Chong and Australian Securities and Investments Commission

Case [2016] AATA 338

Chong and Australian Securities and Investments Commission [2016] AATA 338 (26 May 2016)

Division

TAXATION & COMMERCIAL DIVISION

File Number(s)

2015/4866

Re

Alfie Chong

APPLICANT

And

Australian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal

Senior Member CR Walsh
Date 26 May 2016
Place Perth

The Tribunal affirms the decision under review.

.................[Sgd].......................................................

Senior Member CR Walsh

CATCHWORDS

CORPORATIONS – decision by Australian Securities and Investments Commission to make banning order prohibiting applicant from providing “financial services” for five years – whether power to impose a banning order enlivened – whether banning order should be imposed in the applicant’s case – period of banning order – decision under review affirmed  

LEGISLATION

Australian Securities and Investments Commission Act 2001 – s 1(2)(a) – s 1(2)(b)

Corporations Act 2001 – s 761A – s 920A – s 920A(1) – s 920A(1)(e) – s 920B – s 945A – s 946A – s 946A(1) – s 946C – s 946C(1) – s 947 – s 947C(2) – s 947C(2)(b) – s 947C(2)(e) – s 947C(2)(f) – s 947C(3) – s 947D – s 1041H – s 1014H(1)

Corporations Regulations 2001 – r 7.7.10AE – r 7.7.10AE(3)

Trade Practices Act 1974 – s 52

CASES

Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682

ASIC v Adler (2002) 42 ACSR 74
ASIC v Maxwell [2006] NSWSC 1052
Australian Securities Commission v Nomura International PLC (1998) 29 ACSR 473
Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45
Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd (1998) 28 ACSR 58
Felden and Australian Securities and Investments Commission (2003) 45 ACSR 111
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82
Howarth and Australian Securities and Investments Commission (ASIC), Re (2008) 101 ALD 602
JTMJ and Australian Securities Investment Commission, Re [2010] AATA 350
National Exchange Pty Ltd v ASIC [2004] FCAFC 90
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Story v National Companies and Securities Commission (1988) 6 ACLC 560

Taco Company of Australia Inc and ANOTHER v Taco Bell Pty Ltd and OTHERS (1982) 42 ALR 177

SECONDARY MATERIALS

Australian and Securities Investments Commission Regulatory Guide 98:  Licensing:  Administrative action against financial services providers – Table A – Table B

REASONS FOR DECISION

Senior Member CR Walsh

26 May 2016

INTRODUCTION

  1. Mr Chong was an authorised representative of Meritum Financial Group Pty Ltd (Meritum), a financial services licensee, from:

    ·     16 September 2005 to 28 March 2006; and

    ·     20 July 2007 until 9 June 2014.

  2. From 30 August 2007 until 1 September 2015, Mr Chong was the sole director of Moneywealth Financial Services Pty Ltd (Moneywealth).  Moneywealth was an authorised representative of Meritum from 17 September 2007 and 9 June 2014.

  3. On 4 September 2015, a delegate of the Australian Securities and Investments Commission (ASIC) decided to make an order under s 920A and s 920B of the Corporations Act 2001

Continue reading Chong and Australian Securities and Investments Commission

Sign in free to access the full text

Details
AGLC
Chong and Australian Securities and Investments Commission [2016] AATA 338
Case
[2016] AATA 338
Decision Date

CaseChat Overview and Summary

This matter concerned an application by Mr Chong for a review of a decision by the Australian Securities and Investments Commission (ASIC) to impose a five-year banning order prohibiting him from providing financial services. Mr Chong contended that the banning order was unfair, prejudicial, harsh, and unreasonable, particularly as no clients had suffered financial loss, nor had he acted with intent to defraud or dishonestly. He argued that his procedural compliance issues had been rectified and that he had undergone significant training.

The Tribunal was required to determine three key issues: first, whether ASIC’s power to impose a banning order under s 920A(1) of the Corporations Act was enlivened; second, if so, whether a banning order should be imposed in Mr Chong’s case; and third, if an order was to be imposed, what the appropriate period of the ban should be.

The Tribunal affirmed ASIC's decision, finding that the power to impose a banning order was enlivened due to Mr Chong's contraventions of various provisions of the Corporations Act and Corporations Regulations, including s 1041H(1) (improperly using client signatures), s 945A (failure to have a reasonable basis for advice), and multiple sections relating to the provision of Statements of Advice. The Tribunal considered the nature and seriousness of Mr Chong's misconduct, referencing factors outlined in ASIC Regulatory Guide 98, such as dishonesty, recklessness, negligence, and systematic compliance failures. It found that Mr Chong's conduct was not merely careless but involved repeated failures and a lack of remorse or insight into the consequences of his actions. The Tribunal also emphasised the importance of maintaining professional standards, protecting the public, and reinforcing the integrity of the financial services industry, noting that banning orders serve a protective purpose rather than a punitive one.

The Tribunal concluded that a five-year banning period was appropriate in Mr Chong's case, citing the seriousness and duration of his misconduct, his lack of insight, and the need for deterrence and public protection. The Tribunal found that the imposition of a substantial banning order would assist market participants in understanding their obligations and would reinforce the integrity and reputation of the financial services industry.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

In relation to the first factor, “Nature and seriousness of the suspected misconduct”, Table 1 of RG 98 identifies the following “relevant considerations”:· Whether there is evidence that the contravention involved dishonesty or was intentional, reckless or negligent· The amount of any benefit gained or detriment suffered as a result of the misconduct· The amount of loss caused to investors and consumers· The impact of the misconduct on the market, including potential loss of public confidence · Whether the conduct is continuing · Whether the misconduct indicates systematic compliance failures· Whether the licensee or person has a poor compliance record (e.g. they have previously engaged in the misconduct)· Conduct which may amount to a serious conflict of interest [Emphasis added] The Tribunal considers that given the nature and seriousness of Mr Chong’s misconduct as a financial services provider, as detailed above (and, in particular, his failure to comply with s 1041H of the Corporations Act), ASIC was justified in taking the administrative action that it did (i.e. of imposing a banning order on Mr Chong of a substantial duration), noting, in particular, the relevant considerations in Table 1 of RG 98 which have been highlighted (bolded) above.(iii) Period of banning order Table 2 of RG 98 details factors and examples of conduct relating to specific periods of banning. The following “factors” are listed in relation the imposition of a banning period of “3-10 years”:· Conduct inconsistent with the orderly operation of a financial market· Adverse impact on confidence in or the integrity of a financial market· False, misleading or deceptive, or unconscionable conduct, or conduct with a lesser degree of dishonesty· A deliberate course of conduct to enrich themselves at others’ expense· Incompetence, irresponsibility or high level of carelessness, but with the possibility that the person may develop requisite skills and abilities· Disregard for the law and compliance with regulations. Table 2 of RG 98 provides “examples” of conduct which are “indicative” of such factors., including, but not limited to:· Misconduct in relation financial products or financial services (e.g. s 1041F-1041H and Div 2 of Pt of the Australian Securities and Investments Commissions Act 2001 (ASIC Act) Based on the misconduct of Mr Chong in providing financial services, as set out above (noting, in particular, his contravention of s 1041H(1) of the Corporations Act), the Tribunal finds that the imposition of a banning order for a three to ten year period is appropriate in Mr Chong’s case. More specifically, the Tribunal finds that the imposition of a five year banning period is appropriate in the circumstances of Mr Chong’s case. In reaching this is finding, the Tribunal notes, in particular, the following:· the seriousness and duration of Mr Chong’s misconduct which cannot be characterised as simply “careless” or “inadvertent” (i.e. which would warrant a lesser banning period). Mr Chong’s conduct involved repeated/systemic compliance failures. Imposing a substantial banning order in such circumstances is likely to help participants in financial markets to better understand their obligations; · the absence of any obvious remorse or insight shown by Mr Chong and the lack of insight displayed by Mr Chong to the consequences of his misconduct. Mr Chong has repeatedly tried to shift the blame for his own failure to comply with the Corporations Law (and, in particular, “financial services laws”) onto Meritum (refer to paragraphs 139 and 140 above) rather than taking responsibility for his own conduct as a financial services provider; · the importance of maintaining standards on the profession - a banning order protects the public from people like Mr Chong being involved in the financial services industry for the period of the order. A banning order may also have the effect of maintaining investor confidence in the financial industry: Felden and Australian Securities and Investments Commission (2003) 45 ACSR 111 at [398]. Members of the public are entitled to expect that those who fall short of minimum standards are removed from their profession for a period of time: Story v National Companies and Securities Commission (1988) 6 ACLC 560 at 581. · there is a strong protective effect for the public and reinforcement of the integrity and reputation of the financial services industry - It is well established that the purpose of a banning order is to protect members of the public from those who do not meet the standards of conduct expected of a person engaged in the provision of financial services: Howarth and Australian Securities and Investments Commission (ASIC), Re (2008) 101 ALD 602 at [152]-[180] per DP Forgie. A banning order is not made to punish a person even though punishment or the imposition of a penalty may be the practical outcome of such an order; and · the errant behaviour of Mr Chong, and others committing like contraventions of the Corporations Act, is more likely to change for the better if Mr Chong is banned for a significant period of time. Deterrence is also relevant to the protection of the public: Howarth and Australian Securities and Investments Commission, Re (2008) 101 ALD 602 at [180] per DP Forgie. A banning order does not only provide deterrence to the person the subject of the order but also to others who are involved or might potentially become involved in the industry. A banning order may also have an educative effect on the person concerned and the industry at large. That is, it may inform other participants in the industry, including advisers and clients, that certain conduct is neither acceptable nor tolerated. DECISION

Decision

Reasons for decision

In summary, in the Reason for Decision, accompanying the Decision (ASIC’s Reasons for Decision), ASIC found that ASIC’s power to make a banning order under s 920A(1)(e) of the Corporations Act was enlivened because Mr Chong had not complied with a “financial services law”. More specifically, ASIC’s Reasons for Decision provide that Mr Chong contravened:· section 1041H(1) of the Corporations Act, by cutting and pasting client signatures on to an Authority to Proceed (ATP) contained within a Statement of Advice (SOA);· section 945A of the Corporations Act, by failing to have had a reasonable basis for advice in relation to advice provided to at least two of his clients;· section 946A(1) of the Corporations Act by, on at least three occasions, failing to provide clients with a SOA;· section 946C(1) of the Corporations Act, by failing give a number of his clients a SOA within the relevant statutory timeframe;· section 947C(2) of the Corporations Act by failing, in relation to at least three of his clients, to fulfil the main requirements of a SOA in terms of the level of detail required by the section; and· regulation 7.7.10AE(3) of the Corporations Regulations 2001 (Corporations Regulations), by failing, in relation to at least one of his clients, to give a statement that contains the information that would, if a SOA were to be given, be required to be in the SOA by virtue of s 947C(2)(e) and (f) of the Corporations Act. ASIC’s Reasons for Decision also identify a number of additional “material” concerns about financial product advice given by Mr Chong and state that Mr Chong was:not diligent in ensuring he maintained a level of professionalism and knowledge required of a financial adviser. On 15 September 2015, Mr Chong applied to the Tribunal for a review of the Decision. In summary, Mr Chong’s position, as set out in his Statement of Facts (received on 22 February 2016), is as follows:I dispute the ASIC decision to ban me from providing financial services for the period 5 years, which was unfair, prejudice (sic.), harsh and unreasonable especially [as] (sic.) there was no client that have (sic.) suffered any financial loss or any intention to defraud or acted dishonestly.The Tribunal view should consider the fact that our clients have not suffered any financial loss and the compliance matter regarding procedural have (sic.) now been rectified and for the past 18 months of intensive training that I have received from the New Dealer Group, which have provide me to be skilful and competent to handle the day to day compliance matter.As stated, the file was individually audited and approved by the compliance officer before I can present to the client Statement of Advice.ASIC has ignored and did not even consider the remedial action that I have undergone.Therefore, we (sic.) seek the Tribunal to review the banning order from 5 years to 12 months undertaking.ISSUES The relevant issues for consideration by the Tribunal in this case are:(i)whether the power in s 920A(1) of the Corporations Act to impose a banning order is enlivened; and(ii) if yes, should a banning order be imposed in Mr Chong’s case; and(iii) if yes, what the period of the banning order should be.

Ratio Decidendi

Legal Principle Established

More specifically, ASIC’s Reasons for Decision provide that Mr Chong contravened:· section 1041H(1) of the Corporations Act, by cutting and pasting client signatures on to an Authority to Proceed (ATP) contained within a Statement of Advice (SOA);· section 945A of the Corporations Act, by failing to have had a reasonable basis for advice in relation to advice provided to at least two of his clients;· section 946A(1) of the Corporations Act by, on at least three occasions, failing to provide clients with a SOA;· section 946C(1) of the Corporations Act, by failing give a number of his clients a SOA within the relevant statutory timeframe;· section 947C(2) of the Corporations Act by failing, in relation to at least three of his clients, to fulfil the main requirements of a SOA in terms of the level of detail required by the section; and· regulation 7.7.10AE(3) of the Corporations Regulations 2001 (Corporations Regulations), by failing, in relation to at least one of his clients, to give a statement that contains the information that would, if a SOA were to be given, be required to be in the SOA by virtue of s 947C(2)(e) and (f) of the Corporations Act. ASIC’s Reasons for Decision also identify a number of additional “material” concerns about financial product advice given by Mr Chong and state that Mr Chong was:not diligent in ensuring he maintained a level of professionalism and knowledge required of a financial adviser. On 15 September 2015, Mr Chong applied to the Tribunal for a review of the Decision. In summary, Mr Chong’s position, as set out in his Statement of Facts (received on 22 February 2016), is as follows:I dispute the ASIC decision to ban me from providing financial services for the period 5 years, which was unfair, prejudice (sic.), harsh and unreasonable especially [as] (sic.) there was no client that have (sic.) suffered any financial loss or any intention to defraud or acted dishonestly.The Tribunal view should consider the fact that our clients have not suffered any financial loss and the compliance matter regarding procedural have (sic.) now been rectified and for the past 18 months of intensive training that I have received from the New Dealer Group, which have provide me to be skilful and competent to handle the day to day compliance matter.As stated, the file was individually audited and approved by the compliance officer before I can present to the client Statement of Advice.ASIC has ignored and did not even consider the remedial action that I have undergone.Therefore, we (sic.) seek the Tribunal to review the banning order from 5 years to 12 months undertaking.ISSUES The relevant issues for consideration by the Tribunal in this case are:(i)whether the power in s 920A(1) of the Corporations Act to impose a banning order is enlivened; and(ii) if yes, should a banning order be imposed in Mr Chong’s case; and(iii) if yes, what the period of the banning order should be. Each of these issues is addressed, in turn, below.ANALYSIS (i) ASIC’s power to make a banning order – s 920A(1) of the Corporations Act