows;
(d)RI knew, or ought to have known, that there was a discrepancy between the large volumes of business that Mr Doyle was writing and the number and frequency of submissions that Mr Doyle was making to pre-vetting;
(e)by reason of the matters alleged in paragraphs 43(a)-(d) herein RI knew, or ought to have known, that there was a significant risk that Mr Doyle was providing advice to clients without the advice being approved by the [Advice Assurance Team], in contravention of the pre-vetting program; and
(f)notwithstanding the above matters, RI permitted Mr Doyle to continue to write large volumes of business.
Paragraphs 44 to 47 of the statement of claim relate to RI’s Approved Product List and the Macquarie and Instreet Products. It is alleged that if a financial product was not on the Approved Product List, authorised representatives were required to obtain approval from ANZ before advising clients to invest in that financial product, and that neither the Macquarie Product nor the Instreet Product was on the Approved Product List (allegations that are admitted). It is alleged that, by no later than August 2014, RI knew or ought to have known that Mr Doyle was (or that there was a significant risk that he was) advising clients to invest in:
(a)the Macquarie Product, in contravention of certain conditions of approval with respect to that product; and
(b)the Instreet Product (which had not been approved).
Section E of the statement of claim relates to the period February to March 2015, during which a first file review of Mr Doyle’s practice was conducted. It is alleged that RI maintained an Advice Assurance Policy under which authorised representatives were required to undergo an advice assurance review once a year, which involved the authorised representative submitting at least five files to ANZ’s Advice Assurance Team for review. It is alleged that in February 2015, the Advice Assurance Team carried out an advice assurance review of Mr Doyle’s practice, and that this was the first audit undertaken by RI of Mr Doyle since he commenced as an authorised representative of RI. It is alleged that the files the subject of the February 2015 advice assurance review were selected by Mr Doyle, contrary to the Advice Assurance Team’s standard file selection process for such reviews. There are factual allegations relating to the report of the Advice Assurance Team following that review, and RI’s response to that report (including that, from April 2015, Mr Doyle was once again subject to pre-vetting requirements).
Section F of the statement of claim relates to the period May to June 2015, during which ANZ’s Advice Assurance Team carried out a second advice assurance review of Mr Doyle’s practice. Factual allegations are made relating to the outcome of that review and the period after the review. Paragraph 64, which is similar to paragraph 43 (set out above), is in the following terms (omitting particulars):
During the period from April 2015 to around mid-June 2015 in which Mr Doyle was once again required to submit files to pre-vetting:
(a)RI received regular reports of inflows of funds that Mr Doyle was generating from business he had written as an [authorised representative] of RI;
(b)Mr Doyle was writing large volumes of business on behalf of RI;
(c)RI knew, or ought to have known, of the volumes of business being written by Mr Doyle by reason of its receipt of the above regular reports of inflows;
(d)RI knew, or ought to have known, that there was a discrepancy between the large volumes of business Mr Doyle was writing and the number and frequency of submissions Mr Doyle was making to pre-vetting;
(e)by reason of the matters alleged in paragraphs 64(a)-(d) herein, RI knew, or ought to have known, that there was a significant risk that Mr Doyle was providing advice to clients without the advice being approved by the MT, in contravention of the advice vetting requirement; and
(f)notwithstanding the above matters, RI permitted Mr Doyle to continue to write large volumes of business.
Section G of the statement of claim relates to RI’s suspension and termination of Mr Doyle as its authorised representative. This section of the statement of claim refers to RI conducting both a full review of advice provided to clients of Mr Doyle and Carrington since becoming authorised representatives of RI, and a third file review of Mr Doyle’s files. It is alleged that on 22 June 2015, Mr Whereat issued to Mr Doyle a notice of termination of the authorisations of Mr Doyle and Carrington as authorised representatives of RI, with the notice to come into effect on 21 December 2015. It is alleged that on 25 August 2015, Mr Whereat issued Mr Doyle with a notice of suspension of his appointment as an authorised representative and that, under the terms of the notice, he was still permitted to provide advice to existing clients in certain circumstances. It is alleged that Ms Collins subsequently reported to Mr Whereat that Mr Doyle was continuing to provide advice to clients in contravention of the notice of suspension and RI’s policies. It is alleged that by October 2015, RI had identified Mr Doyle’s advice to clients to invest in the Macquarie and Instreet Products as an area of significant risk. It is alleged that on or about 19 November 2015, RI extended the notice period in the notice of termination so that it took effect on 30 June 2016. Paragraph 76 is in the following terms (omitting particulars):
During the period from around July 2015 and continuing into 2016:
(a)RI received regular reports of inflows of funds that Mr Doyle was generating from business he had written as an [authorised representative] of RI;
(b)notwithstanding the Notice of Suspension, Mr Doyle was writing significant, albeit reduced, volumes of business on behalf of RI;
(c)RI knew, or ought to have known, of the volumes of business being written by Mr Doyle by reason of its receipt of the above regular reports of inflows; and
(d)RI permitted Mr Doyle to continue to write business.
Section H of the statement of claim contains the key allegations against RI that it failed to take reasonable steps to ensure that Mr Doyle complied with the Best Interests Obligations. Each of the paragraphs in this section has a similar structure, but relates to a different period of time. The allegations in this section are as follows:
78.By reason of the matters alleged at paragraphs 14-29, 31, 40, 42(c)-42(d) and 43-46 herein, in the period between approximately 1 November 2013 and approximately 31 January 2014 (while Mr Doyle was subject to pre-vetting but [Ms B] had not yet commenced providing substantial assistance to Carrington):
(a)there was a substantial risk that Mr Doyle was not complying with one or more of ss 961B, 961G, 961H and 961J of the Act (best interests obligations) in respect of advice to clients;
(b)RI knew, or ought to have known, of that substantial risk;
(c)RI did not take reasonable steps to address that substantial risk; and
(d)RI failed to take reasonable steps to ensure that Mr Doyle complied with the best interests obligations.
Particulars
Reasonable steps that RI should have taken included one or more of the following:
•taking measures to more strictly enforce the requirement to submit all advices to pre-vetting;
•carrying out a more comprehensive review of Mr Doyle’s practices and files to determine whether he was complying with RI’s policies and the best interests obligations; and
•suspending or terminating Mr Doyle’s authorisation as an [authorised representative] of RI, as appropriate, if that review identified serious deficiencies in Mr Doyle's practices.
Further particulars may be provided after the filing of expert evidence.
79.By reason of the matters alleged at paragraphs 14-47 herein, in the period between approximately 1 February 2014 and approximately 14 November 2014 (while Mr Doyle was subject to pre-vetting and [Ms B] and Ms Collins were providing substantial assistance to Carrington):
(a)there was a substantial risk that Mr Doyle was not complying with one or more of the best interests obligations in respect of advice to clients;
(b)RI knew, or ought to have known, of that substantial risk;
(c)RI did not take reasonable steps to address that substantial risk; and
(d)RI failed to take reasonable steps to ensure that Mr Doyle complied with the best interests obligations.
Particulars
Reasonable steps that RI should have taken included one or more of the following:
•the various steps set out in the particulars to paragraph 78 above; and
•from at least August 2014 onwards:
·investigating the extent to which Mr Doyle had been advising clients to invest in structured products and seeking to address instances where that advice had not been given consistently with the best interests obligations; and
·taking steps to prevent Mr Doyle inappropriately advising clients to invest in Instreet Products and Macquarie Products.
Further particulars may be provided after the filing of expert evidence.
80.By reason of the matters alleged at paragraphs 14-53 herein, in the period between approximately 15 November 2014 and approximately 3 March 2015 (between Mr Doyle’s graduation from pre-vetting and the First File Review):
(a)there was a substantial risk that Mr Doyle was not complying with one or more of the best interests obligations in respect of advice to clients;
(b)RI knew, or ought to have known, of that substantial risk;
(c)RI did not take reasonable steps to address that substantial risk; and
(d)RI failed to take reasonable steps to ensure that Mr Doyle complied with the best interests obligations.
Particulars
ASIC repeats the particulars to paragraph 79 herein, save that reasonable steps would also have potentially included not taking Mr Doyle off pre-vetting, and enforcing the requirement to submit all advices to pre-vetting strictly.
81.By reason of the matters alleged at paragraphs 14-61 herein, in the period between approximately 4 March 2015 and approximately 18 June 2015 (between the First File Review and the Second File Review):
(a)there was a substantial risk that Mr Doyle was not complying with one or more of the best interests obligations in respect of advice to clients;
(b)RI knew, or ought to have known, of that substantial risk;
(c)RI did not take reasonable steps to address that substantial risk; and
(d)RI failed to take reasonable steps to ensure that Mr Doyle complied with the best interests obligations.
Particulars
ASIC repeats the particulars to paragraph 79 herein.
82.By reason of the matters alleged at paragraphs 14-76 herein, between approximately 19 June 2015 and 30 June 2016 (between the Second File Review and the termination of Mr Doyle’s authorisation as an [authorised representative] of RI):
(a)there was a substantial risk that Mr Doyle was not complying with one or more of the best interests obligations in respect of advice to clients;
(b)RI knew, or ought to have known, of that substantial risk;
(c)RI did not take reasonable steps to address that substantial risk; and
(d)RI failed to take reasonable steps to ensure that Mr Doyle complied with the best interests obligations.
Particulars
Reasonable steps that RI might have taken included, for example:
•completely suspending or terminating Mr Doyle’s authorisation as an [authorised representative] of RI in a timely fashion and in any event earlier than 30 June 2016.
Further particulars may be provided after the filing of expert evidence.
Sections I and J of the statement of claim relate to contraventions by Mr Doyle and can be put to one side.
Paragraph 132 of the statement of claim alleges that RI contravened s 961L. Although ASIC does not press paragraph 132(a), it is convenient to set out the whole of paragraph 132, and then explain why paragraph 132(a) it is not pressed. Paragraph 132 is in the following terms:
132.By reason of the matters alleged in paragraphs 78-82 herein, RI contravened s 961L of the Act:
(a)in respect of each contravention by Mr Doyle of ss 961B, 961G, 961H and 961J respectively as alleged in paragraphs 98-101, 109-112, 119-122 and 127-130 herein; and
(b)further or alternatively, in respect of each of the periods alleged in paragraphs 78-82 herein, alternatively in respect of the period from 1 November 2013 until 30 June 2016.
The explanation for ASIC not pressing paragraph 132(a) is that ASIC accepts that the fact that an authorised representative has contravened the Best Interests Obligations does not automatically lead to the conclusion that the licensee has contravened s 961L: see Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) (2020) 377 ALR 55 (AMP Financial Planning) at [106] per Lee J. In contrast, paragraph 132(b), which is pressed, is not tied to or dependent upon contraventions by Mr Doyle.
Paragraphs 133 to 135 of the statement of claim relate to s 912A(1) and are in the following terms:
133.By reason of the matters alleged at paragraphs 14-82 herein, RI contravened s 912A(1)(a) of the Act.
Particulars
Between approximately 1 November 2013 and approximately 30 June 2016:
•there was a substantial risk that the financial services being provided by Mr Doyle that were covered by RI’s Licence were not being provided efficiently, honestly and fairly;
•RI knew, or ought to have known, of that substantial risk;
•RI did not take reasonable steps to address that substantial risk; and
•RI failed [to] do all things necessary to ensure that the financial services being provided by Doyle were provided efficiently, honestly and fairly.
134.By reason of the matters alleged in paragraph 132 herein, RI contravened s 912A(1)(c) of the Act.
135.By reason of the matters alleged in paragraphs 78-82 herein, RI contravened s 912A(1)(ca) of the Act.
The defence
In its amended defence (defence) RI pleads at paragraph 2A that at all material times it had a service agreement with ANZ whereby RI outsourced various functions to ANZ in relation to the provision of financial services covered by RI’s AFSL and to carry out its supervisory arrangements, including a series of matters that are set out in the pleading.
In relation to the Kaplan test, RI alleges at paragraph 20A that the test: was administered to assist RI to understand Mr Doyle’s knowledge; and was not administered on the basis that Mr Doyle was required to pass it as a condition of his authorisation as an authorised representative of RI.
In relation to the pre-vetting program, RI denies some aspects alleged by ASIC. RI alleges in paragraph 22(a) of the defence that:
(a)advisers had three months from commencement with RI or being placed on pre-vetting to submit advice to the Advice Assurance Team for review in relation to each of their authorisations;
(b)if no advice was submitted within that time, then the period may be extended for a further three months;
(c)the period within which an adviser submitted advice to the Advice Assurance Team in specialist accreditation areas varied from adviser to adviser, as some advisers did not regularly provide advice to clients in those specialist accreditation areas; and
(d)the Advice Assurance Team considered and reported on one submission at a time.
In paragraph 29A of the defence, RI alleges that after 5 December 2013 it provided further coaching and assistance to Mr Doyle and Carrington employees prior to any further files being submitted for pre-vetting, including:
(a)technological and other technical assistance provided by RI’s Practice Development Coaches, including David Davine and Graziano Trimboli;
(b)principles-based coaching and guidance provided by Ms Collins; and
(c)paraplanning coaching and assistance provided by Ms B.
In paragraph 33 of the defence, RI alleges that during 2014:
(a)Ms B provided paraplanning assistance and coaching to Mr Doyle and Carrington employees; and
(b)Ms Collins provided principles-based assistance and coaching to Mr Doyle and Carrington employees relating to the processes and enforcement of RI’s policies and standards.
In paragraphs 41A to 41B of the defence, RI alleges that on or about 2 September 2014, Mr Whereat directed Ms Collins to schedule an advice assurance review for Mr Doyle and Carrington following Mr Doyle’s pre-vetting approval in key areas, and that Ms Collins subsequently liaised with Brenton Ritchie (Manager of Advice Assurance, ANZ) and flagged Mr Doyle for an advice assurance review to be performed within three to six months, consistent with RI’s applicable policies and practices.
In relation to the allegations that Mr Doyle was circumventing the advice vetting requirement and that RI had knowledge of this, RI denies the substance of the allegations and pleads as follows in paragraph 43A:
Further to paragraph 43, RI says that:
(a)at or around 8 May 2013, Doyle had around $76 million in funds under management for clients for which it was using the platform Strategy;
(b)RI used the platform Voyage;
(c)upon becoming an [authorised representative] of RI, Doyle was gradually transitioning the funds under management for clients from the platform Strategy to the platform Voyage;
(d)Doyle was not required to obtain pre-vetting for clients to transition funds from the platform Strategy to the platform Voyage; and
(e)RI’s regular reports included the inflow amounts of Doyle’s clients into the platform Voyage.
As explained later in these reasons, both the Strategy platform and the Voyage platform were operated by the One Path group of companies, which was wholly owned by ANZ. Mr Whereat states in his affidavit that former AFS advisers were required to use their best endeavours to transfer existing funds under management from the Strategy platform, which was being wound down, to the Voyage platform.
In relation to the first file review (of February to March 2015), RI alleges that: its Advice Assurance Policy applied to authorised representatives only after they had passed pre-vetting; and RI’s policy was to conduct an advice assurance review between three and six months after an authorised representative had passed pre-vetting.
RI alleges that: in or about late March 2015, RI placed Ms Collins and Vincent Vella in Carrington’s offices to provide coaching to its employees in relation to RI’s processes and practices; and in or about April 2015, Mr Doyle’s advice quality assurance review results were reported to RI’s Risk Event Forum and then tracked by the committee at its monthly meetings.
In relation to the May to June 2015 period, RI alleges that by about 18 June 2015 it engaged and funded Planlogic to:
(a)provide paraplanning resources to Mr Doyle and Carrington to assist in the preparation of advice; and
(b)improve processes and systems used by Mr Doyle and Carrington employees in the preparation of advice.
In relation to the allegations concerning RI’s suspension and termination of Mr Doyle as an authorised representative, RI alleges that on or about 6 August 2015, RI wrote to Mr Doyle reiterating that all advice needed pre-vetting approval by the Advice Assurance Team prior to being issued to any client; and, in or about August 2015, RI placed Ms Collins in Carrington’s offices to monitor client meetings and any advice documents issued.
Further, RI alleges at paragraph 74 that:
(a)the extension of the notice period assisted RI’s ability effectively to remediate client files, as Carrington’s termination may have caused it to become authorised by another AFSL holder;
(b)between June and September 2015, RI had formed the view that as Mr Doyle was an active seller, the preferable exit of him from Carrington was the sale and ordinary transfer of the business to a new owner; and
(c)by at least October 2015, Richard McLean of Frontier Financial Group Pty Ltd (Frontier) had expressed to RI his interest in purchasing Carrington from Mr Doyle.
The reply
In its reply, ASIC states in response to paragraph 2A of the defence that the services agreements with ANZ did not: alter or diminish RI’s obligations under ss 912A and 961L in relation to Mr Doyle during the period that he was an authorised representative of RI; or transfer any of those obligations, in whole or in part, from RI to ANZ.
In relation to paragraph 43A of the defence, ASIC pleads in its reply that:
(a)to the extent that the regular reports that RI received of inflows of funds from Mr Doyle’s practice (Inflow Amounts) included amounts that were attributable to transfers of funds from the Strategy platform to the Voyage platform (Transfer Amounts) in many weekly reporting periods, the Inflow Amounts were significantly higher than the Transfer Amounts, and the sum total of the Inflow Amounts was significantly higher than the sum total of the Transfer Amounts;
(b)RI did not have a documented policy or other decision by which Mr Doyle was exempted from complying with RI’s Advice Vetting Standard in relation to advice to clients to transition funds from the Strategy platform to the Voyage platform (Platform Transition Advice);
(c)RI’s Advice Vetting Standard applied, without limitation, to all advice of authorised representatives of RI that was personal advice (within the meaning of s 766B(3) of the Corporations Act) to Retail Clients;
(d)Mr Doyle’s Platform Transition Advice was personal advice (within the meaning of s 766B(3) of the Corporations Act) to Retail Clients;
(e)by reason of the matters alleged in (b) to (d) above, Mr Doyle was required to obtain pre-vetting approval under RI’s Advice Vetting Standard before providing Platform Transition Advice; and
(f)in any event, by reason of the matters alleged earlier in the reply, RI knew, or ought to have known, that:
(i)Mr Doyle was generating significant volumes of Inflow Amounts that:
(A)were not attributable to Transfer Amounts; and
(B)were the result of new business written by Mr Doyle on behalf of RI; and
(ii)there was a significant risk that Mr Doyle was providing advice to clients without the advice being approved by the Advice Assurance Team, in contravention of the pre-vetting program.
In relation to paragraph 74 of the defence, ASIC alleges in its reply that the primary reason why RI elected not to terminate the authorisations of Mr Doyle and Carrington significantly earlier than it did was to retain the benefit of Carrington’s book of clients, not to facilitate remediation of Carrington client files.
THE HEARING AND WITNESSES
On 5 December 2019, an order was made that there be separate hearings for questions of liability and penalty, with the matters raised by paragraph 8 of ASIC’s originating process (in broad terms, orders for a compliance program and a program to remediate clients affected by Mr Doyle’s contraventions) to be addressed in the penalty hearing.
The liability hearing took place over 11 days, with counsel and witnesses appearing in person (unlike matters last year, which were conducted by video-conference due to the COVID-19 pandemic).
ASIC relied on the following lay evidence:
(a)affidavits of eight clients of Mr Doyle; and
(b)two affidavits of Anita Das, a solicitor employed by ASIC.
None of the above witnesses were required for cross-examination.
ASIC relied on the following expert evidence:
(a)an expert report and a reply expert report prepared by Sandra Birkensleigh, an expert in governance, risk and compliance in relation to financial services; and
(b)an expert report and reply report prepared by Paul Green, relating to the advice provided by Mr Doyle to certain clients.
Ms Birkensleigh was cross-examined; Mr Green was not.
RI relied on the following lay evidence:
(a)an affidavit of Mr Whereat (the CEO of RI during most of the Relevant Period) dated 13 October 2020; and
(b)an amended affidavit of Mr Ornsby (the Senior National Manager – Advice & Operations, also referred to as the National Operations Manager, of RI during most of the Relevant Period) dated 13 October 2020, with the amended version dated 16 March 2021.
Both Mr Whereat and Mr Ornsby were cross-examined.
RI relied on an expert report and a reply report of Glendon Unicomb, a forensic accountant with more than 30 years of regulatory experience in senior executive roles at ASIC and nine years’ experience in forensic advisory firms. Mr Unicomb was cross-examined.
In addition to the documents annexed to the affidavits, each party tendered a large number of documents.
I make the following observations about the evidence of the lay witnesses called by RI, Mr Whereat and Mr Ornsby. (I will make observations about the expert witnesses later in these reasons).
Mr Whereat was a very good witness. He was clear and precise in his answers to questions. He made sensible concessions during cross-examination, thus enhancing his credibility. To the extent that there were differences between his affidavit and oral evidence, I prefer his oral evidence. I generally accept his evidence.
Mr Ornsby did not have a clear recollection of some of the relevant events, including on several important points. This may perhaps be a function of inadequate preparation for giving evidence in the witness box. On several occasions during cross-examination, he seemed reluctant to answer the question, which gave an impression of evasiveness. I will discuss whether or not I accept his evidence in the context of specific factual issues later in these reasons.
The hearing was conducted using an electronic court book (CB), with each document identified with a tab number. To assist the parties in their consideration of these reasons, I have included references to the CB tab numbers in these reasons.
FACTUAL FINDINGS
RI
During the Relevant Period, RI held an AFSL and was wholly owned by ANZ. As at 30 April 2013, RI had a network of approximately 187 advisers who were authorised to provide financial services on behalf of RI, subject to the terms and conditions of their authorisation arrangements.
During the Relevant Period, ANZ owned a number of financial advice businesses, which included an internal advice business, ANZ Financial Planning Pty Ltd (utilising salaried advisers) and other practices. The group of other practices was referred to within ANZ as the Aligned Dealer Group or ADG. The Aligned Dealer Group included:
(a)RI;
(b)Financial Services Partners Pty Ltd; and
(c)Millennium 3 Financial Services Pty Ltd (which itself owned another AFSL forming part of the Aligned Dealer Group, Elders Financial Planning Pty Ltd).
In the course of cross-examination, Mr Whereat said that RI derived revenue from fees that it charged authorised representatives such as Carrington and Mr Doyle. He said that, in the case of Carrington, this was less than $20,000 per annum in 2013.
In October 2018, RI became a wholly-owned subsidiary of IOOF Holdings Ltd (IOOF), following completion of a share sale agreement entered into between companies associated with ANZ and IOOF in October 2017.
Key individuals
During the Relevant Period until April 2016, Darren Whereat held the position of CEO of RI. In April 2016, Mr Whereat became the General Manager, Aligned Licensees and Advice Standards at ANZ, and ceased to hold the position of CEO of RI.
During the Relevant Period until May 2016, Peter Ornsby held the position of Senior National Manager – Advice & Operations, also referred to as the National Operations Manager, of RI. In this position, he reported directly to Mr Whereat. In about May 2016, Mr Ornsby became the CEO of RI.
Mr Whereat and Mr Ornsby were based in the Sydney office of RI and sat next to each other in an open plan environment. Mr Whereat gives evidence (which I accept) that they frequently discussed issues with each other rather than emailing each other; they tended to have informal meetings that discussed the performance of RI’s authorised representatives; and Mr Ornsby had oversight of operational matters, but kept Mr Whereat up to date on such matters.
During the Relevant Period until February 2015, Graeme Hyland was the Southern Regional Practice Development Manager of RI. Mr Hyland’s primary responsibility was to manage the Practice Development Managers (described below) across the southern region, which comprised Western Australia, South Australia, Tasmania and Victoria. Mr Hyland reported directly to Mr Whereat.
In February 2015, following Mr Hyland’s departure from RI, Danielle Nugent became the Southern Regional Practice Development Manager of RI, and assumed Mr Hyland’s responsibilities.
RI had around five Practice Development Managers during the period of Mr Doyle’s authorisation. They acted as a direct contact between the authorised representative and RI, and also, between RI’s authorised representatives and ANZ Wealth as part of the shared service arrangements described below. Marie-Aimée Collins was the Practice Development Manager assigned to Mr Doyle and his financial planning business.
Mr Doyle was the principal of Carrington, which traded as Carrington Financial Services. Mr Doyle and Carrington became authorised representatives of RI on 8 May 2013. They were authorised representatives of RI for the whole of the Relevant Period.
RI’s shared services arrangements with ANZ
In or around August 2012, ANZ Financial Planning Pty Ltd together with the Aligned Dealer Group (including RI) joined ANZ Wealth’s ‘shared service environment’, whereby the Aligned Dealer Group (including RI) outsourced various functions to ANZ Wealth to support the provision of financial services covered by their AFSLs, and to assist in carrying out their supervisory arrangements. In this regard, the members of the Aligned Dealer Group (including RI) entered in Service Level Agreements with ANZ. The agreements were amended from time to time. There are four Service Level Agreements between RI and ANZ (dated August 2012, December 2013, January 2015 and June 2016) in evidence (CB tabs 454, 905, 1762, 2954). While the counterparty to the Service Level Agreements was ANZ, the staff who carried out the majority of the services under the Service Level Agreements were part of ANZ Wealth.
The Service Level Agreements entered into with RI covered various matters including the following:
(a)the provision of a program of compliance monitoring and remediation of authorised representatives;
(b)the offer of coaching to authorised representatives and their support staff to support quality advice being delivered to clients;
(c)the provision of end-to-end management of an Internal Dispute Resolution and External Dispute Resolution process;
(d)the provision of reporting and advice on, among other things, key risks to RI, adviser risk assessments, and advice assurance reviews;
(e)the provision of risk and governance management reporting for RI’s Board and compliance committees;
(f)reviewing qualifications for new and existing advisers and providing RI with a determination on relevant competency requirements;
(g)the provision of training solutions based on agreed criteria and prioritisation;
(h)the maintenance of policies and procedures on continuing training for advisers;
(i)the provision of Compliance Standards and Business Rules in line with all regulatory and ANZ Wealth risk policies, and communication of those policies to advisers;
(j)the facilitation of the on-boarding and resignation process of advisers for RI;
(k)the provision of a dedicated vetting program designed to ensure that advisers were consistently providing advice at the quality and standards expected of them;
(l)the provision of targeted reviews of advisers upon referral from the Event Working Group or the relevant Risk Forum in accordance with the governance framework, and reporting back to the relevant RI governance forum;
(m)the provision of advice reviews and client remediation recommendations;
(n)research into various investments, including investments requested by advisers, and the provision of an Approved Product List; and
(o)the development and maintenance of various model portfolios.
Relevant ANZ and RI standards
Mr Whereat gives evidence, and I accept, that the introduction of the Future of Financial Advice (or FoFA) reforms required an overhaul of RI’s policies to ensure it met the new requirements. Between July 2013 and July 2014, RI’s processes and procedures were strengthened to seek to ensure the best interests of clients were paramount. This included the release of a new RI standard entitled the “Best Interest Duty and Related Obligations” and the requirement that advisers complete a “Best Interest Accreditation”.
Mr Whereat gives evidence in his affidavit that, while RI was under ANZ ownership, certain functions were outsourced by RI to ANZ Wealth pursuant to shared service arrangements (including auditing, vetting and research). Mr Whereat also states that RI had its own AFSL and operational structure, over which he had managerial responsibility. I accept this evidence.
The Advice Vetting Standard
The evidence includes a copy of RI’s Advice Vetting Standard, version 1.1, released September 2013 (CB tab 780). The “owner” of the document, as identified in the “version control” section of the document, was the Head of Compliance, Advice & Distribution, ANZ Global Wealth. This position was held by Stephen Blood. In the “Description” at the beginning of the standard, it was stated that “[v]etting is a key advisory risk preventative control for new and higher risk Advisers”. Under the heading “Key Principles”, the standard stated:
•Vetting is a control which prevents the presentation of poor quality advice to clients/customers.
•Vetting is a quality assurance review, independent of Licensee Management, which assesses whether each Licensee’s Standards have been complied with in relation to the production of prospective advice for clients/customers.
•Vetting also supports the confirmation and/or development of the capability of new and higher risk Advisers to produce advice which meets the Licensee’s Standards.
The vetting, or pre-vetting, program as outlined in the standard involved the review of a proposed advice document before it was presented to the client of the authorised representative. (The terms “vetting” and “pre-vetting” appear to be used interchangeably in the documents.)
As this standard is important for several of the issues in the present proceeding, it is necessary to set out its terms at some length. The standard included the following:
Introduction
This Standard forms part of the Compliance Monitoring and Supervision Framework (‘the Framework’) and outlines how and when the vetting of files should be executed.
This Standard applies to the Licensees under the Framework, including: Millenium3 Financial Services – incorporating Elders Financial Planning (‘M3’), RI Advice Group (‘RI’), Financial Services Partners (‘FSP’) and ANZ Financial Planning (‘ANZFP’).
Purpose
The Vetting Program ensures that Advisers are producing advice which meets the Licensee’s expected standards prior to being provided to clients.
Pre-vetting assesses all parts of the advice process, up to but excluding the presentation and implementation of advice. Pre-vetting involves the submission of a proposed Statement of Advice and supporting documents (such as the Fact Find, File Notes and Research) to Advice Assurance for review. Advice Assurance will assess the proposed advice and determine whether any issues are present. Any issues will be reported back to the Adviser to correct before presenting the advice to the client.
Pre-vetting is designed for Advisers who have recently joined the Licensee or have increased their levels of authorisation or accreditation. It may also be recommended for Advisers as part of their Adviser Improvement Plan or as part of Consequence Management if it is determined to be of benefit.
Vetting ensures that Advisers are consistently providing advice at the quality and standards expected of them by the Licensee. It also enables the Adviser to better understand the Licensee’s requirements when providing advice.
Post-vetting is a compliance review conducted after the implementation of advice. It seeks to determine that the compliance requirements for implementing advice have been met.
Vetting Program
1When is Vetting Required?
Vetting is applied to Advisers under the following conditions:
•New entrant Advisers immediately after the successful completion of their induction
•Existing Advisers as a result of an Adviser Improvement Plan or Consequence Management
•Existing Advisers obtaining a new authorisation or specialist accreditation (e.g. gearing)
All vetting requires each advice document to be approved before it is presented to a client.
It is important for both Licensees and Advisers to have confidence that an appropriate level of competence can be demonstrated in giving advice across a range of types of authorisations and specialist accreditations. Consequently Advisers need to progress through pre-vetting for each of their specific authorisations and specialist accreditations according to the following groupings:
Authorisation Accreditation Risk Protection Self Managed Super Fund (SMSF) Superannuation & Investment Direct Equities Retirement Planning Gearing Business Insurance Other (e.g. Agribusiness)
For these reasons, ASIC’s case based on s 961L in relation to the fifth period is substantially made out.
Further, the matters set out above also lead me to conclude that, during the fifth period, RI did not do all things necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly as required by s 912A(1)(a).
Witnesses not called
ASIC and RI contend that there is an unexplained failure by the other party to call certain witnesses, and invite the Court to infer that the uncalled evidence would not have assisted the other party’s case: see Jones v Dunkel (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 at [63]-[64]. It is also submitted that the failure to call the witness may permit the Court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if the uncalled witness appears to be in a position to cast light on whether the inference should be drawn.
ASIC contends that an adverse inference should be drawn from RI’s failure to call Ms Collins, Mr Hyland and Ms Nugent.
Ms Collins is no longer employed by RI, having ceased employment at RI in May 2017. The material before the Court indicates that she is currently employed by ANZ. As noted above, RI is no longer a subsidiary of ANZ, having been sold to IOOF in October 2018. In circumstances where Ms Collins is no longer employed by RI and there is no suggestion that she has any ongoing connection with RI, and RI has led evidence from its two most senior executives during the Relevant Period, I am not satisfied that Ms Collins “would be expected to be called” by RI: see Payne v Parker [1976] 1 NSWLR 191 at 201 (cited with apparent approval in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 at [169]).
Mr Hyland is currently retired and resides in Western Australia. Although RI initially proposed calling him to give evidence and filed a statement of anticipated evidence, ultimately it did not file an affidavit of Mr Hyland. RI has provided an explanation for the failure to call Mr Hyland, namely health issues and the difficulty of conferring with him in person due to COVID-19 restrictions on interstate travel.
In relation to Ms Nugent, I am not satisfied that her role was of sufficient significance in relation to the facts and issues in the proceeding that she “would be expected to be called” by RI.
RI contends that an adverse inference should be drawn against ASIC from its failure to call Ms Collins. RI submits that in circumstances where ASIC exercised its powers to examine Ms Collins and had the opportunity to ask her questions, and yet has failed to call her as a witness, it should be inferred that her evidence would not have assisted ASIC’s case. I am not satisfied that Ms Collins “would be expected to be called” by ASIC. The fact that ASIC exercised its power of compulsory examination does not provide a basis to expect that ASIC would call Ms Collins as part of its case.
Accordingly, I reject both parties’ submissions regarding witnesses who were not called.
CONCLUSION
I therefore conclude that, during each of the five periods comprising the Relevant Period, RI contravened s 961L of the Corporations Act, by failing to take reasonable steps to ensure that Mr Doyle complied with the Best Interests Obligations. I also conclude that, during each of those five periods, RI contravened s 912A(1)(a) by failing to do all things necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly. It follows from my conclusion that RI contravened s 961L that RI also contravened s 912A(1)(c) and (ca).
I will hear from the parties as to the further conduct of the proceeding.
I certify that the preceding four hundred and ninety-nine (499) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky. Associate:
Dated: 2 August 2021
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