Global Financial Markets Pty Ltd and Australian Securities and Investments Commission
[2017] AATA 1397
•31 August 2017
Global Financial Markets Pty Ltd and Australian Securities and Investments Commission [2017] AATA 1397 (31 August 2017)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2014/3659
Re:Global Financial Markets Pty Ltd
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
File Numbers: 2014/4523 and 2015/3248
Re:Mark Power
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President K Bean
Senior Member P Britten-JonesDate:31 August 2017
Place:Adelaide
The Tribunal affirms each of the decisions under review in applications 2014/3659, 2014/4523 and 2015/3248.
……........ [Sgd] ..................
Deputy President K Bean
CATCHWORDS
CORPORATIONS – Financial Services and Markets – Australian Financial Services Licence – Cancellation of and refusal to grant licence – Failure to comply with financial services laws – Failure to take reasonable steps to ensure representatives comply with financial services laws – Failure to ensure representatives are adequately trained – Misleading and deceptive conduct in relation to financial service – Whether there is no reason to believe that the applicant is likely to contravene obligations under s 912A – Whether there is reason to believe that the licensee is likely to contravene obligations under s 912A – Decisions under review affirmed.
PRACTICE AND PROCEDURE – Non‑publication and confidentiality orders sought – No reasonable prospect of commercial harm – Confidentiality order not granted.
LEGISLATION
Corporations Act 2001, ss 912A, 913A, 913B, 915B, 915C, 1041H
Administrative Appeals Tribunal Act 1975, s 35
CASES
Power and Australian Securities and Investments Commission [2015] AATA 652
Green v Daniels (1977) 13 ALR 1
WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559
Story v National Companies and Securities Commission (1988) 13 NSWLR 661
Hneidi v Minister for Immigration & Citizenship [2009] FCA 983
Drake and Minister for Immigration and Ethnic Affairs (No. 2) [1979] AATA 179; (1979) 2 ALD 634
Shi v Migration Agents Registration Authority [2008] HCA 31; [2008] 235 CLR 286
McWilliam and Civil Aviation Safety Authority [2008] AATA 687; (2008) 105 ALD 407
Zhang and Minister for Immigration and Citizenship [2012] AATA 475; (2012) 129 ALD 646
Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130
Pochi v Minister for Immigration and Ethnic Affairs (1979) 36 FLR 482
Sovereign Capital Ltd and Australian Securities and Investments Commission (2009) 109 ALD 398; [2008] AATA 901Clemente Group Holdings Pty Ltd v Australian Securities and Investments Commission [2016] AATA 758
SECONDARY MATERIALS
Regulatory Guides 104, 105 and 146
REASONS FOR DECISION
Deputy President K Bean
Senior Member P Britten-Jones31 August 2017
The Australian Securities and Investments Commission (ASIC) cancelled the Australian financial services licences held by Mark Power and Mark Power Financial Pty Ltd (MPF) pursuant to s 915C(1) of the Corporations Act 2001[1] on 14 November 2011.
[1] All references to legislation are references to the Corporations Act 2001 (the Corporations Act) unless otherwise stated.
On 20 August 2013, Global Financial Markets Pty Ltd (GFM), the sole director of which is Mark Power, applied to ASIC under s 913A for an Australian financial services licence (AFS licence) authorising it to provide financial product advice and deal in a financial product in the capacity as both issuer and on behalf of another person. That application for a licence was refused by ASIC on 10 July 2014.
The applicants seek a review of the decisions dated 14 November 2011 (the Cancellation Decisions) (the subject of applications 2014/4523 and 2015/3248) and the decision of 10 July 2014 (the Licence Refusal Decision) (the subject of application 2014/3659).
The time within which to seek a review of the Cancellation Decisions was extended by a decision made on 31 August 2015.[2] In the reasons for that decision, Deputy President Bean found that in the Licence Refusal Decision, the delegate for ASIC had made extensive reference to, and to some extent relied upon, the cancellation of the licences held by MPF and Mark Power in 2011. The application for an extension of time within which to seek review of the decision cancelling the licence held by MPF was made by Mark Power in his own name because MPF had been wound up and subsequently deregistered on 23 November 2014. The fact that the correctness of the Cancellation Decisions was likely to be agitated before the Tribunal in the application to review the Licence Refusal Decision was a significant factor in the Tribunal granting the extensions of time with respect to the Cancellation Decisions, and Deputy President Bean also concluded that Mr Power had standing to seek review of the MPF Licence Cancellation Decision. The result is that the Tribunal must now consider three decisions, namely the two Cancellation Decisions (in respect of which the applicant is in each case Mr Power) and the Licence Refusal Decision.[3]
[2] Power and Australian Securities and Investments Commission [2015] AATA 652.
[3] Mr Power’s application for review of the MPF Licence Cancellation Decision was lodged on 1 September 2015, immediately after the extension of time was granted.
The factual findings which underpinned ASIC’s decision to cancel the licence held by MPF largely informed the decision to cancel the licence held by Mark Power and were relied upon as a primary factor in refusing GFM’s later application for a licence. For that reason there is a focus in these reasons on the conduct of MPF which led to it having its licence cancelled. However, the Tribunal recognises that it is ASIC’s decision to not grant a licence to GFM which has the most practical significance for Mr Power. Consequently, the Tribunal’s ultimate focus is on the preconditions in s 913B which must be satisfied in order for ASIC to grant a licence to GFM.
THE CANCELLATION DECISIONS
In July 2011, ASIC expressed its concerns regarding non-compliance by MPF and Mark Power with respect to their obligations as financial services licensees under s 912A. A hearing ensued on 31 August 2011 and the Cancellation Decisions were ultimately made on 14 November 2011.
Five concerns were raised by ASIC with respect to the conduct of MPF, namely concerns that:
(i)MPF had not taken reasonable steps to ensure that its representatives comply with financial services laws, contrary to s 912A(1)(ca);
(ii)MPF had failed to ensure that its representatives were adequately trained, and were competent, to provide the financial services covered by its licence;
(iii)MPF had failed to comply with Condition 5 of its licence regarding the completion of appropriate training courses and assessments for persons providing financial product advice on behalf of MPF;
(iv)Mark Power, a responsible manager of MPF, did not understand the obligations of a financial services licensee; and
(v)MPF had previously not complied with its obligations under s 912A.
With respect to Mark Power, ASIC was concerned that he would not comply with his obligations under s 912A in that:
(i)Mark Power had been involved in a failure by MPF to comply with its obligations under s 912A(1)(c), (ca) and (f); and
(ii)Mark Power had made misleading statements, lacked knowledge of legal requirements and failed to ensure an agreement was complied with and failed to recognise deficiencies in background checks carried out by MPF.
The concerns with respect to MPF and Mark Power were established for the reasons set out in the Cancellation Decisions made on 14 November 2011.
THE LICENCE REFUSAL DECISION
On 20 August 2013, GFM applied for an AFS licence under s 913A. As part of its application, GFM sought authority to provide financial product advice and deal in a financial product with respect to derivatives, foreign exchange contracts and securities. GFM said that its intended business activities were best described as futures advisor, derivatives dealer and stockbroker/sharebroker servicing wholesale clients. Mark Power was nominated as the responsible manager. GFM stated that if a licence were granted, it would not be appointing any authorised representatives.
On 28 April 2014, ASIC wrote to GFM advising that it was minded to refuse the application because it was not satisfied that GFM met the requirements of s 913B(1)(b) and that there may be reason to believe that GFM was likely to contravene s 912A in that it was not satisfied that GFM:
(i)had a responsible manager with the competence to provide all of the financial services covered by the proposed AFS licence; and
(ii)would properly monitor ongoing compliance with all the general obligations that apply under s 912A.
Attached to the ASIC letter was a document detailing the areas of concern, which referred to ASIC’s policies provided for in Regulatory Guide (RG) 104 and RG 105.
A private examination of Mark Power was conducted by an ASIC delegate under s 913B so as to give GFM an opportunity to appear and make submissions on whether ASIC should grant it an AFS licence.
The decision to refuse the grant of an AFS licence was made on 10 July 2014 and reasons for the decision were provided.[4] In refusing to grant a licence to GFM, the ASIC delegate:
(i)acknowledged that the reasons for cancelling the licence of MPF chiefly related to Mr Power’s failure to ensure the licensee took reasonable steps to ensure that its representatives complied with the financial services law, but considered it highly relevant that the general obligations regarding representatives that Mr Power was found to have failed to comply with are fundamental compliance duties;
(ii)was not satisfied that 300 hours of reading in isolation and without being complemented by practical industry experience gave ASIC reason to believe that there had been a material change in Mr Power’s understanding of the duties and obligations on a financial services provider such as to give confidence that he now had the appropriate technical knowledge and skills to provide the financial services for which GFM sought to be licensed and to properly monitor ongoing compliance with the general obligations under s 912A;
(iii)was not satisfied that Mr Power had demonstrated that he had acquired the requisite skills since the cancellation of the licences of MPF and Mark Power;
(iv)was not satisfied that Mr Power met the experience requirement over the past 10 years set out in Option 5 of RG 105;
(v)was not satisfied that Mr Power had gained adequate experience to demonstrate that he would be able to properly monitor the conduct of GFM; and
(vi)found that GFM had not demonstrated that it could comply with the organisational competence obligation and the compliance obligations in s 912A(1).
THE LEGISLATIVE FRAMEWORK
[4] Exhibit R3 (T docs for 2014/3659) tab 2 page 20.
A general overview
Part 7.6 of the Corporations Act requires a person who carries on a financial services business to obtain an AFS licence. The holder of an AFS licence must satisfy financial requirements and conduct requirements, including requirements as to its compliance procedures and requirements as to the supervision and training of representatives. Although a licence is required where services are provided to either wholesale or retail clients, licensees who offer services to retail clients are placed under additional obligations. Licensees may authorise natural persons or corporate representatives to act on their behalf.
Application for an Australian Financial Services Licence
An application for an AFS licence must include information required by regulations made for the purposes of s 913A(a) and must be accompanied by any documents required by regulations made for the purposes of s 913A(b). Regulation 7.6.03 of the Corporations Regulations 2001 in turn specifies the information which is required as part of a licence application.
Section 913B provides when a licence may be granted:
(1)ASIC must grant an applicant an Australian financial services licence if (and must not grant such a licence unless):
(a)the application was made in accordance with section 913A; and
(b)ASIC has no reason to believe that the applicant is likely to contravene the obligations that will apply under section 912A if the licence is granted; and
(c)the requirement in whichever of subsection (2) or (3) of this section applies is satisfied; and
(ca)the applicant has provided ASIC with any additional information requested by ASIC in relation to matters that, under this section, can be taken into account in deciding whether to grant the licence; and
(d)the applicant meets any other requirements prescribed by regulations made for the purposes of this paragraph.
Note 1: ASIC must not grant an Australian financial services licence to a person contrary to a banning order or disqualification order (see Division 8).
…
(2)If the applicant is a natural person, ASIC must be satisfied that there is no reason to believe that the applicant is not of good fame or character.
(3) If the applicant is not a single natural person, ASIC must be satisfied:
(a)that:
(i) if the applicant is a body corporate—there is no reason to believe that any of the applicant’s responsible officers are not of good fame or character; or
(ii) if the applicant is a partnership or the trustees of a trust—there is no reason to believe that any of the partners or trustees who would perform duties in connection with the holding of the licence are not of good fame or character; or
(b)if ASIC is not satisfied of the matter in paragraph (a)—that the applicant’s ability to provide the financial services covered by the licence would nevertheless not be significantly impaired.
(4)In considering whether there is reason to believe that a person is not of good fame or character, ASIC must (subject to Part VIIC of the Crimes Act 1914) have regard to:
(a)any conviction of the person, within 10 years before the application was made, for an offence that involves dishonesty and is punishable by imprisonment for at least 3 months; and
(b)whether the person has held an Australian financial services licence that was suspended or cancelled; and
(c)whether a banning order or disqualification order under Division 8 has previously been made against the person; and
(d)any other matter ASIC considers relevant.
Note: Part VIIC of the Crimes Act 1914 includes provisions that, in certain circumstances, relieve persons from the requirement to disclose spent convictions and require persons aware of such convictions to disregard them.
(5)However, ASIC may only refuse to grant a licence after giving the applicant an opportunity:
(a)to appear, or be represented, at a hearing before ASIC that takes place in private; and
(b) to make submissions to ASIC in relation to the matter.
Section 913B specifies criteria for the grant of a licence. It does not confer a discretion on ASIC whether to grant that licence if those criteria are satisfied. The reasons on which ASIC relies to deny a licence must be such as would reasonably support a belief in the disqualifying characteristics. As to the objective standard applicable to the question of whether ASIC has reason to believe in a disqualifying factor, see Green v Daniels (1977) 13 ALR 1 at 9 and WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559 at 570-572.
A key factor in deciding whether a licence will be granted is that “ASIC has no reason to believe that the applicant will not comply with the obligations that will apply under section 912A if the licence is granted” (s 913B(1)(b)).
Section 912A provides as follows:
(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
(aa)have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative; and
(b)comply with the conditions on the licence; and
(c)comply with the financial services laws; and
(ca)take reasonable steps to ensure that its representatives comply with the financial services laws; and
(d)subject to subsection (4)—have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements; and
(e)maintain the competence to provide those financial services; and
(f)ensure that its representatives are adequately trained, … and are competent, to provide those financial services; and
(g)if those financial services are provided to persons as retail clients—have a dispute resolution system complying with subsection (2); and
(h)subject to subsection (5)—have adequate risk management systems; and
(j)comply with any other obligations that are prescribed by regulations made for the purposes of this paragraph.
Authorised representatives
Part 7.6 of Division 5 deals with the appointment of authorised representatives, and requires a representative of a financial services licensee to hold an authorisation from that licensee. A financial services licensee may appoint a person as an authorised representative by giving that person a written notice authorising that person, for the purposes of Chapter 7, to provide a specified financial service or financial services on behalf of the licensee, which may be some or all of the financial services covered by the principal’s licence: s 916A(1) and (2). An authorisation may be revoked at any time by the licensee giving written notice to the representative: s 916A(4). A body corporate may be appointed as representative of a licensee.
Section 916B provides for the appointment of sub‑authorised representatives. Section 916B(3) provides as follows:
A body corporate that is an authorised representative of a financial services licensee may, in that capacity, give an individual a written notice authorising that individual, for the purposes of this Chapter, to provide a specified financial service or financial services on behalf of the licensee, but only if the licensee consents in writing given to the body corporate.
An individual who is sub‑authorised by an authorised representative is itself an authorised representative of the relevant licensee, who will be liable for his or her conduct under Part 7.6 Division 6: s 916B(6). The sub‑authorisation of an individual as representative of a licensee may be revoked either by the licensee, or by the representative which sub‑authorised that individual, by giving written notice to that individual: s 916B(7).
Conditions on the licence
Subdivision B of Part 7.6 Division 4 enables ASIC to impose conditions on the licence.
Cancellation of a licence
Sections 915A to 915G set out the circumstances in which ASIC may vary, suspend or cancel an AFS licence. ASIC may suspend or cancel an AFS licence under s 915C(1) in any of the following cases:
(a)the licensee has not complied with their obligations under section 912A;
(aa)ASIC has reason to believe that the licensee will not comply with their obligations under section 912A;
(b)ASIC is no longer satisfied of the matter in whichever of subsection 913B(2) or (3) applied at the time the licence was granted (about whether the licensee, or the licensee’s representatives, are of good fame or character);
(c)a banning order or disqualification order under Division 8 is made against the licensee;
(d)a banning order or disqualification order under Division 8 is made against a representative of the licensee and ASIC considers that the representative’s involvement in the provision of the licensee’s financial services will significantly impair the licensee’s ability to meet its obligations under this Chapter.
With respect to the meaning of the words “has reason to believe”, Young J said in Story v National Companies and Securities Commission that “its ordinary construction is that the person in question had the relevant belief and there were reasonable grounds or cause for that belief”.[5]
[5] Story v National Companies and Securities Commission (1988) 13 NSWLR 661, 674; (1988) 13 ACLR 225, 236 (Story v NCSC).
ASIC may only suspend or cancel an AFS licence under s 915C after giving the licensee an opportunity to appear at a hearing before ASIC and to make submissions: s 915C(4).
Any power to suspend for non‑compliance with s 912A or where ASIC concludes that the licensee will not comply with its obligations under that section requires ASIC to consider whether the circumstances are such as to justify cancellation of the licence, having regard to the principles established by Story v NCSC.
Review of licensing decisions of ASIC
Section 1317B provides for review of decisions of ASIC by the Administrative Appeals Tribunal.
ASIC Regulatory Guides
In administering legislation ASIC issues regulatory documents including Regulatory Guides which give guidance to regulated entities by:
· explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act);
· explaining how ASIC interprets the law;
· describing the principles underlying ASIC’s approach; and
· giving practical guidance (for example, describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations).
RG 146.31 refers to the obligations in s 912A(1) and says: “In order to comply with these obligations, licensees must ensure that all natural persons who provide financial product advice on their behalf … meet the training standards”.
Further with respect to continuing training requirements, ASIC’s regulatory approach is currently set out in RG 146.121 which provides:
Licensees have an obligation to maintain their competence to provide the financial services authorised under their AFS licence … . They must also ensure that their representatives are adequately trained and competent to provide those financial services.
In making its decision the Tribunal will have regard to these Regulatory Guides but the overarching principle as described by Besanko J in Hneidi v Minister for Immigration & Citizenship [2009] FCA 983 at [50] is that “the Tribunal must make an independent assessment on the material before it with a view to reaching the correct or preferable decision”.
In accordance with the principles expressed in Drake and Minister for Immigration and Ethnic Affairs (No. 2) [1979] AATA 179; (1979) 2 ALD 634 at 640 (Brennan J, President), the Tribunal “is equally free, in point of law, to adopt … a policy in order to guide [it] in the exercise of the statutory discretion, provided the policy is consistent with the statute”.
On our analysis, although their numbering has changed over time, there has been no relevant change to the content of the Regulatory Guides during the period of concern to us. Where there has been a relevant change in the numbering, we will endeavour to make reference to this.
THE CONDUCT OF THE HEARING
Mr Power gave oral evidence in support of the three applications for review and tendered a significant amount of documentation to support his general contention that, contrary to the findings made in the reasons for the Cancellation Decisions, he and MPF had not breached the relevant provisions of the Corporations Act and there were no or insufficient grounds for the Cancellation Decisions and, consequently, no or insufficient grounds for the Licence Refusal Decision. Mr Power also gave evidence that he had sufficient relevant experience to justify the granting of a licence to GFM. We will deal further with his evidence below.
In addition to Mr Power’s evidence, he tendered affidavits of Gary Balding and Dilshan Kulatunga, both of whom acted as authorised representatives of Mark Power through their corporate vehicles in 2011. It was their evidence that prior to being appointed as an authorised representative, there was a rigorous due diligence process and that once appointed they were prohibited from giving financial advice until attaining the required training qualifications.
ASIC tendered 14 volumes of T‑Documents[6] with respect to the applications to review the Cancellation Decisions and one volume of T‑Documents[7] with respect to the application for review of the Licence Refusal Decision. In addition, there were two supplementary volumes of documents[8] and one volume of further supplementary documents.[9]
[6] Exhibit R1.
[7] Exhibit R3.
[8] Exhibit R4.
[9] Exhibit R11.
ASIC tendered affidavits from Steven Callaway, Robert Stonehill, David Winston Wright, John Hood and Robert Anthony, all of whom had dealings with Apple Investment Company Pty Ltd, an authorised representative of MPF. ASIC also relied upon an affidavit from Jennifer Anne Basnec, who gave evidence about issues of compliance with respect to authorised representatives appointed by MPF and Mark Power. Mr Power cross‑examined John Hood, Robert Anthony and Jennifer Basnec.
Consideration of the material time
An issue was raised at the commencement of the hearing as to the date at which the Tribunal should consider the facts.
It was submitted by the parties that with respect to the application for review of the Cancellation Decisions, the Tribunal should consider the facts as at the date of the cancellation of the licences, namely 14 November 2011. In McWilliam and Civil Aviation Safety Authority,[10] the Tribunal considered the effect of the High Court’s decision in Shi v Migration Agents Registration Authority,[11] and ruled that the breaches that led to a suspension of a licence had a temporal element that precluded reference to later events. The Tribunal accepts that that reasoning is applicable here, and the submission of the parties. Accordingly, the Tribunal will consider the facts as at the date of the cancellation of the licences in November 2011.
[10] [2008] AATA 687; (2008) 105 ALD 407.
[11] Shi v Migration Agents Registration Authority [2008] HCA 31; (2008) 235 CLR 286.
With respect to the application for the review of the Licence Refusal Decision, it was submitted by ASIC that the Tribunal should consider all of the facts available to it up to the date that it makes its decision. Mr Power contended that he would be prejudiced by this approach and submitted that the correct approach was that the Tribunal should only consider the facts as at the date that GFM made its application or the date of the Licence Refusal Decision on 10 July 2014.
Mr Power considered that he would be prejudiced by consideration of the facts as they stood as at the time that the decision was to be made by the Tribunal because his submission as at the date of GFM’s application provided details of his “relevant experience over the past 10 years” so as to satisfy RG 105.71(c).[12] If this experience was sufficient as at the date of GFM’s application then it should be considered sufficient as at the time the Tribunal was to make its decision. Further, Mr Power was concerned that if his relevant experience was confined to 10 years before the date of the decision then that would be less favourable to him because he wanted to rely on experience from more than 10 years before.
[12] Prior to December 2016, this was RG 105.66(c).
The High Court considered this issue in Shi and found that subject to any legislative indication to the contrary, the task of the Tribunal was to make the correct or preferable decision in the circumstances as they exist at the time of its decision. In Zhang and Minister for Immigration and Citizenship,[13] the Tribunal stressed that it is the nature of the decision that is under review that will determine whether further material may be lodged and considered.
[13] Zhang and Minister for Immigration and Citizenship [2012] AATA 475; (2012) 129 ALD 646.
We note that even if we consider all material available up to the date of our decision, we will not be precluded from considering the relevant experience of Mr Power which may go back beyond a 10 year period from the date of our decision in any event. Therefore, this would not entail prejudice to GFM of the kind Mr Power is concerned about. More importantly, however, it is apparent from the terms of s 913B that the criteria set out therein must be satisfied as at the date a licence is granted. In particular, the Tribunal, standing in the shoes of ASIC, would need to consider all facts up to the date of its decision so as to form the belief that there is no reason GFM will not comply with the s 912A obligations and that Mr Power is of good fame or character. If an applicant for a licence is unable to satisfy those ongoing obligations as at the date of the decision to be made by the Tribunal, then the general obligations under s 912A will not have been satisfied and a licence will not be granted.
The Tribunal therefore rejects the submissions from the applicants and does not consider itself bound to only consider the facts as at the date that GFM’s application was made or first refused. The Tribunal will consider later facts insofar as they are relevant to any of the statutory obligations of a licensee or the other criteria for the granting of an application.
Application for confidentiality
On the fourth day of the hearing, ASIC applied for a non‑disclosure order with respect to the name of Ms Basnec. ASIC had opened its case on the basis that an affidavit from Ms Basnec would be tendered. Mr Power opposed the order sought. After hearing evidence from Ms Basnec limited to the application and hearing submissions from the parties, the Tribunal refused to grant the application and now gives reasons for so doing.
Ms Basnec gave evidence that she operates a business as a compliance consultant for persons in the financial services industry. She is self‑employed but trades through the corporate vehicle of GRC Essentials (SA) Pty Ltd. The work she carries out for clients is of a confidential nature and her relationship with them is based on trust. They expect her to maintain confidentiality with respect to their business affairs. She does not want her clients to become aware that she is giving evidence in this matter because she is concerned that they will consider she is breaching client confidentiality. She is concerned that this may have a negative impact on her ability to attract clients. She is not so concerned about the effect it may have on her current clients. She is concerned that potential clients may be more reluctant to use her if they know she has given evidence against a former client.
Ms Basnec was previously employed by Accompli who provided compliance services to Mark Power and MPF. Her affidavit evidence is to the effect that Mark Power failed to follow recommendations regarding compliance and that MPF did not adhere to expected standards in that regard.
Upon further questioning from the Tribunal, Ms Basnec said that it was her “preference” to not give evidence because of the potential risk of losing clients. She accepted that clients would understand that she operates in a highly regulated industry and would understand that she may be compelled to give evidence that would breach client confidentiality. She accepted that giving evidence for ASIC may have the effect of enhancing her reputation, but her overarching concern remained that there was a risk that her business and therefore her livelihood may be adversely affected if it became known that she had given evidence against a former client.
Section 35 of the Administrative Appeals Tribunal Act 1975 (the AAT Act) gives effect to the basic principle that proceedings before this Tribunal are to be open and documents and other material lodged with the Tribunal in the course of a proceeding should also be available to the public. This is the starting point in any analysis as to whether confidentiality or suppression orders should be made.
Having said that, s 35 of the AAT Act enables the Tribunal, where satisfied that it is desirable to do so by reason of the confidential nature of any evidence or matter or for any other reason, to order a hearing or part thereof take place in private and to give directions restricting the publication of the names of witnesses or evidence which is given before the Tribunal.
Section 35 further provides as follows:
Orders for non-publication or non-disclosure
(3)The Tribunal may, by order, give directions prohibiting or restricting the publication or other disclosure of:
(a)information tending to reveal the identity of:
(i) a party to or witness in a proceeding before the Tribunal; or
(ii) any person related to or otherwise associated with any party to or witness in a proceeding before the Tribunal; or
(b)information otherwise concerning a person referred to in paragraph (a).
(4)The Tribunal may, by order, give directions prohibiting or restricting the publication or other disclosure, including to some or all of the parties, of information that:
(a)relates to a proceeding; and
(b)is any of the following:
(i) information that comprises evidence or information about evidence;
(ii) information lodged with or otherwise given to the Tribunal.
(5)In considering whether to give directions under subsection (2), (3) or (4), the Tribunal is to take as the basis of its consideration the principle that it is desirable:
(a)that hearings of proceedings before the Tribunal should be held in public; and
(b)that evidence given before the Tribunal and the contents of documents received in evidence by the Tribunal should be made available to the public and to all the parties; and
(c)that the contents of documents lodged with the Tribunal should be made available to all the parties.
However (and without being required to seek the views of the parties), the Tribunal is to pay due regard to any reasons in favour of giving such a direction, including, for the purposes of subsection (3) or (4), the confidential nature (if applicable) of the information.
These provisions were considered by the Full Federal Court in Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130 at 148‑149, where the following points were made:
(a)the norm is that proceedings before the Tribunal shall be in public and this norm is reinforced by the requirements of s 35(3) (now s 35(5)) which expressly confirms the principle that it is desirable that hearings be held in public;
(b)the power to depart from that norm is one that is to be exercised sparingly: see Pochi v Minister for Immigration and Ethnic Affairs (1979) 36 FLR 482 at 510;
(c)the reason matters are not kept secret is the overriding importance of justice being administered openly and in public. This applies equally to persons who are in business even when, for example, employees may be disadvantaged; and
(d)the Tribunal would need some cogent reason by reference to the particular case to depart from the ordinary requirement of a public hearing. It is difficult to accept that harm, even serious harm, to the recipient’s reputation resulting from public awareness of a banning order would be a sufficiently cogent reason.
The Tribunal considered that Ms Basnec’s evidence was insufficient to justify a confidentiality order. The evidence fell short of disclosing a reasonable prospect of commercial harm.
BACKGROUND FACTS
From February 2002 to November 2011, Mark Power ran a financial services business. The business was run under two AFS licences.
The business model adopted by Mark Power (and MPF) involved appointing authorised representatives who would be charged a fixed monthly fee of about $2,000 per month.
Mark Power held a licence personally from 8 March 2004, but he did not himself provide financial services to clients. Instead, all financial services were provided to clients by his authorised representatives. From 26 September 2008, Mark Power’s licence authorised him to carry on a financial services business to:
·provide financial product advice for derivatives, foreign exchange contracts and securities;
·deal in a financial product by issuing, applying for, acquiring, varying or disposing of a financial product in respect of derivatives and foreign exchange contracts; and
·deal in a financial product by applying for, acquiring, varying or disposing of a financial product on behalf of another person in respect of derivatives, foreign exchange contracts, and securities;
for retail and wholesale clients.
At various dates between June 2004 and 26 February 2009, nine authorised representatives were appointed by Mr Power. Three of those authorised representatives (namely Money Trading Pty Ltd, Forex Explained Pty Ltd and Principal Investments (Australia) Pty Ltd) were transferred from Mr Power to his company, MPF, on 26 February 2009.
MPF held the second licence. Mark Power was the sole director and shareholder of MPF, which was granted its licence on 25 February 2009 to carry on a financial services business to retail and wholesale clients.
The financial services business operated under Mr Power’s personal licence was transferred to MPF on 26 February 2009. Thereafter, Mr Power did not conduct any business under his personal licence until May 2011. In the period 3 May 2011 to 15 July 2011 Mr Power appointed five authorised representatives which included Australian Taxation Reporter Pty Ltd and Kulad Pty Ltd operated by Gary Balding and Dilshan Kulatunga respectively.
MPF did not itself provide financial services to clients. Those services were provided by authorised representatives appointed by MPF.
About 23 authorised representatives were appointed by MPF but some of them did very little and never engaged with clients. Mr Power gave evidence that only five authorised representatives actually engaged with clients and they were Forex Explained Pty Ltd (whose sole director was David Orth), Gotmoney Pty Ltd (whose sole director was David Orth), Principal Investments (Australia) Pty Ltd, Australian Stock Investment Group Pty Ltd and Apple Investment Company Pty Ltd. [14]
[14] Transcript, 10 October 2016, p 26 lines 2‑6.
MPF entered into a corporate authorised agreement with each of its authorised representatives.[15] That agreement authorised the representative to provide financial product advice with respect to, and deal in, certain financial products. Those financial products included foreign exchange contracts, derivatives and securities. All authorised representatives were provided with a compliance manual.
[15] An example is Exhibit A24.
In the agreement, the authorised representative undertook to comply with the Corporations Act and all other statutory and common law requirements and to comply with all applicable terms and conditions attaching to the licence issued by ASIC to MPF and to comply with all terms of the compliance manual. The agreement also provided that MPF would appoint Accompli Pty Ltd to perform a due diligence investigation prior to the signing of the agreement and to run ongoing compliance meetings to ensure all compliance and legal obligations were being met.
Accompli provided compliance services to Mark Power from about 2003 and later MPF from 2009. Jennifer Basnec was a senior consultant and employee of Accompli from 2003 until 2013. She was the main contact from Accompli for Mark Power and was based in Adelaide. Accompli provided ad hoc services as required by the authorised representatives together with the subscription to a compliance management system and induction manual. Both the compliance management system and the induction manual were web based tools to assist an authorised representative or holder of a licence with their compliance obligations.
THE APPLICANTS’ CONTENTIONS
The cancellation decisions
The applicants disputed ASIC’s findings of non‑compliance with s 912A(1)(ca) and (f) relating to the authorised representatives of MPF and Mark Power. They contended that MPF and Mark Power always complied with the general obligations in s 912A and in the ASIC Regulatory Guides.
In answer to the concerns raised by ASIC, the applicants submitted:
In summary I would say that the divergence between ASIC and I on conduct of the operation of the Licensees of MPF and MRP was not that MPF and MRP were non‑compliant but rather the way that MPF and MRP adhered to its compliance regime. For the purposes of clarity, I have decided to call this Procedural Divergence.[16]
[16] Exhibit A73, “Applicant response to ASIC’s Statement of Facts, Issues and Contentions”, p 11, [23(h)].
Under cross‑examination Mr Power said:
Well my understanding of what I talked about as procedural divergence is that both ASIC’s preferred way of doing things and my way of doing things were both compliant but there was a preferred way of conducting certain licensee operations which was the ASIC way and I tried to move towards it but I – I regarded both processes, Mr Douglas, as compliant. I may be wrong about that but that was my view.[17]
[17] Transcript, 13 October 2016, p 235 lines 8‑11.
In response to allegations of misleading and deceptive conduct by way of inaccurate information on the website of various authorised representatives, the applicants accepted that inaccuracies did occur but sought to excuse such conduct by saying that a failure to comply with s 1041H(1) is not an offence.[18]
[18] Exhibit A73, [25(a)], [25(b)], [25(c)], [25(e)] and [25(g)], pp 15‑18.
In his opening address Mr Power made further submissions seemingly in defence of his conduct:
Well, the first thing I would like to say is that all these breaches that ASIC have talked about of the financial services licence of Mark Power financial, were all done, all of them, by other people. None of them were done by me. Yes as the responsible manager on the licensee there was a legal obligation, but I would first like to point out that all these – all these breaches that ASIC talk about were mistakes made by other people, even if they are mistakes. I mean I am going to argue that a lot of them aren’t, they weren’t mistakes.[19]
With respect to the allegation that MPF failed to ensure that its authorised representatives had the necessary knowledge and skills and operated pursuant to the requirements of RG 146, it was contended by the applicants that numerous authorised representatives either never operated or did not give advice and that therefore there was no breach of RG 146.[20] This was described by the applicants as an example of procedural divergence.
[19] Transcript, 10 October 2016, p 42 lines 27‑33.
[20] Exhibit A73, [26]‑]27].
In his oral evidence, Mr Power justified on commercial grounds the practice of appointing authorised representatives before they were properly qualified:
But I found that if I waited for everything to line up, I would have a situation where I wouldn’t get any money at all. So what I said, well, when I give you the authorisation you start paying me, but you can’t do anything. And that happened quite a number of times.[21]
[21] Transcript, 10 October 2016, p 53 lines 41‑44.
A further justification for this practice was that there was a contractual term in the corporate authorised agreement that an authorised representative would not engage with clients until properly qualified. When asked to identify the relevant clause, Mr Power pointed to clause 4(b) which is not in such specific terms.
During Mr Power’s closing address, he asserted that this practice was limited to the period before June 2010.[22] This is contrary to the information deposed to by Dilshan Kulatunga in his affidavit that this practice was being adopted in July 2011 when Kulad became an authorised representative.[23]
[22] Transcript, 20 October 2016, pp 445‑446.
[23] Exhibit A1, Affidavit of Dilshan Kulatunga sworn 8 June 2016.
Supervision Requirements of Authorised Representatives
Ms Basnec was a senior consultant and employee of Accompli from 2003 to 2013. Accompli was engaged by Mr Power and then MPF to provide compliance services in the period from 2003 to February 2011. She provided a statement to ASIC which was tendered at the hearing.[24]
[24] Exhibit R21.
In October 2009, Ms Basnec became concerned that Mark Power did not conduct a thorough enough review of the intended business as part of his due diligence prior to appointing an authorised representative. She recommended that Accompli assist MPF to undertake appropriate checks and ensure all potential authorised representatives met RG 146 requirements prior to them being appointed.[25] However, Ms Basnec deposed that Mr Power did not always follow these new procedures.[26]
[25] Exhibit R21, [26].
[26] Exhibit R21, [27].
RG 146 has at all relevant times provided that persons who provide financial product advice to retail clients must meet certain training standards. Mr Power adopted the practice of appointing an authorised representative before they had achieved those training standards under RG 146 on the basis that they would be prohibited from engaging with clients until they were properly qualified. Dilshan Kulatunga from Kulad and Gary Balding from Australian Taxation Reporter both gave affidavit evidence that they had been appointed but were strictly prohibited by Mark Power from giving financial advice until being compliant with RG 146. Other examples given by Mark Power in evidence were Trade Wind Mercantile Pty Ltd and Aspen Group Pty Ltd.
A fundamental concern raised by ASIC is the failure of MPF to comply with its supervision requirements as set out in s 912A(1)(ca) and (f).
Mr Power gave evidence that he and MPF made income by selling AFS licence authorisations under their respective AFS licences. In most cases, the contractual arrangement with the authorised representative was for it to pay a fixed monthly fee of about $2,000 a month. Mr Power explained that some authorised representatives were appointed (and therefore commenced paying the monthly fee) but were prohibited by the terms of their contract from providing any financial services until they became properly compliant:
sometimes an entity was authorised, but completely prohibited from engaging the clients, so they were just authorised and nothing else, and they did nothing else, and there were several examples of that where you had an authorisation, and it was in their contract that they couldn’t do anything, they were only authorised, they weren’t required – they weren’t allowed to do anything else until they had an RG146 Qualified Person, you know, there.[27]
[27] Transcript, 10 October 2016, p 52 lines 20‑26.
Mr Power gave the example of Dilshan Kulatunga who ran a foreign exchange firm called Kulad, which became an authorised representative of Mark Power in July 2011, but was prohibited by Mr Power from giving financial advice because no person was RG 146 compliant.[28] A similar situation arose with respect to Gary Balding of Australian Taxation Reporter, which was another authorised representative of Mark Power in 2011.[29]
[28] Exhibit A1.
[29] Exhibit A2, Affidavit of Gary Balding sworn 8 June 2016.
Mr Power gave a further example of Tradewind Mercentile to whom he said:
I will give you the authorisation, you can pay for the authorisation, you can secure the authorisation, you can have that part. But you cannot proceed to engage with clients until one of you are RG146 qualified and then also I made certain financial requirements.[30]
[30] Transcript, 10 October 2016, p 53 lines 24‑30.
The final example given by Mr Power was Aspen Group who “were looking to proceed but didn’t because they didn’t have the capital involved”.[31]
[31] Transcript, 10 October 2016, p 53 line 37.
Mr Power justified this approach by saying:
I found that if I waited for everything to line up, I would have a situation where I wouldn’t get any money at all. So what I said, well, when I give you the authorisation you start paying me, but you can’t you do anything. And that happened quite a number of times.[32]
[32] Transcript, 10 October 2016, p 53 lines 41‑44.
Mr Power was aware that ASIC “preferred” to have all relevant personnel RG 146 qualified before appointment of the respective corporate entity as an authorised representative. Mr Power maintained that there was no breach of a financial services law (as defined in s 761A) by appointing an authorised representative prior to it having personnel who satisfied the training and knowledge requirements contained within RG 146. In the case put forward by Mr Power, there was no breach because the relevant personnel were not engaging with clients and were contractually prohibited from providing financial advice until they became RG 146 compliant.
A consideration of Mr Power’s submission with respect to these authorised representatives follows.
CONSIDERATION
Section 911B(1)(b) requires that a person must only provide a financial service on behalf of another if the principal holds an AFS licence and the provider is an authorised representative of the principal. Section 916A(1) provides that a licensee may appoint a person as an authorised representative by giving a written notice of authority. There are no other relevant preconditions provided within Part 7.6 Division 5 dealing with authorised representatives. For example, there is no express provision providing that before an authorised representative is appointed there must be RG 146 compliant personnel. However, there is a general obligation on a licensee to take reasonable steps to ensure that its authorised representatives comply with the financial services laws and to ensure that its authorised representatives are adequately trained, and are competent to provide those financial services: s 912A(1)(ca) and (f).
Section E in RG 104 has at all relevant times set out the required measures for monitoring and supervising authorised representatives.
RG 104.69 provides:
The level of monitoring and supervision your representatives need will depend on the nature, scale and complexity of your business (e.g. the function your representatives perform and whether your business operates from one or a number of locations).[33]
[33] Prior to July 2015, this was at RG 104.72.
RG 104.73 provides:
The obligation to ensure your representatives are trained and competent applies only in relation to your representatives who provide financial services.[34]
[34] Prior to July 2015, this was at RG 104.76.
The minimum training requirements for authorised representatives who provide financial product advice are set out in RG 146.
RG 146.4 provides that all natural persons who provide financial product advice to retail clients must meet the training standards, unless they fall within certain limited exemptions. RG 146.18 provides that persons that do not provide financial product advice are not required to meet the training standards.
RG 146.31 sets out the statutory duties in s 912A(1) and concludes that:
In order to comply with these obligations, licensees must ensure that all natural persons who provide financial product advice on their behalf (including they themselves, if they are natural person licensees) meet the training standards.
From an analysis of the relevant parts of Chapter 7, Part 7.6 and the relevant ASIC Regulatory Guides, there is no express prohibition on a licensee appointing an authorised representative who is not RG 146 compliant. The requirement to be RG 146 compliant applies to those who give financial product advice. Consequently, Mr Power submitted that if the authorised representative is not giving financial product advice, then there is no obligation to be RG 146 compliant.
ASIC submits to the contrary, and says that the requirement to be RG 146 compliant falls upon an authorised representative from the date of appointment. It refers to the Register of Authorised Representatives held by ASIC and available to the public, which holds out those on the Register as being authorised to give financial product advice. Further, ASIC submits that upon appointment an authorised representative must satisfy all the requirements of a person qualified to give financial product advice because the legislation entitles them to give that advice irrespective of whether there is some contractual prohibition contained within the agreement reached between the licensee and the authorised representative. ASIC’s argument is that the legislative scheme requires an authorised representative to be fully compliant before being appointed, and says that this is an important safeguard which reduces the risk of unqualified persons holding themselves out as fully compliant authorised representatives giving advice to clients.
Both parties found support for their respective submissions in the objects of Chapter 7 which are set out in s 760A as follows:
The main object of this Chapter is to promote:
(a)confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(b)fairness, honesty and professionalism by those who provide financial services; and
(c)fair, orderly and transparent markets for financial products; and
(d)the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.
To achieve these objects it is important that those giving advice are properly qualified. There is an increased risk of advice being given by an unqualified person if an authorised representative can be appointed and appear on the ASIC Register before attaining those qualifications. An authorised representative, without the requisite knowledge of the financial services laws, may consider that the only impediment to them giving financial product advice is the contractual term in their agreement with the licensee.
On the other hand, efficiency and flexibility dictate that so long as an authorised representative is not providing advice or engaging with clients in any way, an appointment should be able to be made on the basis that appropriate training will then be provided. The effect of the evidence from Mr Power was that licensees would have difficulty attracting authorised representatives if they were required to be fully trained and compliant as at the date of their appointment.
In weighing these competing considerations, we must return to the words of the statute. Section 912A(1)(f) obliges a licensee to ensure that its authorised representatives “are adequately trained … and are competent, to provide those financial services”. This obligation applies from the date of the appointment and requires authorised representatives to be adequately trained and competent as at that date. The safeguards provided by the legislation would be significantly eroded if it was left up to the licensee to enforce a contractual provision in the agreement with the authorised representative. The Tribunal considers that the requirement of being fully compliant as at the date of appointment does not impose any significant impediment on or cause any inefficiency with respect to the process of appointing authorised representatives. Further, it advances the object of reducing risk to clients.
The Tribunal rejects the submissions made by Mr Power and finds that MPF was in breach of its obligations under s 912A(1)(ca) and (f) by failing to ensure that its authorised representatives were adequately trained and competent so as to comply with the financial services laws as at the date of their appointment. On the evidence of Mr Power, there were a series of breaches of this obligation by MPF and Mark Power, namely with respect to the appointment of Kulad, Australian Taxation Reporter, Trade Wind Mercantile and Aspen Group.
Mr Power’s lack of understanding with respect to the obligations contained within s 912A(1) is evident from his apparent justification of his conduct on the ground there were no consequences in the sense of damage to the Australian public arising from those breaches.[35] It is also of concern to the Tribunal that Mr Power coined the phrase “procedural divergence” to explain the difference between what ASIC required and what MPF and Mark Power did, instead of accepting that their conduct was not compliant with the financial services laws. Mr Power accepted that ASIC’s position was that “all the due diligence and all the readiness for the particular corporate authorised representative was done prior to the authorisation”[36] but Mr Power considered that was “ASIC’s preferred way of doing things”[37] and that his way was still compliant. It was on this basis that he sought to excuse himself for his conduct.
[35] Transcript, 10 October 2016, p 25 lines 12‑24.
[36] Transcript, 13 October 2016, p 234 at lines 5‑6.
[37] Transcript, 13 October 2016, p 235 line 7.
The Tribunal would make two points. The first is that, as the Tribunal has found, the appointment of an authorised representative without proper qualification is a breach of s 912A(1)(ca) and (f). The second point is that it is of real concern that despite Mr Power being made aware by ASIC that unqualified authorised representatives should not be appointed, he considered he was justified in so doing because it was merely a “procedural divergence”. This suggests that at the relevant time, Mr Power did not have an understanding of the financial services laws expected of a licensee. Indeed Mr Power accepted that even up to the date of the hearing before the Tribunal, he considered that “the regulatory guides were the way that ASIC preferred you to comply with that law but they weren’t absolutely – there was some degree of flexibility within them”.[38]
[38] Transcript, 13 October 2016, p 235 lines 23‑25.
Specific Contraventions of section 912A(1)(ca) and (f)
The general obligations relating to authorised representatives are found in s 912A(1)(ca) and (f). A licensee, such as Mark Power and MPF, was obliged to ensure its authorised representatives were adequately trained and competent and that they were properly supervised.
The Tribunal finds that MPF and Mark Power breached their statutory obligations with respect to specific authorised representatives as follows.
Apple Investment Company Pty Ltd (Apple)
Apple was based in Queensland and its director was Mickael Da Costa. It sold a foreign exchange trading platform called FX Calibre and foreign exchange education packages. It was an authorised representative of MPF from 6 December 2009 until 4 April 2011. The brochure and tele marketing script used by Apple referred to returns that were achieved by FX Calibre despite those returns only being simulated. Apple’s website also contained a graph showing managed fund trading results for Apple which were also simulated. Mr Power did not obtain the telephone scripts that Apple intended to use with its customers prior to authorising them as a representative but Mr Power said that he met with Mr Da Costa and went through a “dummy run” of what would be said to customers over the phone.
At the first recorded compliance meeting for Apple held by Accompli on 18 May 2010, Mark Power advised of a breach due to the operation of the FX Calibre platform that had been discovered by ASIC. It was also noted in the minutes of that meeting that there had been a short period of time for which Apple, as an authorised representative, did not have a person qualified under RG 146. This was noted as a further breach.
The next compliance meeting for Apple was scheduled for August 2010. Mr Power was unable to recall whether he attended that meeting and no minutes were available.
The following meeting for Apple was on 3 December 2010 with Mr Power in attendance by telephone. It was noted that there were six complaints requesting repayment of fees with some of the complainants also wanting reimbursement of trading losses. Shane Andrews from Apple was to follow these matters up. It was noted that Mark Power asked Shane Andrews to provide him with a copy of the most recently used sales script. Mr Power accepted in his evidence that six complaints was a significant level of complaints and he said that he got “really, really” angry at the meeting. Mr Power gave evidence that it was probably between July and September that he became aware of the unsatisfactory level of complaints and he said he “got on” to Apple and asked them to resolve the complaints against them. Eventually, he sacked Apple because they had refused to resolve the complaints made against them. MPF did not revoke its authorisation to Apple until 4 April 2011. Mark Power said that by that time they had stopped selling any product but there was no real explanation for the delay in revoking the authorisation some five months after the December 2010 meeting.
Mr Power conceded that the due diligence he did in respect to Apple “failed and that caused public damage”.[39]
[39] Transcript, 11 October 2016, p 116 lines 4‑5.
The Tribunal finds that if Mr Power had monitored the advice given by Apple and asked to view the telemarketing scripts and content of the financial services guide, it would have been clear that there were significant risks that Apple was breaching financial services laws.
Robert Anthony in his witness statement says that he received a call from Apple in May 2010 and was told about a software package which would automatically trade foreign exchange and provide a return of 13 per cent per month. A brochure was subsequently provided which confirmed this. Mr Anthony was told by Robert James of Apple that the trading platform required no input from him and that Apple could guarantee that it would earn a return of 13 per cent per month over a 24 month period. Mr Anthony paid $9,600 to Apple to purchase the FX Calibre Trading Platform. He did not receive a financial services guide or a product disclosure statement from Apple. When the system began trading, it immediately incurred losses. Mr Anthony’s request for a refund of the purchase price was rejected by Apple. A similar story is told by the other clients of Apple who provided witness statements.[40]
[40] See Exhibit R18, Statement of John Hood dated 16 August 2011.
Contraventions by Apple
The Tribunal finds that Apple failed to provide a financial services guide to its clients in contravention of s 941B(1). Mr Power refused to concede this contravention but he “cannot locate such a document”.[41]
[41] Exhibit A64, Applicant’s submissions 27 November 2015, [28].
The Tribunal further finds that Apple made misleading and deceptive statements in contravention of s 1041H by suggesting in its brochure and telemarketing script and on its website that returns achieved by FX Calibre were real rather than simulated. MPF failed in its obligations to supervise Apple as evidenced by the fact that Apple was appointed as an authorised representative on 6 October 2009 and commenced providing financial services from 19 November 2009, but there is no record of any formal compliance meeting with Apple until 18 May 2010.[42]
[42] Transcript, 13 October 2016, p 237 lines 18‑22.
MPF also failed to ensure that Apple employees met the training requirements under RG 146 as at 19 November 2009. Melissa Currey became RG 146 compliant in foreign exchange on 27 January 2010, and Robert Henley on 12 February 2010. Mr Da Costa was not authorised until 28 January 2010. Mr Power submitted that trading did not begin on 19 November 2009, as “Apple started dealing with clients after the platform was completed in mid-January 2010”.[43] But this still leaves a gap of about two weeks in which no employee had appropriate RG 146 training in foreign exchange.
[43] Exhibit A73, [28(a)].
The Tribunal finds that MPF’s conduct with respect to Apple constituted a breach of its obligations under s 912A(1)(ca) and (f).
Forex Explained Pty Ltd (Forex)
Forex was an authorised representative of Mr Power and was transferred to MPF on 26 February 2009. Forex sold training seminars in foreign exchange and provided clients with SMS foreign exchange trading recommendations. It was based in Queensland and David Orth was its sole director. In her affidavit, Ms Basnec says that she expressed her concerns to Mr Power that David Orth was trading in foreign exchange and teaching people to trade foreign exchange whilst not compliant with RG 146 with respect to foreign exchange.[44] Mr Power accepted in oral evidence that David Orth was not qualified in foreign exchange until 30 October 2009.[45] Sam Orth was an employee but was never RG 146 qualified.
[44] Exhibit R21, [33].
[45] Transcript, 11 October 2016, p 93 line 43.
From January 2009, the Forex website[46] stated that it offered clients “Managed Accounts” but Mr Power did not become aware of this until a meeting with ASIC on 13 May 2010.[47] The statement was false because MPF was not authorised to deal in interests in managed discretionary account services.[48] In Mr Power’s written response he said:
Although MPF did have measures to monitor websites of its Authorised Representatives, on occasion inaccuracies did occur. However, under the Corporations Act 2001, Sect 1041H(1) failure to comply with this section is not an offence. [49]
[46] Exhibit R1, T75/2103, Vol 5.
[47] Exhibit R1, T93/3082‑3083, Vol 8.
[48] Transcript, 10 October 2016, p 100 lines 23‑ 29.
[49] Exhibit A73, [25a].
A further explanation given in written submissions is that Forex “was referring to Individually Managed Accounts” which were authorised.[50] These explanations in no way excuse this misleading and deceptive conduct. It is apparent that Forex, as an authorised representative, was not being appropriately supervised by Mr Power. The fact that Mr Power offers such explanations demonstrates a lack of understanding of financial services laws by Mr Power.
[50] Exhibit A64, [21].
Trade Wind Mercantile Pty Ltd (Trade Wind)
Trade Wind was based in South Australia and its directors were Adam Bevan and Samuel Orth. It became an authorised representative of MPF on 1 November 2009 but its authorisation was revoked on 27 January 2010. In the termination agreement Trade Wind was requested to remove the reference to MPF on the website. Mr Power accepts that it had misleading and deceptive statements on its website.[51] Mr Power became aware of the material on the website from ASIC[52] but said that he took immediate action. In fact, Trade Wind did not immediately remove the offending material. Mr Power said in evidence that it would have been better “if I had followed up on the Website issue earlier than I did”.[53] The Trade Wind website still stated that they were an authorised representative of MPF as at 4 May 2010.
[51] Exhibit R1, T77/2105, Vol 5.
[52] Transcript, 11 October 2016, p 102 line 1; p 114 lines 10‑30.
[53] Exhibit A73, [25c].
Similar explanations to those given in relation to Forex were provided by Mr Power.[54] These explanations in no way excuse this misleading and deceptive conduct. It is apparent that Trade Wind, as an authorised representative, was not being appropriately supervised by Mr Power. The fact that Mr Power offers such explanations demonstrates a lack of understanding of financial services laws by Mr Power.
[54] Exhibit A73, [25c].
Australian Stock Investment Group Pty Ltd (ASI Group)
Ms Basnec said in her affidavit that she had identified false statements regarding the extent of authorised activities in the Financial Services Guide on the website of the ASI Group and that she asked Mr Power in June 2010 to remove them from the website. The false statements were still on the website in November 2010.[55]
[55] Exhibit R21, [45]‑[52].
Mr Power accepted that ASI Group had statements which amounted to misrepresentations on its website whilst it was an authorised representative.[56] He offered similar excuses to those given in relation to Forex and Trade Wind.[57] These explanations in no way excuse this misleading and deceptive conduct and the failure to take action to remedy it. It is apparent that ASI Group, as an authorised representative, was not being appropriately supervised by Mr Power. The fact that Mr Power offers such explanations demonstrates a lack of understanding of financial services laws by Mr Power.
[56] Transcript, 10 October 2016, p 100 lines 15‑18.
[57] Exhibit A73, p 15, [25b].
Got Money FX Pty Ltd (Got Money)
Got Money was based in Queensland and had as its sole director David Orth. Mr Power accepts that it had misleading and deceptive statements on its website and he offers similar excuses to those given in relation to Forex, Trade Wind and ASI Group.[58] These explanations in no way excuse this misleading and deceptive conduct. It is apparent that Got Money, as an authorised representative, was not being appropriately supervised by Mr Power. The fact that Mr Power offers such explanations demonstrates a lack of understanding of financial services laws by Mr Power.
[58] Exhibit A73, p 18, [25g].
Conclusion
The Tribunal finds that the abovementioned authorised representatives contravened financial services laws and that Mr Power and MPF failed in their statutory obligation to ensure that they were compliant. Contraventions often went unnoticed for some time. When contraventions were identified there was often a significant delay by Mr Power and MPF taking action. Authorised representatives were allowed to conduct their businesses without appropriate qualifications. There was a clear failure by Mr Power and MPF to comply with the supervision requirements set out in s 912A(1)(ca) and (f).
A Potential Authorised Representative
In or about October 2009, Mark Power received an expression of interest by a potential authorised representative. By email dated 29 October 2009 to Gabriel Muj, Mark Power said that he was able to offer a certain package “however in a few weeks I will be also able to offer Packages 2, 3 and 4 (an application for these authorisations is before ASIC now)”.[59] Ms Basnec from Accompli raised with Mark Power that that was misleading.[60] Mark Power disagreed and said in evidence that he still disagreed that it was misleading.[61] Later in his evidence under cross-examination he said that it depends on the context.[62] Later again he said that he should have said “I am preparing an application” and that “it was probably potentially misleading”.[63]
[59] Exhibit R1, T135/4210, Vol 11.
[60] Exhibit R21, [95]‑[ 97]; Transcript, 13 October 2016, p 285 line 44.
[61] Transcript, 13 October 2016, p 285 line 47.
[62] Transcript, 13 October 2016, p 287 line 6.
[63] Transcript, 13 October 2016, p 288 line 7.
The Tribunal considers that the statement in the 29 October 2009 email was misleading because it was false to say that “in a few weeks I will be able to offer packages 2, 3 and 4” because that was not a certainty. Further, it was false to say that the application was before ASIC because the evidence established that the application had not yet been made as at the date of the email. Mr Power’s conduct was a contravention of s 1041H. The fact that it was a false statement was not accepted by Mr Power in his evidence at first, when he still disagreed that it was misleading and it was only later in evidence that he was prepared to concede that it was “probably potentially misleading”. Mr Power’s failure to recognise the misleading nature of his statement establishes his lack of understanding of the obligations of a financial services licensee. Further, it provides a reason to believe that GFM, the principal of which is Mr Power, will not comply with financial services laws if the licence is granted: see s 913B(1)(b).
ASIC Decisions to Cancel Affirmed
The Tribunal finds that Mr Power and MPF failed on multiple occasions to comply with their obligations under s 912A and, accordingly, the ground for cancellation under s 915C(1)(a) was established. Further, the Tribunal finds that the ground for cancellation in s 915C(1)(aa) was established in that there were reasonable grounds to believe that Mr Power and MPF would be likely to contravene their obligations under s 912A.
A decision to cancel a licence is not to be exercised lightly. Further, in Story v NCSC Young J noted that:
the jurisdiction to revoke was not meant to punish the broker, but to protect the public. In other words, the decision to revoke should only be taken if, for the public’s protection, the dealer should not be permitted to trade. [64]
[64] (1988) 13 ACLR 225, 239.
We consider that in order to protect the public and to achieve the purposes of the legislation[65] the licences held by Mr Power and MPF should have been cancelled. The Tribunal affirms the decisions of ASIC made under s 915C(1) to cancel the AFS licences held by Mr Power and MPF.
[65] Sovereign Capital Ltd and Australian Securities and Investments Commission (2009) 109 ALD 398; [2008] AATA 901 at [80]‑[84] referring to s 760A of the Corporations Act and s 1(2) of the ASIC Act.
Global Financial Markets
Since the cancellation of the licences in November 2011, Mark Power has not worked in the financial services industry despite his numerous attempts to find employment with a financial services provider. On 20 August 2013, GFM applied to ASIC for an AFS licence and the application was refused on 10 July 2014.
Mr Power acknowledged that there were issues with the supervising and monitoring of authorised representatives by MPF but he said that should not count against GFM’s application for a licence because it was not proposing to have authorised representatives. Consequently, it followed that there was no risk of a repeat of the contraventions of the supervisory and monitoring requirements in s 912A(1)(ca) and (f).
The Tribunal accepts that it is a relevant factor that GFM will not have authorised representatives, but that does not resolve the difficulties faced by GFM with respect to its application.
A licence will only be granted when all the criteria under s 913B(1) are satisfied, including that there is no reason to believe that GFM is likely to contravene the obligations that will apply under s 912A if the licence is granted. The test to be applied on a licence application is different from that in respect of cancellation decisions where the Tribunal is required to have “reason to believe” that the applicant will not comply with its statutory obligations. In a licence application, the Tribunal must be positively satisfied that it has “no reason to believe” that the applicant will not comply with its obligations.[66]
[66] Clemente Group Holdings Pty Ltd v Australian Securities and Investments Commission [2016] AATA 758 at [8]–[10].
The Tribunal’s findings with respect to the Cancellation Decisions that Mr Power failed to understand his obligations under the financial services laws cannot be overlooked when considering whether GFM is likely to contravene those laws in the future. Mr Power’s past contraventions whilst operating in the financial services sector were serious indiscretions. He was motivated by the pecuniary benefits that flowed to him from appointing authorised representatives, but he was not prepared to honour his obligations with respect to the supervision and monitoring of those representatives from whom he received significant monthly payments. It was under his watch that authorised representatives engaged in misleading and deceptive conduct. Much of this conduct went unnoticed by Mr Power due to his lack of supervision and monitoring. However, even when the contravening conduct was discovered, there was often a significant delay before Mr Power took appropriate action.
In addition to contraventions associated with supervision and monitoring requirements, Mr Power himself engaged in misleading and deceptive conduct with respect to a potential authorised representative, Gabriel Muj. The false statements made in the email were directed to inducing Mr Muj to become an authorised representative, which would have resulted in further financial gain to Mr Power. This conduct back in October 2009 was a serious indiscretion by Mr Power and is relevant to whether there is any reason to believe that there will likely be future indiscretions if a licence is granted. Of even greater concern to the Tribunal is Mr Power’s conduct at the Tribunal hearing in October 2016 when he at first refused to accept that his conduct was misleading.[67]
[67] Transcript, 13 October 2016, p 285 line 45.
There are numerous other examples of Mr Power’s conduct during the hearing that suggest that he still fails to understand the obligations of the holder of an AFS licence. In answer to the many allegations of misleading and deceptive conduct by authorised representatives Mr Power stated repeatedly in his written Response that:
However, under the Corporations Act 2001, Sect 1041H(1) failure to comply is not an offence. But failure to comply with this section may lead to civil liability under section 1041i.[68]
[68] Exhibit A73, [25(a)], [25(b)], [25(c)], [25(e)] and [25(g)].
Whilst Mr Power is correct that contravening s 1041H is not an offence, in no way does that diminish the seriousness of the contravention. Further, this response indicates an ongoing failure by Mr Power to accept the seriousness of such a contravention.
Another example of Mr Power seeking to downplay the seriousness of contraventions and to justify his conduct is his coining of the term “procedural divergence” to explain his failures to comply with ASIC requirements. This also indicates an ongoing failure by Mr Power to understand or to accept the seriousness of his contraventions.
Whilst Mr Power has appropriate tertiary qualifications dating back to the 1980s and 1990s, he has not completed in recent times any of the short courses that are available to gain specific knowledge of the products in relation to which GFM has applied to provide financial services.[69] His evidence was that he has done private study of approximately 300 hours to increase his knowledge of the ASIC Regulatory Guides and the Corporations Act, but there was no objective evidence to verify exactly what was done and for how long. Mr Power also said that in the period since cancellation, he has maintained a personal trading account to keep up to date with current products.
[69] See RG 105.66. Prior to December 2016, this was at RG 105.61.
The Tribunal considers that this private study and trading activity are not sufficient to satisfy it that Mr Power has the appropriate knowledge and skills to be a responsible manager. Mr Power has failed to demonstrate the level of knowledge and skills required by RG 105.71(c).
In conclusion, the Tribunal is not satisfied that GFM will comply with its general obligations under s 912A. The precondition in s 913B(1)(b) to ASIC granting a licence has not been established and in those circumstances a licence must not be granted. There is no discretion to do so and accordingly the Licence Refusal Decision is also affirmed.
DECISION
The Tribunal affirms each of the decisions under review in applications 2014/3659, 2014/4523 and 2015/3248.
I certify that the preceding 141 (one hundred and forty-one) paragraphs are a true copy of the reasons for the decision herein of Deputy President K Bean and Senior Member P Britten-Jones .....[Sgd].............................................
Associate
Dated: 31 August 2017
Dates of hearing: 10-14 and 24 October 2016 Applicant: In person Counsel for the Respondent: Mr M Douglas Solicitors for the Respondent: Australian Securities & Investments Commission
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