Panganiban and Australian Securities & Investments Commission
[2016] AATA 703
•9 September 2016
Panganiban and Australian Securities & Investments Commission [2016] AATA 703 (9 September 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2016/4060
Re
Rommel Panganiban
APPLICANT
And
Australian Securities & Investments Commission
RESPONDENT
DECISION
Tribunal Mr P W Taylor SC, Senior Member Date 9 September 2016 Place Sydney The application for a stay order under section 41 of the Administrative Appeals Tribunal Act 1975 (AAT Act) is dismissed. The application for confidentiality orders under section 35 of the AAT Act is also dismissed.
...........................[sgd].........................................
Mr P W Taylor SC, Senior Member
Catchwords
PRACTICE AND PROCEDURE – stay application – confidentiality orders sought - banning order – applicant prohibited from providing any financial services – whether applicant of good fame or character – utility of granting stay - prospects of success – public interest – consequences on application for review – application for stay dismissed – application for confidentiality orders dismissed
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) ss 35(1)-(3), 41(2), (4), (6)
Corporations Act 2001 (Cth) ss 760A-D, 766B(3)-(4), 911A, 911C, 912A(1)(b), (ca), (f), 912D, 915B-C, 915F, 916A(1)-(2), 916F, 917A-F, 920A, (1), (1B), 920B, (2), 920D, 922A-B, 923A, 941A-C, F, 944A-946C, 947C, 961-961E, 961J, 961M
Cases
Allied Asia Holdings (Aust) Pty Ltd v Australian Securities & Investments Commission [2002] FCA 566
Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130
Re Jeffers and Australian Securities and Investments Commission [2015] AATA 537
Levi v Companies Auditors and Liquidators Disciplinary Board [2013] FCA 719
Re Mclean and Australian Securities and Investments Commission [2016] AATA 22
Re Scott and Australian Securities and Investments Commission [2009] AATA 798; (2009) 51 AAR 114
Secretary Department of Social Services and McNamara [2016] AATA 189
REASONS FOR DECISION
Mr P W Taylor SC, Senior Member
9 September 2016
Mr Panganiban is a qualified financial planner. From 19 March 2010 until 12 September 2014 he was employed by Benidion Financial Services Pty Ltd and was an “authorised representative” of AMP Financial Planning Pty Ltd (AMPFP) an Australian Financial Services (“AFS”) licensee. After 29 September 2014, and until 3 August 2016 he was an authorised representative of another AFS licensee, Lionsgate Financial Group Pty Ltd.
On 1 August 2016 an ASIC delegate made an order, under the Corporations Act 2001 (CorpAct) ss 920A & 920B permanently prohibiting Mr Panganiban from providing any financial services. On 3 August 2016, as a result of ASIC’s order, Lionsgate ended Mr Panganiban’s appointment as an authorised representative.
ASIC’s order was primarily based on Mr Panganiban’s conduct, during the period of his status as an AMPFP authorised representative, in relation to the cancellation and replacement of superannuation related insurance policies for about 50 clients. AMPFP’s dissatisfaction about aspects of those transactions had led it to terminate Mr Panganiban’s representative status (on 12 September 2014), and later (by letter dated 3 November 2014) to inform ASIC of its concerns.
Most of the contentious cancellation and replacement transactions occurred after 1 March 2014 and followed the introduction of a new superannuation insurance product by AMP Life Ltd. The actual timing of the various transactions, and the approximate number of clients to which they related in the relevant years, was as follows:
(a) 2011:- relating to about 8 client transactions;
(b) 2012:- relating to about 8 clients;
(c) 2013:- relating to about 5 client matters - 3 of them involving a time “gap” between policy cancellation and replacement;
(d) 2014 (January & February):- 5 client matters - 2 of them involving a time gap between policy cancellation and replacement; and
(e) 2014 (March onwards):- about 29 client matters - with approximately 24 of them involving a gap between cancellation and replacement.
On 3 August 2016 Mr Panganiban applied to this Tribunal to review ASIC’s 1 August 2016 decision. He also sought (i) confidentiality and suppression orders pursuant to s 35(2) & (3) of the Administrative Appeals Tribunal Act 1975 (AAT Act), and (ii) a stay order, pursuant to s 41(2) of the AAT Act.
THE TRIBUNAL’S STAY POWER AND PRINCIPLES
The Tribunal has the power to stay the operation or implementation of a reviewable decision, to the extent that it considers appropriate, “for the purpose of securing the effectiveness of the hearing and determination of the application for review”: AAT Act s 41(2). The power permits the Tribunal to impose conditions upon, and to determine the period of any stay: AAT Act s 41(6). Exercise of the discretionary power is preconditioned on the Tribunal taking into account “the interests of any persons who may be affected by the review”.
The determinative criterion for the exercise of the Tribunal’s stay power - satisfaction about appropriateness “for the purpose of securing the effectiveness of the hearing and determination of the application for review” - is somewhat opaquely expressed. It is a general expression that rather defies exhaustive description of permissibly relevant considerations. But they have been helpfully suggested in relevant decisions (see eg. Re Scott and Australian Securities and Investments Commission [2009] AATA 798; (2009) 51 AAR 114; Levi v Companies Auditors and Liquidators Disciplinary Board [2013] FCA 719 at [14]-[15]; Secretary Department of Social Services and McNamara [2016] AATA 189) and certainly include:-
(a)an applicant’s prospects of success, in obtaining a materially different outcome as a result of the review proceeding;
(b)the functions and responsibilities of the statutory decision maker, the nature and purpose of the reviewable decision, and the public interest in relation to it;
(c)the reasons proffered to support, or oppose, the stay application, and the potential practical consequences of any stay;
(d)the practical consequences of the decision under review (to the parties and to any interested persons), unless its operation is the subject of a relevant stay, after taking into account:
(i) conditions that might be imposed as a term of any stay;
(ii) the timing of the reviewable decision, the application, and any likely review hearing;
(iii) the ability of the applicant to pursue the review proceedings effectively; and
(iv) the likely practical utility of any favourable review outcome.
Consideration of an applicant’s prospects of obtaining a more favourable outcome in the review proceedings must take into account the potentially incomplete awareness of all material issues, the state and quality of the available primary evidence, and the prospect of additional relevant material. Those kinds of considerations require an appropriate degree of caution in evaluating an applicant’s apparent prospects of success at the time a stay application falls for determination: see Re Mclean and Australian Securities and Investments Commission [2016] AATA 22 at [8]; Re Jeffersand Australian Securities and Investments Commission [2015] AATA 537 at [38]. Nevertheless, it is appropriate to consider the extent to which the available material is either apparently (i) unlikely to lead to a favourable variation of the reviewable decision, or (ii) sufficient to provide grounds for real confidence that such a variation may be appropriate.
The precondition requiring the Tribunal to take into account “the interests of any persons who may be affected by the review” ordinarily requires the Tribunal to have regard to the decision maker’s position in relation to the stay application: AAT Act s 41(4). Together with the basic criteria for the exercise of the stay power, it also requires the Tribunal to have regard to the statutory scheme relevant to the reviewable decision:- see Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130 at [51]-[54] and [56]-[57] per Downes and Jagot JJ. This is because the statutory scheme is likely to be critical to a proper understanding of both the practical consequences of the reviewable decision, and the relevance of the public interest to that decision, and to the exercise of the stay discretion.
The nature of the procedures involved in the reviewable decision, the specificity of the findings the decision involves, and the interests the exercise of the statutory power are intended to serve, may provide a proper basis for refusing a stay application:- Allied Asia Holdings (Aust) Pty Ltd v Australian Securities & Investments Commission [2002] FCA 566 at [10]. They are particularly likely to do so where the available material does not conduce to an appropriate degree of satisfaction that the review process has a substantial prospect of a more favourable outcome.
CONFIDENTIALITY OF REVIEW PROCEEDINGS - POWERS AND PRINCIPLES
The Tribunal’s review function generally involves public hearing, the public availability of evidence, and the publication of Tribunal decisions and reasons. Publicity of these various kinds, and their ordinary desirability, must be taken as the basis of the Tribunal’s consideration, in determining any application to depart from the general statutory obligation requiring public hearing: AAT Act s 35(1) & (5). Subject to that obligation, and to an additional obligation to “pay due regard to any reasons” proffered to support them, permissible departures from the general principle allow the Tribunal to limit the publicity of hearings, the identification of parties and access to information: AAT Act s 35(2) & (3).
The confidential nature of any information relevant to the review proceedings is one of the potential reasons that may favour an order limiting the publicity that would otherwise apply to the review process. But whether or not confidentiality provides a significant consideration in any particular case will depend on the nature of the information, its materiality to the proper determination of the review proceedings, the apprehended consequences of publicity, and the nature of the statutory power involved in the decision under review. Personal information, of limited relevance to the matters likely to be in issue, may permit a departure from the general principle. Information of a commercially significant kind may also justify a similar permission. But mere apprehension about the potential for reputational harm directly resulting from the reviewable decision will usually not provide a persuasive basis for restricting the publicity of review proceedings. In Australian Securities and Investments Commission v Administrative Appeals Tribunal for example, the Full Court of the Federal Court emphasised (at [2009] FCAFC 185 [74] & [75]) that AAT Act s 35 established a publicity norm, similar to that which applied in judicial proceedings. That norm applied because of the generally accepted importance of open, accessible and informed determination where decision makers exercised adjudicative powers in carrying out statutorily conferred functions.
Notwithstanding the fact that the statutory criterion for the exercise of the stay power is not expressly limited (other than by the “basis of consideration” requirement in AAT Act s 35(5)) in Australian Securities and Investments Commission v Administrative Appeals Tribunal, Downes and Jagot JJ said (at [76]) that the AAT would need some “cogent reason by reference to the particular case to depart from the ordinary requirement of a public hearing”. Then, referring specifically to the circumstance of a banning order under CorpAct ss 920A & 920B, their Honours said;
…It is difficult to accept that harm (even serious harm) to the recipient’s reputation resulting from public awareness of the banning order will be a sufficiently cogent reason to justify the grant of a stay in most cases. This is because the risk of harm of this type is inherent in the nature of a banning order.
CORPORATIONS ACT - PROVISIONS RELATING TO FINANCIAL SERVICES
The statutory scheme relevant to ASIC’s 1 August 2016 decision, and the determination of Mr Panganiban’s stay application, is relevantly set out in CorpAct Chapter 7 - Financial services and markets and, more particularly in Parts 7.1 & 7.6 to 7.9. Those latter parts contain detailed provisions governing the supply of financial services, including financial product advice. The general objectives of the Chapter are set out in s 760A, in the following terms:
760A Object of Chapter
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.
The CorpAct Chapter 7 provisions of principal relevance to the circumstances of the present application are:-
(a)the general requirement for a person to hold either an Australian Financial Services licence, or the status of an “authorised representative” of such a licensee, to be able either to carry on a “financial services business”, and to be an employee of such an entity, in order to be able to provide a “financial service” on their behalf: CorpAct s 911A & 766A-D;
(b)the prohibition on false claims to have an entitlement to provide financial services:- CorpAct s 911C;
(c)the requirement of an AFS licensee to comply with their licence conditions - conditions that typically include ensuring the competence, training and individual assessment, of anyone who provides “financial product advice” on the licensee’s behalf: see CorpAct s 912A(1)(b);
(d)ASIC’s ability to suspend or cancel an AFS licence where (amongst other things) the licensee ceases business, becomes insolvent or incapable, incurs a conviction for fraud, fails to comply with their licence conditions (or ASIC has reason to believe they are likely to fail to comply with those conditions): CorpAct ss 915B & C;
(e)ASIC’s obligation to publish notice of any AFS revocation, cancellation, suspension or variation: CorpAct s 915F;
(f)the requirement of a licensee who appoints an “authorised representative” to:
(i)provide an appropriate written authority:- see CorpAct s 916A(1);
(ii)specify the authorised services:- see CorpAct s 916A(2);
(iii)formally notify ASIC of the appointment, its revocation or alteration: see eg CorpAct s 916F;
(iv)take reasonable steps to ensure that its representatives comply with the financial services laws: see CorpAct s 912A(1)(ca);
(v)ensure that its representatives are competent, and adequately trained, to provide their authorised financial services: see CorpAct s 912A(1)(f);
(vi)report to ASIC any actual or apprehended breach of its obligations under s 912A (obligations that include compliance with the licence conditions): see CorpAct s 912D;
(g)the general joint and several liability of licensees and representatives, and the potential joint and several liability of licensees for the conduct of their common “representatives”: see CorpAct s 917A-F;
(h)ASIC’s ability to ban a person (and specifically a person who was not a licensee) from providing financial services where (amongst other things) the person becomes insolvent, incurs a conviction for fraud, fails to comply with a financial services law, or is involved in another person’s failure to comply: see CorpAct s 920A(1);
(i)ASIC’s ability to ban such a person from providing financial services where it has reason to believe the person is not of good fame or character, is not adequately trained and competent, or is likely to fail to comply with financial services laws: see CorpAct s 920A(1);
(j)the declaration that “financial services laws” relevantly includes duties “even if the provision imposing the duty is not an offence provision or a civil penalty provision”:- CorpAct s 920A(1B);
(k)the provision that requires a permanent ban where ASIC has reason to believe that a person is not “of good fame or character”:- see CorpAct s 920B(2);
(l)ASIC’s ability to vary or cancel a banning order in appropriate circumstances:- CorpAct s 920D;
(m)ASIC’s obligation to maintain a publicly accessible register of AFS licensees and their authorised representatives:- CorpAct s 922A & B;
(n)the restriction on the use of certain terms (eg. claims of independence, impartiality or lack of bias) in relation to a financial services business:- CorpAct s 923A;
(o)the general obligation (of licensees and authorised representatives) to provide retail clients with a current “Financial Services Guide”:- CorpAct ss 941A, B, C & F;
(p)the general obligation (of licensees and authorised representatives) to provide retail clients with a formal “Statement of Advice” when they provide “personal advice” to a client:- CorpAct ss 944A-946C (A person gives “personal advice” when their advice considers (or where a reasonable person might expect the adviser to have considered) the recipient’s “objectives, financial situation and needs”: see CorpAct ss 766B(3) & (4));
(q)the requirement that an authorised representative’s Statement of Advice to clients include (amongst other things) any information about the representative’s remuneration that “might reasonably be expected to be, or to have been, capable of influencing (the representative) in providing the advice”:- CorpAct s 947C;
(r)the statutory obligation of a person who provides “personal” financial product advice to act in the client’s best interests - including making “reasonable enquiries” and conducting “reasonable investigations” - and to provide only appropriate advice to the client:- CorpAct ss 961-961E and 961G;
(s)the statutory obligation of a person who provides “personal” financial product advice to give priority to the client’s interests, whenever they conflict with those of the advice provider:- see CorpAct s 961J;
(t)the potential client entitlement to compensation for any loss or damage caused by an adviser’s failure to comply with their “best interests” obligations in relation to the provision of “personal advice”:- see CorpAct s 961M.
In Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130 at [54] Downes and Jagot JJ emphasised the notions of public interest, and publicly accessible information, as important elements in the fulfilment of the objectives of the statutory scheme relevant to a reviewable decision of the present kind. Their Honours said:
…information is the key to effective trading in any market. It takes the place of regulation in ensuring fairness. A market which is not fully informed is not operating properly. Is not an investor who is about to deposit funds with a person providing financial services entitled to know that a banning order has been made against the person? If the order has been stayed on substantial grounds the person is also entitled to know that. The informed investor may continue with the proposal. If the investor does not, then that is just an example of the operation of the market place. The critical matter is that the market is fully informed. If the banning order is not disclosed, but subsequently upheld, is not the investor entitled to complain that all the circumstances should have been made public?
Later Downes and Jagot JJ said this about the relevance of the Chapter 7 provision to the exercise of the Tribunal’s stay power, at [71]:
… [T]he scheme which the provisions of the Corporations Act embody – with the potential making of a banning order to remain private unless and until ASIC decides to make such an order after having given the recipient an opportunity to be heard – is not mere statutory background or a neutral factor in the process of the formation of the required opinion about what is desirable under s 41(2) of the AAT Act. The scheme which Parliament has established in the Corporations Act, and the public interest in the right of the market to know relevant information as soon as practicable, must be treated as a fundamental element in the decision-making process required under s 41(2) of the AAT Act.
THE AUGUST 2016 ASIC BAN DECISION - PRINCIPAL FINDINGS
The ASIC delegate’s principal finding (in paragraph [81] of the decision reasons) was that “some or all” of the contentious policy cancellation and replacement transactions alluded to in paragraph 4 above were unnecessary. The delegate said any policy alterations the clients required could have been effected by way of amendment or transfer of their existing policies. This led on to the delegate’s alternative findings that:
(a) Mr Panganiban had failed to advise the clients appropriately about the relevant options and risks associated with the cancellation and renewal of their policies, had been primarily motivated by self interest (in obtaining higher commission payments) in pursuing the contentious cancellation and replacement transactions, and was not of good fame and character;
(b) Mr Panganiban, if not motivated primarily by self interest, and otherwise of good fame and character, had nevertheless been “seriously and repeatedly incompetent” - because of the inadequate content of his client advice, and the occurrence of “gaps” between policy cancellation and renewal - and, on that account alone should be banned, for a substantial period, from providing financial services;
(c) ASIC had reason to believe that Mr Panganiban was likely to contravene a financial services law - partly because of his past involvement in the cancellation and replacement of client policies, and partly because a recent (March 2016) review of some of his client files (whilst acting as an authorised representative for Lionsgate) had revealed a number of concerns about the adequacy of his client advice.
The delegate’s use of the equivocal expression “some or all” resulted in a contest between the parties about the actual content and significance of the delegate’s finding. On one view, and that proffered by ASIC, the delegate had accepted unequivocal information from AMPFP (in a 16 July 2015 letter) that all of the particular client policies could have been “converted or internally transferred as opposed to cancelled”. On another view, which reflected Mr Panganiban’s position, the procedure for “conversion” or “transfer” was obscure, and not the subject of any specific and detailed finding by the delegate. On this view, it was not really possible to identify, or to assess meaningfully, the true extent of the suggested misconduct on which the delegate had based her decision.
The matters alluded to in paragraph 8 above mean that the present application is not the occasion to express any firmly concluded view about this disagreement between the parties. But it is material to note that other parts of the delegate’s reasons, when read against the background of the 16 July 2015 AMPFP letter, suggest the likely correctness of ASIC’s contention about the actual meaning and significance of the delegate’s finding. The most suggestive such passage in the delegate’s reasons was as follows:
137 … Mr Panganiban was paid a significant extra amount of remuneration, probably of about $74,404.16, in connection with his advice to the 49 clients to cancel and replace their insurance products, which he would not have received had he given proper advice that was in the clients' best interests.
This passage suggested the delegate’s complete acceptance of the transfer assertion in AMPFP’s 16 July 2015 letter - because that letter quantified the $74,404.16 benefit as the additional commission amount Mr Panganiban had received. The letter also complained that Mr Panganiban would not have received that additional amount but for the fact that all the policies had been cancelled and subsequently renewed. Consequently, the delegate’s paragraph [137] finding, when placed in its broader evidentiary context suggests the delegate actually proceeded on the basis that “all” of the 50 client “cancellation” transactions could have been dealt with by way of “transfer” or “conversion” and that “proper advice” by Mr Panganiban would have involved advising the clients of that fact.
In the present application Mr Panganiban’s submissions, whilst critical of both the wording of the delegate’s finding, and the imprecision of the concept of policy “transfer”, did not ultimately dispute the permissibility of “transfer” transactions. (Indeed, as I later indicate, Mr Panganiban appears to have previously acknowledged his awareness of that permissibility - see paragraph 41 below.) In these circumstances I am not presently satisfied that the submissions made about the delegate’s paragraph [81] finding provide a significant basis for optimism that a materially different approach should be, or is likely to be, taken to the delegate’s finding, or to the underlying events.
The delegate also identified a number of potential, and some actual, client disadvantages related to the process of policy cancellation, and replacement with a new insurance policy. Those disadvantages included:-
(a) the risk of the client’s new insurance application being rejected;
(b) the risk of additional waiting periods, exclusions, reduced cover and / or additional premiums applying to the new insurance;
(c) the potential for clients to be disadvantaged by any policy exclusion relating to “pre-existing” conditions;
(d) a potential disadvantage where a new policy involved an eligibility waiting period for any of its particular benefits (eg a 13 month waiting period for a suicide event);
(e) a “re-started” period for the insurer’s permissible policy avoidance for fraudulent non-disclosure;
(f) the loss of premium for the unexpired period of the cancelled policy; and
(g) altered (reduced) disability benefit terms, especially following changes in policy terms and benefits after 1 March 2014.
The delegate was particularly concerned about the content of Mr Panganiban’s Statements of Advice to clients. Some of those statements disclosed, with varying degrees of detail, potential disadvantages associated with the process of cancellation and replacement. But Mr Panganiban had not consistently and fully disclosed to clients either (i) the potential impact of cancellation, (ii) the fact that it was not necessary, or (iii) the significant additional commission benefit that he would derive from the cancellation and replacement process (as distinct from “transfer”).
The delegate was also concerned about the appearance of many instances, amongst the 50 client matters, where policies were shown to have been cancelled before the commencement of the new policy - see the summary in paragraph 4 above. There was no specific finding that any particular client was actually disadvantaged by the various discontinuities between cancellation and new policy commencement. But there was certainly potential for disadvantage - at least to the extent that the policies provided for a death benefit. That potential disadvantage, relating to policy discontinuity, contributed to the delegate’s finding that Mr Panganiban had been “seriously and repeatedly” incompetent.
In addition to the findings about the possibility of policy transfer, the occurrence of time “gaps” between policy cancellation and the commencement of replacement policies, the delegate expressed the view that only two of the 50 clients actually improved their position, to any material extent, as a result of the cancellation and replacement process. This conclusion involved the delegate’s subjective assessment, as a result of attempting to correlate changes in the various individual client’s (i) altered benefit levels, on the one hand, and (ii) changed premium rates, on the other. The delegate’s more specific conclusions (which do not appear to have addressed all the individual client matters) were to the following effect:-
(a) one client approximately doubled their premium despite a significant decrease in death benefit and only a 27% increase in her temporary disability benefit;
(b) three clients had significant premium increases, despite only (apparently) modest increases in policy benefits;
(c) about 19 clients had significantly reduced premiums, but also significantly reduced cover;
(d) approximately 10 clients had their cover reduced, but without an apparently corresponding reduction in their premium costs; and
(e) one client appeared to have had his benefit cover approximately halved, and was charged a substantial related fee.
Given the potential disadvantages of the cancellation and replacement process, as well as her view that few of the clients clearly benefitted from their particular transactions, the delegate concluded that Mr Panganiban had primarily been motivated by self interest in relation to the particular transactions. The delegate considered that, in an interview with AMPFP personnel on 12 September 2014, Mr Panganiban had expressly conceded that principal motivation.
The delegate was aware that there was some history of concern within the relevant AMP entities about the practice of cancellation and replacement of relevant policies. That history was alluded to in the summary of the 12 September 2014 AMPFP interview Mr Panganiban had attended, and was more specifically disclosed in internal correspondence in 2013. For example, in March 2013 AMP officers had noted Mr Panganiban’s involvement in a number of cancellation and replacement transactions. Like the delegate (in her August 2016 reasons - see paragraphs 20 and 21 above) the AMP personnel also considered that Mr Panganiban’s motivation for involvement in those transactions was likely to have been the prospect of receiving 100% on the underwriting of the new policy.
The March 2013 email correspondence noted that (i) there was no evidence of fraud, (ii) it appeared that Mr Panganiban was “taking advantage of the product design and commission structure”, (iii) advisers were eligible to complete this type of activity “providing the client is happy to be underwritten again”, (iii) but it was difficult to see why (apart from self interest) a planner would recommend cancellation and new insurance to a client, because it was possible to transfer between the relevant policies “on a like for like or decrease basis, without any underwriting”. Further email correspondence in May 2013 noted the results of a review of some of Mr Panganiban’s Statements of Advice to clients. It expressed concern that none of them explicitly addressed the option of “transferring the insurance internally between the two products and therefore avoiding the need for existing insurance to be cancelled”.
In the light of her interpretation of the content of the 12 September 2014 interview between Mr Panganiban and AMPFP personnel, and the background concerns alluded to in the preceding paragraph, the ASIC delegate was very critical of Mr Panganiban’s evidence. She thought he had attempted, probably dishonestly but at least unpersuasively, to resile from the candour, and what she thought was the likely accuracy, of the September 2014 concession. The delegate’s dissatisfaction was evident in the finding at paragraphs [152] & [153]. Those findings were in the following terms
[152] Other than when he was first interviewed by AMPFP, Mr Panganiban has denied all the concerns about his conduct. He has sought to blame other parties and, as I have found, has given unsatisfactory and contradictory accounts. I am satisfied that his conduct was repeated, it was not caused by innocent mistake, it was against the best interests of his clients and was motivated by greed. These were repeated and deliberate breaches in connection with matters which were fundamental for an authorised representative of an AFS Licensee and they indicate a character flaw for the purpose of considering his conduct under subsection 920A(l)(d).
[153] As Mr Panganiban has not been honest about his conduct and has not addressed it, this leads me to believe that he has not yet reformed his character flaw such that he has the soundness of judgement to be trusted to provide financial services at this time. I am satisfied therefore that ASIC has reason to believe that Mr Panganiban is not of good character for the purpose of providing financial services.
MR PANGANIBAN’S STAY CONTENTIONS
Mr Panganiban submitted that the delegate’s decision was affected by a number of significant errors. One of those errors related to an appearance the delegate had made specific findings that clients had paid additional premiums (the $74,404.16 referred to in paragraph 20 above) for their replacement policies. This criticism has some force, on a literal reading of parts of the delegate’s reasons, but it is rather more likely to be a false issue. The undisputed fact is that insureds simply do not pay “commission”. The delegate’s reasons generally convey a sound understanding of insurance practice, and actual knowledge of the March 2013 email correspondence discussing (albeit briefly) the different commission structure between the existing (cancelled) and new (replacement) policies. Accordingly, and taking into account the delegate’s other findings, I am far from satisfied that the banning order decision was to any extent influenced by the suggested error in relation to the clients’ involvement in the payment of commission.
The more significant matters advanced on Mr Panganiban’s behalf, in support of the stay application, included the following:-
(a) Lack of warning and information about policy “transfer”:- The delegate’s finding that Mr Panganiban had knowingly adopted a practice of cancellation and renewal, rather than transfer of existing policies, was said to have been based on an unsubstantiated finding that Mr Panganiban had previously been warned to implement the practice of policy transfer. The submission was that during the four years of his employment there had been something in the order of 4,000 instances of policy cancellation and renewal - and yet “not one communication recording dissatisfaction with the procedure”: Applicant’s submissions [24]. Furthermore, Mr Panganiban submitted that there was simply no evidence to substantiate the proposition that AMPFP’s asserted policy “transfer” practice or preference was evidenced in any policy or training document: Applicant’s submissions [28].. Mr Panganiban also submitted that there was simply no adequate evidence to explain either the concept or the practical content of the asserted practice of policy “transfer”: Applicant’s submissions [31].
(b) No client disadvantage:- Mr Panganiban submissions complained that the delegate’s findings of lack of advantage to clients in the “cancellation and renewal” of policies were insufficiently precise to be evaluated and rebutted: Applicant’s submissions [39]. On other occasions the delegate is said to have failed to consider or understand policy benefits that explain increases in premiums, and / or to have failed to consider that the policy changes were, in any event, made on the basis of the informed instructions of the individual clients: Applicant’s submissions [32] to [38].
(c) Unreliable “confession”:- Mr Panganiban submissions note that the delegate was significantly influenced by the “confession” she regarded Mr Panganiban as having made when he was first interviewed by AMP in September 2014. Mr Panganiban submissions complain that this “confession” has no probative value - for two reasons:- it was the result of an unfair “ambush” and it is rather contrary to what Mr Panganiban asserts is the fact - namely that he was simply following a practice of cancellation and renewal that was unremarkable, and in fact condoned, by AMPFP:- Applicant’s submissions [56]-[62].
(d) No gaps between policy cancellation and inception:- Mr Panganiban contends there was no adequate evidentiary basis for a finding that there were any gaps between policy cancellation and inception. Even if there were gaps, Mr Panganiban’s submissions dispute that their occurrence is a matter of legitimate criticism of his conduct. His submissions pointed to an office practice, and his understanding, that cancellation and renewal would be addressed simultaneously, by other administrative personnel within Benidion: Applicant’s submissions [40]-[44].
(e) Maintain the status quo:- The submissions made on Mr Panganiban’s behalf pointed out that ASIC had known about AMPFP’s concerns since November 2014, and had made them the subject of its statutory notice to Mr Panganiban in November 2015. Nevertheless, ASIC had not made its decision until August 2016. The submission was, in effect, that the sequence of events indicated no real urgency, and indeed no real contemporary concern on ASIC’s behalf, about the likely propriety of Mr Panganiban’s future conduct in providing financial services. In those circumstances, it was said that the most desirable course to adopt was to allow Mr Panganiban to continue, as a person providing financial product advice, in the same way that he has been so engaged for the last two years since leaving Benidion.
QUESTIONABLE UTILITY OF A STAY
It was not in contest that the banning order would likely end Mr Panganiban’s income producing activities as a financial services provider. Nor was it contested that this would have significant financial and personal consequences for him, and his dependants. What was in dispute was whether any stay could have any practical utility in avoiding, or ameliorating, those consequences.
Mr Panganiban’s status as an “authorised representative” ended on 3 August 2016. Without such a status he cannot lawfully provide “financial product advice”. There is no evidence that he holds any other relevant licence or representative authority. Nor is there any evidence that, pending the resolution of the present review proceedings, he has the prospect of obtaining any such status.
In those circumstances, there is no factual basis for satisfaction that there is any practical utility in granting any stay in relation to the 1 August 2016 decision. Nevertheless, the submission made on Mr Panganiban’s behalf was that, given his general competence and good character, as well as his opposition to the substance of ASIC’s adverse findings, he had a realistic prospect of securing an appropriate appointment and employment. The submissions of course conceded that Mr Panganiban would have to make appropriate disclosure. But they were imprecise about the scope that necessary disclosure would take. This imprecision is a matter of significance - given that (i) the delegate’s reasons are set out in a 159 paragraph statement of reasons, (ii) there are about 50 client matters involved, (iii) the material relevant to a proper understanding of the issues is voluminous, (iv) any licensee taking on the responsibility of issuing a relevant “authority” to Mr Panganiban would likely want to be assured that all relevant information had been conveyed to them, (vi) such a licensee would likely have real difficulty in arriving at a fully informed decision that Mr Panganiban was currently an appropriate person to provide “financial product advice” - having regard to the nature and range of the findings the delegate had made.
These potential difficulties with Mr Panganiban’s ability to engage in “financial product advice” activities pending the resolution of the current proceedings are significant. They ultimately resulted in the submission that an AFS licensee considering extending a relevant authority to Mr Panganiban during the period of any stay of the 1 August 2016 decision, could properly and sufficiently rely on the fact of the Tribunal’s exercise of its stay power, in concluding that such an appointment was appropriate. The implicit, if not the express, submission was that such a Tribunal order would constitute a contemporary endorsement of Mr Panganiban’s fitness and competence, and permit an existing licensee to extend a relevant authority to him, without embarking upon its own subjective assessment of the underlying circumstances.
This submission is unpersuasive. The initial difficulty it involves is that it proffers a bare possibility, and no specific evidence, that Mr Panganiban has in fact any real prospect of relevant lawful involvement in the provision of financial services, pending the outcome of the review proceedings. Secondly, the suggested effect of any exercise of the Tribunal’s stay power is inaccurate. The grant of a stay could justify no greater inference than that a stay of the banning order was desirable or appropriate in the circumstances. Depending on the content of the Tribunal’s reasons, that finding might imply satisfaction that Mr Panganiban appeared to have some real prospects of success in the review proceedings. But such an equivocal finding could not displace the apparent significance of the delegate’s reasoned findings, and could not realistically encourage an existing licensee to take on the risks which those findings suggest may be associated with any future appointment of Mr Panganiban as an authorised representative.
For these reasons, I consider that there is no real practical utility in granting the stay application that Mr Panganiban has sought. For that reason alone, I would conclude that Mr Panganiban has failed to satisfy me that it is appropriate to exercise the stay power conferred by AAT Act s 41(2). However, the alternative considerations I discuss below, provide other reasons that lead me to a similar lack of satisfaction.
LIMITED PROSPECTS OF RELEVANT SUCCESS
The most significant aspects of the submissions made on Mr Panganiban’s behalf emphasise (i) the imprecision of the concept of policy “transfer”, (ii) the suggested absence of any previous warning, or expression of concern, to him about the practice of cancellation and replacement of policies, (iii) the misinterpretation of, or alternatively the excessive weight given to, the personal culpability and motivation he expressed in the 12 September 2014 interview with AMP personnel, and (iv) the delegate’s unpersuasive criticism of the apparent lack of benefit to clients from the new insurance policies issued to them.
I appreciate that the background of the circumstances of Mr Panganiban’s employment over the period from March 2010 to September 2014 may provide informative details, and a significant context, in which to evaluate his conduct in relation to the practice of policy cancellation and replacement. In that regard it is potentially significant that (i) the precise procedures and practices involved in the “transfer” of policies have not been the subject of elucidation - either in the delegate’s reasons or the evidence in the present proceedings, (ii) comparatively few client matters (relative to the asserted total of 4,000 such transactions with which Mr Panganiban was involved) are the subject of ASIC’s findings, (iii) fewer than half of those contentious matters involve any “gap” between policy cancellation and renewal, (iv) it is at least conceivable that the primary reason for the occurrence of such “gaps” was administrative irregularity, rather than significant incompetence or dishonesty, and (v) there does not appear to be any suggestion of complaint from any clients about the fact of their policy cancellations and replacement, or about the level of the benefits to which they were entitled under the new policies. It follows from those considerations that it would be imprudent at this point to express any concluded view about Mr Panganiban’s ultimate prospects of success.
Nevertheless I have difficulty in accepting the likelihood that Mr Panganiban was at any time unaware of the potential to transfer policies, without exposing clients to the kinds of potential disadvantages alluded to in the delegate’s reasons - see paragraph 23 above. Part of the difficulty arises from the fact that the disadvantages are obvious to a person with basic knowledge of insurance risk and underwriting principles - a basic knowledge that the various client Statements of Advice prepared by Mr Panganiban and put into evidence before me, tend to indicate. Another part of the difficulty is that there is evidence that Mr Panganiban did in fact “transfer” some client policies. A further part of the difficulty concerns the concessions that Mr Panganiban appears to have made. Concessions to that general effect appear in the 12 September 2014 interview with AMPFP personnel, and in a hearing before the delegate in March 2016. The transcript of the latter records Mr Panganiban’s response, to questions from his own Senior Counsel, to the effect that “before March 2014” he both (i) understood the difference between “transfer” and “cancellation & replacement” of policies, and (ii) that he did explain the difference to his clients.
The apparently significant parts of the September 2014 interview are set out in the delegate’s decision at paragraphs [54] & [55]. The latter paragraph contains a summary of Mr Panganiban’s explanation to the delegate (in the March 2016 hearing) that he “wasn’t in the right state of mind” at the time of the interview, and had been encouraged by his employer / principal to acknowledge AMPFP’s concerns and “to say that he was motivated by greed, in order to make it go away”.
Without expressing any concluded view, I regard Mr Panganiban’s previously expressed explanation for his apparent “confession” at the 12 September 2014 interview as difficult to regard as persuasive. There is an element apparently unacceptable incongruity in the proposition that one would knowingly acknowledge greed and stupidity, in the course of a serious challenge to your conduct as a financial planner and adviser, and do so in the expectation that such a confession would make the related problems “go away”. It seems rather more likely, though I do not express any kind of concluded finding on the presently available material, that the confessions of greed and stupidity were candid recognitions of an underlying reality.
I also appreciate that Mr Panganiban’s personal motives in pursuing a practice of cancellation and transfer are inherently matters of lesser importance than the question whether he nevertheless acted in the best interests of his clients, and properly advised them in relation to the particular transactions. But it is in this context that the delegate’s findings about the deficiencies in the content of Mr Panganiban’s various Statements of Advice (see paragraph 24 above) have particular significance. Part of the delegate’s criticism was that the Statements of Advice did not consistently contain specific statements warning clients about the potential consequences of policy cancellation. Other parts of the delegate’s criticism is that the Statements of Advice typically did not disclose either the possibility of policy transfer or the additional commission benefit that Mr Panganiban would derive from cancellation and replacement.
Mr Panganiban does not dispute the fact that the relevant Statements of Advice did not typically contain advice about the possibility of policy transfer, or information disclosing that the replacement policy would give rise to additional commission he would not otherwise receive. However, Mr Panganiban pointed to at least some Statements of Advice that did contain explicit statements about the potential disadvantages of policy cancellation. He claimed that any instances in which such advice was missing from Statements of Advice was inadvertent, rather than deliberate. For its part, ASIC challenged that explanation. It pointed to correspondence from AMPFP which suggested that this kind of advice was included by default in the advice template that Mr Panganiban used. The contention was that the omission of this kind of advice from Statements of Advice issued to clients must, therefore, have been the result of a deliberate decision.
It is neither necessary nor desirable to express any concluded view on the ultimate reasons for the omission of the “potential disadvantage” advice from (at least some of) the various client’s statements. The more important point, in my view, is that the potential disadvantages which undeniably did exist, were entirely avoidable by the process of policy “transfer” - and yet that possibility was concededly not addressed in any relevant Statement of Advice. This omission is, to my mind, a very significant omission - having regard to the obligations to which I have referred in paragraphs 15(q), (r) & (s) above. It is an omission which, in the light of the delegate’s findings about Mr Panganiban’s motives, leaves me presently without confidence that he has a real potential of success in establishing that he is of good fame or character. And unless he were to succeed on that issue, the 1 August 2016 decision could not be altered in these review proceedings.
PUBLIC INTEREST - HAVING REGARD TO THE STATUTORY REGIME
ASIC emphasised the protective nature of its statutory functions, particularly in the exercise of the banning order power conferred by CorpAct ss 920A & 920B. More particularly, it alluded to the content of the delegate’s reasons, the apparent basis for them, and what it described as Mr Panganiban’s insubstantial challenges to them.
Although I would refrain, at this point, from characterising as insubstantial Mr Panganiban’s prospects of relevant success in the review proceedings, I consider that ASIC is right to emphasise his apparently limited prospects of success, and the protective nature of the banning power. In my view it is a determinative consideration, when regard is had to the nature of the delegate’s findings, and to the reasons that underlie those findings in relation to the contentious cancellation and replacement transactions.
It is no answer to ASIC’s emphasis on the protective nature of the banning power to point to the lapse of time between 2014 and the delegate’s August 2016 decision. That lapse of time might be consistent with Mr Panganiban’s current good character. But neither that lapse of time, nor the absence of evidence of complaint about his conduct (leaving aside the delegate’s reference to the 2016 Lionsgate review - referred to in paragraph 18(c) above) is necessarily, or persuasively, actually probative of his contemporary good character.
NO PUBLICATION LIMITATION
The principal basis relied on to support the confidentiality application in the present proceedings was the proposition that the delegate’s decision was seriously flawed and that Mr Panganiban had good prospects of success in resisting an adverse finding about his contemporary good character and fame: see Applicant’s submissions [9] & [17]. Otherwise the submissions proffered on Mr Panganiban’s behalf acknowledged the general publicity that characterises the Tribunal’s exercise of its review function - see the matters discussed in paragraphs 11 and 12 above.
I have concluded earlier that Mr Panganiban has failed to satisfy me that he has a real potential of success in establishing his contemporary good fame or character. I am certainly far from satisfied, at this point in time, that the delegate’s reasoning was seriously flawed, in any of the respects contended for on Mr Panganiban’s behalf. In those circumstances, and having regard to the protective nature of the relevant CorpAct provisions (see paragraph 15 above), as well as the “basis of consideration” requirement in AAT Act s 35, I am not satisfied that it is appropriate to make any of the confidentiality orders sought by Mr Panganiban in relation to the review proceedings.
CONCLUSION
Each of the applications - for a stay order under AAT Act s 41, and for confidentiality orders under AAT Act s 35 - is dismissed.
I certify that the preceding 52 (fifty-two) paragraphs are a true copy of the reasons for the decision herein of Mr P W Taylor SC, Senior Member ...................[sgd]................................................
Associate
Dated 9 September 2016
Date of hearing 24 August 2016 Counsel for the Applicant Mr B Connell Solicitors for the Applicant PMF Legal Pty Ltd Counsel for the Respondent Ms R Graycar Solicitors for the Respondent Australian Securities & Investments Commission
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