Masu Financial Management Pty Ltd and Australian Securities and Investments Commission (General)

[2017] AATA 97

Masu Financial Management Pty Ltd and Australian Securities and Investments Commission (General) [2017] AATA 97 (31 January 2017)

Administrative Appeals Tribunal

ADMINISTRATIVE APPEALS TRIBUNAL          )

)No: 2016/2180

TAXATION AND COMMERCIAL DIVISION       )

Re: MASU Financial Management Pty Ltd
Applicant

And: Australian Securities & Investments Commission
Respondent

TRIBUNAL:               Deputy President Bernard J McCabe

DATE:   9 February 2017

PLACE:                     Sydney

IT IS DIRECTED, in accordance with subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, that the text of the decision in this application is to be altered such that the reference to “serve” in paragraph 48 of the decision is replaced with “provide”.

............[sgd].................................................

Deputy President

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2016/2180

Re:Masu Financial Management Pty Ltd

APPLICANT

AndAustralian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:31 January 2017

Place:Sydney

The decision under review is affirmed.

.....................[sgd]...................................................

Deputy President Bernard J McCabe

CATCHWORDS

CORPORATIONS LAW – financial services and markets – Australian Financial Services Licence – suspension – historical non-compliance with obligations under s 912A – where applicant continues to be in contravention of its obligations – where applicant is likely to breach its obligations in the future – decision affirmed

LEGISLATION

Corporations Act 2001 ss 915C(1), 912A, 760A

Australian Securities and Investments Commission Act 2001 ss 33, 1(2)

CASES

Sovereign Capital and Australian Investments and Securities Commission [2008] AATA 901

Story v National Companies and Securities Commission (1988) 13 NSWLR 661

Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Company Limited [1894] AC 535

Rent to Own (Aust) Pty Ltd and Australian Securities and Investments Commission [2011] AATA 689

SECONDARY MATERIALS

Australian Securities and Investments Commission, Licensing: Training of financial product advisers, Regulatory Guide 146, July 2012

REASONS FOR DECISION

Deputy President Bernard J McCabe

31 January 2017

1. MASU Financial Management Services Pty Ltd (MASU) holds an Australian Financial Services Licence issued under Part 7.6 of the Corporations Act 2001 (the Act). A delegate of the Australian Securities and Investments Commission (ASIC) used the power in s 915C of the Act to suspend MASU’s licence for an eight-week period after a hearing. The reviewable decision to that effect is dated 26 April 2016. The delegate found MASU had in the past breached the licensee’s obligations set out in s 912A, and concluded there was reason to believe MASU was likely to breach those obligations in the future: exhibit 1 at T1.2, pp 10-34.

2. MASU says the suspension is not justified or lawful. It says the compliance issues had all been addressed, or substantially addressed, at the time of the delegate’s reviewable decision. In those circumstances, MASU argues, the power to suspend is not available. In the alternative, MASU says the power should not be exercised. MASU’s arguments raise important questions over the scope of the power in s 915C of the Act.

3. I am satisfied ASIC got it right, and that the reviewable decision should be affirmed. I explain my reasons below.

   HOW THIS PROCESS BEGAN

4. MASU was first granted a licence on 2 October 2003. It is one of a group of companies. The group includes:

   MASU Property Investment Services Pty Ltd, which holds real estate licence in several states;

   MASU Finance &Mortgages Pty Ltd, which holds an Australian Credit Licence; and

   MASU Qld Pty Ltd, which is a corporate authorised representative of MASU.

5. MASU’s licence permits it to provide financial product advice to retail and wholesale clients in relation to a number of different classes of financial product: exhibit 1 at T3, pp 188-211. MASU has authorised representatives who operate under the terms of its licence, including MASU Qld Pty Ltd and other independent individuals and companies. MASU is responsible for ensuring those representatives are appropriately trained and qualified. It must also ensure they comply with the obligations imposed under the licence. While each of the representatives runs their own business, each of those businesses must be conducted in accordance with the financial services laws and the terms of MASU’s licence.

6. In late 2012, ASIC became aware of problems with one of MASU’s representatives. ASIC issued a notice to MASU under s 33 of the Australian Securities and Investments Commission Act 2001 (the ASIC Act) to produce files in relation to that representative. That enquiry was the start of a widening discussion between ASIC and MASU over the adequacy of MASU’s processes.

7. In late 2014, MASU retained an independent consultant to evaluate its operations. The consultant, Holly Nethercote, is a firm of commercial and financial services lawyers. The consultant identified a number of issues and made 52 recommendations for change and improvement in a report dated 26 February 2015: exhibit 1 at T24, pp 402-407.

8. MASU subsequently engaged other consultants to assist it in dealing with the issues that were identified in the Holly Nethercote report. Most recently, it has retained Know Compliance, an external compliance consultant, to undertake a compliance review and to provide compliance and risk management services on an ongoing basis: exhibit 3. In the process, MASU has revamped its compliance documents. It says it continues to improve those documents and the processes they describe. MASU also says it has now established a commitment to communicating compliance obligations to its authorised representatives through an ongoing process of education, training and compliance monitoring.

   THE DELEGATE’S DECISION

9. While MASU’s review of its processes continued, ASIC commenced regulatory action. A delegate was appointed in January 2016 to consider what action should be taken against MASU. The delegate issued a document setting out five areas of concern over MASU’s compliance with its obligations under s 912A of the Act: exhibit 1 at T1.6, pp 145-164. A hearing was held before the delegate in March 2016; following an adjournment and resumed hearing on 31 March 2016, the delegate made the reviewable decision.

10. In his reasons for the decision, the delegate noted MASU’s concession offered through Mei Ling Perry of Know Compliance in a letter dated 7 March 2016: exhibit 1 at T1.2, p 12. Ms Perry confirmed (at [21]):

    MASU acknowledges that there have previously been contraventions of the Corporations Act…MASU acknowledges that it is responsible for taking reasonable steps to ensure that is complies with financial services laws and regulations and regrets that this responsibility was not met in a number of instances.

11. The delegate also noted comments by Mr Alan Pashut, MASU’s in-house lawyer: exhibit 1 at T1.2, p 12. Mr Pashut in a statement dated 30 March 2016 stated (at [22]):

    MASU has never disputed the substance of the concerns raised by ASIC in its letter of 18 January 2016…nor has MASU disputed the substance of the matters highlighted by Holley Nethercote lawyers…in their report of 26 February 2015.

12. The delegate said he was satisfied MASU had ‘in the main’ addressed the historical deficiencies that were identified. He added that his findings in the reviewable decision concerned ‘past conduct, not present conduct’: exhibit 1 at T1.2, p 12 at [24]-[25]. At the hearing before me, MASU did not seriously dispute the findings in relation to its historical shortcomings. It embraced the delegate’s conclusion that the shortcomings referred to in the reasons for decision had been addressed, or were being addressed in the ordinary course.

13. ASIC was more circumspect at the hearing. Counsel for ASIC asked questions of MASU witnesses about conduct that suggests ongoing non-compliance. I was invited to conclude MASU continues to be in contravention of its obligations under s 912A.

14. But there was more to the delegate’s decision. After referring to the historical non-compliance that he was satisfied had been addressed, he concluded there was reason to believe it is likely MASU would contravene its obligations under s 912A in the future: exhibit 1 at T1.3, pp 27-28. His reasoning came down to this: there have been problems in the past, and they continued over a long period. The problems were uncovered as a result of regulatory intervention. Those problems arose and persisted while MASU was under the control of three key officers. Those officers remain in control of MASU. While the officers are now assisted by enhanced compliance arrangements, their shortcomings as managers, which resulted in non-compliance in the past, raise serious questions over whether MASU will meet its obligations in the future.

15. The delegate relied on that finding in addition to the findings about historical problems to conclude his discretion to suspend or cancel was enlivened: exhibit 1 at T1.3, p 28 at [92]. He concluded (at exhibit 1 at T1.2, p 30 at [102]) the discretion to suspend should be exercised because a period of suspension would:

    protect the public from risk during the period of suspension;

    bring home to compliance personnel the need to reflect on what occurred and cause them to resolve to improve their knowledge and commitment to compliance;

    deter similar conduct from other players, which will improve the efficiency of markets and the economy;

    promote confident and informed participation of investors in the financial system; and

    promote professionalism by MASU.

    THE TRIBUNAL’S ROLE

16. I have already pointed out MASU disputes the delegate’s finding that further breaches are likely to occur. MASU also criticises the delegate’s reasoning for ordering the suspension.

17. The Tribunal does not simply evaluate the findings and reasons of the original decision-maker. These proceedings are conducted de novo, and I must decide what is the correct or preferable decision on the material before me. At the conclusion of these proceedings, I must make findings of fact, and identify the evidence on which those findings are made. I must also explain my reasoning for reaching my decision – as opposed to evaluating the reasoning of the original decision-maker, which is the province of judicial review. Some of the material before me is different to the material before the original decision-maker, and the procedures in a Tribunal hearing are different to those followed by the delegate. Even so, the Tribunal will not ordinarily seek to ‘re-invent the wheel’. If the parties agree aspects of the original decision are uncontentious, I am likely to accept that concession if it is not contradicted by the evidence before me and it is within my power to do so.

18. In this case, the parties agree there were historical examples of non-compliance with the obligations in s 912A. MASU did not seriously contest the findings of the delegate with respect to its past conduct. In the circumstances, I do not propose to revisit the findings of the delegate with respect to those areas of concern. It follows that the discretion to suspend or cancel in s 915C(1) has been enlivened by reason of s 915C(1)(a).

19. In these reasons, I will consider:

    (1)whether MASU continues to be in contravention of s 912A; and

    (2)whether MASU is likely to breach its obligations in the future, which would enliven the discretion to cancel or suspend by reasons of s 915C(1)(aa).

    I will then turn to the question of how the discretion should be exercised.

    IS MASU CURRENTLY MEETING ITS OBLIGATIONS UNDER S 912A?

20. The Tribunal heard evidence from Ms Perry, the applicant’s compliance consultant. She said MASU has been substantially compliant with its obligations under s 912A since March 2016:transcript, p 24.  In written submissions, the applicant says that evidence is effectively unchallenged. I would not go that far: counsel for ASIC asked a number of questions about issues that have arisen. The answers suggest challenges remain.

21. During the course of cross-examination, Ms Perry was asked about the extent to which the websites and promotional material were monitored to check for compliance under the compliance documents. Mr Lloyd, counsel for ASIC, pointed out that recommendation 18 of the Holly Nethercote report said MASU should ‘review the MASU website and all websites maintained by MASU advisers regularly to ensure they remain accurate and up to date’: transcript, p 24. Ms Perry said she was satisfied there had been substantial compliance with that recommendation. When pressed for clarification as to what she meant by that expression, she offered (transcript, p 24):

    Yes, I meant more than 50%, definitely, when I said substantially compliant.

22. That is not especially reassuring. It calls into question whether the licensee has taken reasonable steps to ensure its representatives have complied with financial services laws. The obligation to comply with the financial services law is set out in s 912A(1)(ca).

23. Ms Perry was also asked about training, and whether the compliance documents had been followed in relation to one representative in particular who appeared to miss scheduled compliance training. There was a concern that the supplementary training provided to that representative was incomplete. Ms Perry agreed there were deficiencies in the training registers although she added that the deficiencies were being addressed: transcript, p 29.

24. She was also asked about the provisions in the compliance documents which deal with how representatives must handle potential conflicts of interest. This is an important issue in light of the obligation in s 912A(1)(aa) to establish arrangements for managing potential conflicts of interest. Ms Perry agreed the most recent iteration of the advisor manual did not expressly require a representative to make disclosures where a recommended product is provided by a related entity: transcript, p 33. Ms Perry said that message was clearly communicated to the representatives during the course of their training but the advisor manual could have been more explicit: transcript, p 33. She subsequently admitted the drafting of the document ‘should be tidied up’: transcript, p 35. That was potentially a problem in circumstances where MASU was relying on the training sessions to add context and nuance to the documents, but not all of the representatives completed the same training sessions.

25. Ms Perry was also asked about the risk register. When questioned about the detail of the document and the way it was used, she quickly volunteered that the document would need to be revisited depending on the outcome of the proceedings before the Tribunal: transcript, p 45. She made the same point later in cross-examination when asked about her review of the procedures with respect to promotional materials, which presumably went to the obligation in s 912A(1)(ca). Mr Lloyd asked her about whether further revisions to the procedure would be required and she explained (transcript, p 57):

    Not at that point of time. I think it’s in the context of not knowing the outcome of this hearing and therefore not making a whole lot more changes until we knew what was happening. Whether we had to appoint somebody else. Whether we could appoint somebody else, etcetera.

26. Ms Perry also agreed MASU had failed to examine how representatives described themselves on LinkedIn and other networking websites when checking whether they had complied with the advertising and promotional restrictions outlined in the compliance documents: transcript, p 46.

27. Mr Lloyd took Ms Perry to a LinkedIn page belonging to one of the representatives during the course of cross-examination. She agreed it raised issues that required examination: transcript, p 49-50. She was also shown several websites belonging to other authorised representatives: transcript, pp 50-55. While Ms Perry questioned whether some of the websites were non-compliant, she accepted at least one of the websites did not conform to the compliance documentation. 

28. Ms Perry’s evidence during cross-examination was less confident than one would have expected if the compliance regime was as robust as MASU now claims. The answers I have quoted above tend to confirm that, while substantial progress has been made towards achieving compliance, the larger compliance regime is still a work in progress. One reason for Ms Perry’s hesitation became clear when she explained she had not completed an audit that she anticipated conducting to check on the extent of MASU’s compliance with its obligations. Mr Lloyd asked her about the audit, and the following exchange occurred (transcript, p 40):           

    Mr Lloyd: When you say that ‘Until the audit is complete’, you’re not really in a position to know how well all of these changes to the compliance and monitoring systems within MASU are working on the ground?

    Ms Perry: Not one hundred percent, no.

29. My impression that the compliance regime was a work in progress was not disturbed by the evidence of Mr Martin Speiser, the director of MASU. Mr Speiser gave evidence at the hearing and provided three statements: exhibits 10, 11 and 12.

30. During cross-examination, Mr Speiser was asked about the representative who had not been present for compliance training provided to the representatives on 3 March 2016. (Ms Perry referred to this incident in her evidence, although there was some confusion about dates. In any event it is described as an incident because the representative’s failure to attend scheduled training was subsequently entered into the incident register: transcript, p 26.) Mr Speiser’s statement did not explain what steps he took to deal with the problem: exhibit 12, p 3564 at [11.2]. In cross-examination, he said he subsequently sat with the representative who missed the group training on 3 March. Whereas the 3 March session ran for six or seven hours, Mr Speiser said he was able to cover the same material with the representative in 45 minutes to an hour: transcript, pp 63-65. He said the representative in question was legally qualified and quick on the uptake, but Mr Speiser’s account of the training did not inspire confidence that MASU had met its obligation under s 912A(1)(f) to ensure representatives were competent and adequately trained.

31. A reference to the relevant regulatory guide published by ASIC lends context to Mr Speiser's description of the training provided to the representatives. Regulatory Guide 146 – Licensing: Training of financial product advisers (Regulatory Guide),[1] sets out minimum training standards for licensees and representatives who provide financial product advice to retail clients. Relevantly, the Regulatory Guide requires licensees to have appropriate policies and procedures that require advisers to undertake ongoing training so they are properly informed of their obligations and alive to the challenges: Regulatory Guide, [146.14]. These policies and procedures should include (Regulatory Guide, 146.125-146.130):

    establishing annual training plans for each representative;

    keeping records of attendance at training programs;  and

    deciding how much training each representative needs each year.

    The Regulatory guide also says ‘training procedures should address how a licensee will monitor that their continuing training policies are being carried out’: Regulatory Guide, 146.132. While MASU is making progress towards achieving that standard, the evidence of Mr Speiser during the hearing rather suggested a more lackadaisical approach.

    [1]Australian Securities and Investments Commission, Licensing: Training of financial product advisers, Regulatory Guide 146, July 2012.

32. While aspects of the evidence of Ms Perry and Mr Speiser were not especially reassuring, there was still evidence that tended to support the applicant’s claim that things had changed for the better. Mr DeBuse, counsel for MASU, described the work that had been done to ensure MASU had processes, training and personnel that would help it to achieve compliance. He noted the compliance procedures manual and other documents have been revised on a number of occasions under the tutelage of Ms Perry and with reference to the earlier consultants’ reports. Those documents now include a detailed treatment of issues like conflicts of interest, which addressed the obligation in s 912A(1)(a) and (aa). He also pointed to a compliance team comprised of Mr Speiser as chief compliance officer, Mr Pashut, the in-house legal officer, the compliance consultants’ firm and a compliance officer: transcript, pp 4-9.

1. Mr DeBuse also pointed to a concrete example of the emerging culture of compliance at MASU. The example was contained in the affidavit of Ms Perry, dated 24 June 2016: exhibit 4. The affidavit annexed a copy of correspondence between Mr Pashut and one of the representatives whose website did not comply with MASU’s requirements. Mr Pashut’s email bluntly warns the representative that its behaviour was unacceptable, stating that (exhibit 4, p 3167):

   …we are generally just itching to get rid of advisors who show a bad attitude to compliance and you are right at the top of the potential hit list right now. My tolerance for your attitude is fully exhausted.

2. I am satisfied the evidence I have discussed suggests much has changed at MASU. A compliance regime has been established which includes training, procedures and personnel that are intended to promote compliance. The muscular approach to non-compliance exhibited by Mr Pashut is a heartening example of an emerging compliance culture. But Ms Perry’s oral evidence suggests there is further work to be done before MASU can truly be said to be compliant with its obligations under s 912A.

3. I have already concluded the discretion to suspend or cancel in s 915C(1) is enlivened because of my finding that MASU was not compliant in the past. A finding that further work needs to be done before the organisation can be described as compliant reinforces the conclusion that the discretion is available by reason of s 915C(1)(a).

   IS MASU LIKELY TO BREACH ITS OBLIGATIONS IN THE FUTURE?

4. While s 915C(1)(a) says the discretion to suspend or cancel in s 915C(1) will be enlivened if the licensee has not complied with its obligations, s 915C(1)(aa) says the discretion to suspend or cancel will also be enlivened if there is reason to believe the licensee is likely to contravene their obligations under s 912A in the future.

5. I have already explained the delegate reasoned that failures would occur in the future because the same people who presided over past mistakes – specifically, Mr Speiser, the director, Mr Pashut, the in-house legal adviser, and Ms Lynn, who was the compliance manager – remain in charge at MASU: exhibit 1 at T1.2, p 27 at [83]. The delegate pointed out that MASU remained non-compliant from the date the licence was issued in 2003 until at least 2015. He continued (at [86]):

   I am satisfied that this shows that Martin Speiser, Alan Pashut and Deborah Lynn over a lengthy period had a poor knowledge of what MASU’s obligations under s912A required, and did not care that this was the case.

6. The delegate was not satisfied the addition of Ms Perry and Mr Richard Van Akerlaken to the compliance team would make a real and immediate difference to MASU’s culture: exhibit 1 at T1.2, p 27 at [88]). The delegate noted MASU’s counsel had argued the company’s personnel were on a learning curve that began following receipt of the Holly Nethercote report. The delegate rejected that submission, adding (at [91]):

   …Since 2 October 2003, Martin Speiser, Alan Pashut and Deborah Lynn were on a learning curve. It has proved to be an unproductive learning curve.

7. ASIC does have reason to believe MASU may contravene its obligations in the future. But is it likely that contraventions will occur? As the delegate pointed out, MASU has a lengthy track record of non-compliance whilst it has been controlled by Mr Speiser and his colleagues. I have also concluded MASU has not yet reached the point where it can be said to be compliant; while substantial progress has been made, it is apparent more needs to be done. Given that recent history, it is likely further contraventions will occur, at least until those further improvements are implemented. It follows I am satisfied the discretion to suspend or cancel under s 915C(1) is enlivened, because I am satisfied as to the matters in s 915C(1)(aa).

   THE EXERCISE OF THE DISCRETION

8. That brings me to the question of if, and how, the discretion should be exercised. My starting point is the same as that of the delegate who quoted from the Tribunal’s decision in Sovereign Capital and Australian Investments and Securities Commission [2008] AATA 901 (‘Sovereign Capital’). In that case, ASIC had cancelled the licence of a financial services’ firm. The Tribunal decided it was appropriate to suspend the licence instead. In the course of its reasons, the Tribunal referred to the objectives of the legislative scheme set out in s 760A of the Act and s 1(2) of the ASIC Act. I will reproduce them below.

9. Section 760A of the Act sets out the objects of Chapter 7 of the Act which deals with financial services and markets. The Chapter is intended to promote:

   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

   fairness, honesty and professionalism by those who provide financial services; and

   fair, orderly and transparent markets for financial products; and

   the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.

10. Section 1(2) of the ASIC Act refers to the objectives of ASIC, which administers the provisions of the Act. Section 1(2) says:

    In performing its functions and exercising its powers, ASIC must strive to:

    (a)maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and

    promote the confident and informed participation of investors and consumers in the financial system; and

    (d)administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and

    receive, process and store, efficiently and quickly, the information given to ASIC under the laws that confer functions and powers on it; and

    ensure that information is available as soon as practicable for access by the public; and

    take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.

11. After referring to those provisions the Tribunal in Sovereign Capital explained (at [84]):

    A licence should only be suspended or cancelled if it is necessary to do so in order to accomplish the objects of the legislative scheme. A suspension will ordinarily be preferable if there is a reasonable prospect that the licence-holder can remedy the defects which prompted the concern. If there is no reasonable prospect of the issues being resolved, cancellation may be the appropriate course. The power to suspend or cancel should not be used merely to punish the licence-holder for transgressions.

12. The power in s 915C to suspend or cancel a licence is an option available to the regulator as it pursues its legislative functions and the objectives set down in the Act. The power must be seen in that light. It is a regulatory tool. It is not an instrument of punishment: those powers lie elsewhere in the Act. But the decision-making process is also relatively flexible and stream-lined when compared to some of ASIC’s other powers, which makes it particularly well-suited to less egregious contraventions. 

13. MASU argued that deterrence – either specific, to the extent the regulatory action was directed towards MASU, or general, to the extent the regulator was ‘making an example’ of MASU to deter others – was not a proper consideration for a decision-maker under s 915C. MASU argued that deterrence may be a proper consideration in disqualification and banning orders, but those powers played a different role and they were exercised after a more rigorous process. I disagree. ASIC’s objectives, and the objectives set out in s 760A of the Act, inform the exercise of the discretion in s 915C(1). While those objectives are described in general ways, they clearly contemplate licensees being the subject of administrative action where the licensee fails (or has failed in the past) to establish internal processes, structures and personnel which ensure that particular licensee is capable of, and committed to, meeting its obligations under s 912A.

14. I have emphasised the word ‘that’ on purpose. In doing so, I mean to underline the importance of having compliance arrangements that are well-adapted to the particular circumstances of each licensee. Those circumstances vary widely. MASU’s counsel warned that a small firm should not be expected to graft on arrangements which might make sense in a large organisation with hundreds of representatives. There is force to that submission. Compliance regimes do not have to be complex or burdensome, and they should not become a consultants’ picnic. Each firm must devise processes, establish structures and appoint personnel that enable that organisation to conform to its obligations.

15. That task is challenging because the circumstances of each firm are constantly evolving. Firms must cope with fluctuations in organisational scale, technological innovation, shifting markets, new legislation, and much else besides. Every business is different, and all of them must adapt their procedures and personnel to respond to the changing environments they face. Continuous improvement is the order of the day because compliance will always be unfinished business. Compliant organisations learn from mistakes and probe for short-comings; they can never relax. Every compliance regime is a work in progress, and one size does will not fit all.

16. The power in s 915C must be seen in light of that challenge. It is (amongst other things) a tool for exhortation and correction that the regulator can use as each licensee engages with the never-ending task of adapting and improving its individual arrangements to meet the challenges it faces.  The sting of the lash contained in s 915C can help focus the mind of compliance laggards; the report of the lash will also serve an example pour encourager les autres.

17. MASU argued the power should not be used to prevent individuals from earning a living and exercising their skills unless there is a good reason for doing so. To that end, I was referred to the reasons of Young J in Story v National Companies and Securities Commission (1988) 13 NSWLR 661. That decision is certainly consistent with the general public policy preference that individuals should not be subject to unreasonable restraint in the pursuit of their calling. That public policy is evident in the old ‘restraint of trade’ cases, such as Nordenfelt v The Maxim Nordenfelt Guns and Ammunition Company Limited [1894] AC 535, albeit those cases arise in a quite different context. I agree that preventing a person from exercising their calling, even for a limited period of time, is a serious step. It should not be done lightly. But there are limits to the public policy favouring individual enterprise, especially in the case of regulated occupations such as the one in question here. Other concerns – most obviously those identified in s 760A of the Act and s 1(2) of the ASIC Act – must also be given their proper weight. The interests of the regulated are certainly relevant, but one must resist what Downes J and Deputy President Hack described as “an overanxious desire to permit regulated activity wherever possible”: Rent to Own (Aust) Pty Ltd and Australian Securities and Investments Commission [2011] AATA 689 at [47].

18. ASIC must exercise the discretion in s 915C judiciously and proportionately. It must make sense to exercise the discretion on every occasion where ASIC seeks to do so. Where ASIC has suspension in mind, it must be clear the suspension will help the organisation, or ASIC, or the market, to achieve that which the law requires. The Tribunal is here to correct ASIC if it acts unfairly, disproportionately or inflexibly. The Tribunal’s open processes and its published reasons will establish norms of conduct. Those norms apply to ASIC’s behaviour, but also to the behaviour of participants in the market.

19. MASU faces a greater challenge than most firms in its struggle to establish an effective compliance regime and foster a healthy compliance culture. It has further to go because it started from so far behind. But all financial services’ firms need to embrace their obligations. It is not enough that they take up the cause because they have been caught out and need to appease the regulator. They must learn to want to be compliant. The prospect of regulatory action under s 915C can help them develop the self-discipline required to avoid bad behaviour, as opposed to simply responding to the risk of detection or sanction. Even if the problematic behaviour has ceased, there may still be a point to regulatory action under s 915C because it helps promote the appropriate culture that will inhibit the re-emergence of the behaviour. I am not satisfied that other responses, like accepting enforceable undertakings, will achieve that same effect in this case.

20. MASU’s submissions on the exercise of the discretion were framed on the assumption the organisation was, at the time of the hearing, compliant with its obligations. That was the basis on which the delegate proceeded. My factual findings are different. I am not satisfied MASU is meeting all of its obligations under s 912A, even if it has made substantial progress towards that goal. The question, then, is whether regulatory action under s 915C has any role to play in that process, or in furtherance of a larger agenda contemplated in s 760A of the Act or s 1(2) of the ASIC Act.

21. There is no suggestion MASU’s licence should be cancelled. I am confident the lingering issues can be resolved, even if there is still a way to go. But a short period of suspension is nonetheless appropriate.

22. MASU remains under control of Mr Speiser and his colleagues. They proved unequal to the task of ensuring compliance at MASU over a long period. They have recently adopted new procedures and employed new people, but it remains unclear whether they have fully absorbed the lessons of their encounter with ASIC. (It should not be forgotten that the problems were discovered as a consequence of ASIC intervention. This was not a case where the licensee was pro-active.)

23. The case before me was confidently conducted on the basis that the shortcomings had been substantially addressed. The evidence demonstrated that was not so – not yet, in any event. It is clear the attitude of those in control of MASU is itself a work in progress.

24. A brief period of suspension will help spur the embrace of a compliance culture and underline the need to avoid a return to bad behaviour. A brief suspension will send the same message to MASU’s representatives and – through the publication of this decision – it will deter bad behaviour by other firms. The investing public will also be encouraged by the regulatory action because it demonstrates bad behaviour will be sought out and addressed in a constructive way. That is all consistent with ASIC’s role and the objectives of Chapter 7.

25. The delegate imposed an eight-week suspension. Given the findings of fact I have made, that might seem lenient. But I am satisfied a suspension of that duration is appropriate in circumstances where I have found the applicant is making substantial progress towards achieving compliance and might be expected, with encouragement, to meet all of its obligations in the near future. A suspension of that length sends a message that will be heard, but is not so long as to impose serious, disproportionate pain on MASU.

    CONCLUSION

26. The decision under review is affirmed.

I certify that the preceding 58 (fifty-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

..........................[sgd]..............................................

Associate

Dated: 31 January 2017

Date(s) of hearing:	3 August 2017 and 4 August 2017
Solicitors for the Applicant:	Mr A Pashut
Solicitors for the Respondent:	Mr M Stockfeld