Prasad and Australian Securities and Investments Commission
[2016] AATA 384
•8 June 2016
Prasad and Australian Securities and Investments Commission [2016] AATA 384 (8 June 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2015/2401
Re
Atish Prasad
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal Professor R Deutsch, Deputy President
Date 8 June 2016 Place Sydney The decision of the Respondent to ban the Applicant from providing financial services is varied, the term of the ban is reduced from 3 years to 18 months. In all other respects the decision under review is affirmed.
..........................[sgd]..............................................
Professor R Deutsch, Deputy President
CATCHWORDS
CORPORATIONS – providing financial services – banning order – failure to provide statement of advice – lack of detail in statement of advice – applicant not adequately trained to provide financial services – seriousness of breaches – length of ban varied – decision varied and affirmed
LEGISLATION
Corporations Act 2001 (Cth) ss 920A, 920B, 946C, 947C, 947D, 961B, 961G
Corporations Regulations 2001 (Cth)
CASES
Fraser and Australian Securities and Investments Commission [2011] AATA 944
Hickie and Australian Securities and Investments Commission [2013] AATA 853
Musumeci and Australian Securities and Investments Commission [2009] AATA 524
Seagrim and Australian Securities and Investments Commission [2012] AATA 583SECONDARY MATERIALS
Australian Securities and Investments Commission Regulatory Guide 98, Licensing: Administrative action against financial services providers, July 2013
REASONS FOR DECISION
Professor R Deutsch, Deputy President
8 June 2016
INTRODUCTION
On 24 April 2015 the Australian Securities and Investments Commission (ASIC), the Respondent, issued an order under sections 920A and 920B of the Corporations Act 2001 (“the Act”) banning Mr Atish Prasad (“the Applicant”) from providing financial services for 3 years.
The reasons for the Respondents decision for making the banning order were based essentially on three aspects of the Applicant’s behaviour:
· First, the Applicant failed on a number of occasions to provide a Statement of Advice (“SOA”) within the prescribed timeframe as required by law;
· Secondly, the Applicant failed on a number of occasions to provide the required level of detail in the requisite SOAs; and
· Thirdly, the Applicant was not adequately trained to provide financial services.
As a result of these breaches, the Respondent determined that it had the power to make the banning order under:
·s.920A(1)(e) of the Act as the Applicant had not complied with a financial services law; and
·s.920(1)(da) of the Act as the Applicant was not adequately trained.
The Respondent also determined that:
·The Respondent was not able to find that the Applicant had failed to comply with the obligation to act in the best interests of his clients as required by s 961B of the Act;
·The Respondent was not able to find that the Applicant had failed to provide appropriate advice as required by s 961G of the Act; and
·It was not necessary to make findings as to whether there was reason to believe that the Applicant was likely to contravene a financial services law: s 920A(1)(f).
FACTS – THE PROCEDURAL BACKGROUND
On 15 May 2015, the Applicant lodged with the Administrative Appeals Tribunal an application for review of a decision of a delegate of the Respondent, ASIC, dated 24 April 2015 (“the decision under review”).
The decision under review was to prohibit the Applicant pursuant to ss 920A and 920B of the Act from providing any financial services for a period of 3 years from the date of service of the order. The order was served on 27 April 2015.
On 7 February 2015, ASIC served a notice of hearing upon the Applicant, stating ASIC’s concerns that: ASIC had reason to believe that the Applicant was not adequately trained or not competent to provide financial services: s 920A(1)(da); the Applicant had not complied with a financial services law: s 920A(1)(e); and ASIC had reason to believe that he was likely to contravene a financial services law: s 920A(1)(f).
On 24 March 2015, the Applicant and his solicitor attended a hearing before the delegate. The Applicant provided a statement of a person named Na Sha and some information from AMP, but did not give evidence. His solicitor made submissions.
The delegate was satisfied that the Applicant was not adequately trained or was not competent to provide financial services and had not complied with a financial services law. These bases enlivened ASIC’s power to make a banning order. As such, it was not necessary for the delegate to make a finding as to whether ASIC had reason to believe that the Applicant was likely to contravene a financial services law.
On about 9 June 2015, the Respondent filed and served the T-Documents. On about 21 August 2015 the Applicant filed and served his "Applicant’s Statement of Issues, Facts and Contentions" (“ASIFC”). The Applicant has not filed any evidence in support of this review.
FACTS – THE APPLICANT’S CONDUCT
Lionsgate Financial Group Pty Ltd (“Lionsgate”) is a financial services licensee. The Applicant was an authorised representative of Lionsgate from 27 March 2013 to 2 May 2014.
In his capacity as an authorised representative of Lionsgate, the Applicant gave advice and made recommendations in respect of superannuation, life insurance and total permanent disability (TPD) insurance products to the following clients (“the Clients”):
· Syed Monirul Islam (Islam);
· Hai Minh Mai (Mai);
· Na Sha (Sha); and
· Thi Thuy Trang Tran (Tran).
A superannuation interest, a life insurance policy and a TPD insurance contract are all financial products within the meaning of s 761A of the Act.
Each of the clients was a retail client within the meaning of ss 761A and 761G.
The Interactions with the Clients
Tran – On about 2 November 2013, Tran sought advice about her superannuation, insurance and general finances. The Applicant gave her oral advice, but did not give her an SOA.
Islam – On about 15 June 2013, the Applicant gave Islam an SOA recommending that he look at taking out $ 150,000 life and TPD cover to meet his goals (Islam SOA).
Mai – On about 11 November 2013, the Applicant gave Mai a statement of advice recommending that he consolidate his super accounts with AMP (Mai SOA).
Sha – On about 9 December 2013, the Applicant gave Sha a SOA recommending that she replace her existing superannuation fund with AMP Flexible Super (100% AMP Growth Fund) and take up $250,000 of life and TPD insurance with AMP so as to put her in apposition to pay out her debts if something were to happen to her (Sha SOA).
THE RESPONDENT’S POSITION
The Respondent determined that because of certain breaches by the Applicant, it had the power to make the banning order under:
Ground 1 – Section 920A(1)(e) of the Act as the Applicant had not complied with a financial services law; and
Ground 2 – Section 920(1)(da) of the Act as the Applicant was not adequately trained.
The Section 920A(1)(e) Breaches
The Respondent has identified what it considers to be a number of breaches.
Breach 1
Section 946A requires the Applicant to give a SOA.
In relation to the client Tran, the Applicant failed to so provide a SOA.
Breach 2
Section 947C(2) required the Applicant to include in a SOA statements and information including:
(b) information about the basis on which the advice is or was given.
Section 947C(3) required the Applicant to use the level of detail about a matter such as a person would reasonably require for the purpose of deciding whether to act on the advice as a retail client.
In relation to the clients Islam, Mai and Sha while SOAs were provided they did not:
(a) clearly identify that the Applicant was retained to provide advice, rather than effect the client’s predetermined instructions;
(b) detail the conversations the Applicant had with the clients leading to the SOAs;
(c) details the client’s circumstances, pertinent to the advice, as the basis upon which the advice was given;
(d) properly identify financial products as opposed to providers;
(e) detail the comparative features, advantages and disadvantages and cost competitiveness of the particular financial products recommended;
(f) detail why the particular financial products recommended were appropriate to the client and how they would meet the clients’ goals and be in their best interests;
(g) clearly set out his advice and the reasons for it; and
(h) explain how the recommended product operated.
Breach 3
Section 947D(2)(a) and (b) required the Applicant, if advice was or included a recommendation that the client replace a financial product with another financial product, to include in the SOA additional information, to the extent known or could reasonably have been found out by the Applicant, about charges that the client would or might incur in respect of the replacement, benefits the client may lose and any other significant consequences for the client.
In relation to the clients Mai and Sha, the Applicant did not in the relevant SOAs include information about charges these clients would or might incur in respect of the consolidations. Such charges should have been known or could easily have been ascertained by the Applicant.
In relation to the Sha SOA, the Applicant did not include information about a significant consequence, being that Sha would lose the income protection provided in the Australian Super fund and the amount of TPD cover would be reduced by $300,000.
In relation to the Mai SOA, the Applicant did include a significant consequence, being that Mai would lose the insurance protection he had in place when his superannuation accounts were consolidated into the AMP account. However, according to the Respondent, the Applicant did not specify the type(s) of insurance, the fund(s) to which it was attached and the value.
Breach 4
Section 961B(1) required the Applicant to act in the best interests of the clients in relation to the advice.
Section 961 B(2) provides that the Applicant satisfies this duty if the Applicant proves that he:
(a) identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions;
(b) identified:
(i) the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and
(ii) the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client's relevant circumstances );
(c) where it was reasonably apparent that information relating to the client's relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information;
(d) assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice;
(e) if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:
(i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and
(ii) assessed the information gathered in the investigation;
(f) based all judgements in advising the client on the client's relevant circumstances;
(g) taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client's relevant circumstances.
The Respondent asserts that it is for the Applicant to prove that he undertook this process, other than for life insurance: Regulation 7.7A.1(3) of the Corporations Regulations 2001. The documents retained by him pertaining to financial services provided to the clients do not show that he did. He has not given evidence explaining the process he undertook.
Further as a result of s 961G the Applicant is required to only provide advice to a client if it would be reasonable to conclude that the advice is appropriate to the client. The documents do not show that the advice was appropriate.
Breach 5
Section 946C(1) required the Applicant to give a client an SOA when, or as soon as practicable, after advice was provided, and, in any event, before the Applicant provided a further financial service that arose out of or was connected with that advice.
Section 946C(3) required the Applicant, even if the client had expressly instructed the Applicant that he or she require the further financial service immediately or by a specified time and it was not reasonably practicable to give the SOA to the client before that further service was provided, to give the SOA within 5 days after providing that further service.
On about 9 October 2013, Sha sought the Applicant's advice about the consolidation of
her superannuation accounts.
Between 9 and 16 October 2013, the Applicant recommended that Sha consolidate her existing superannuation into a new AMP Flexible Super fund and take up life insurance and TPD insurance of $250,00 within the new fund.
On 16 October 2013, the Applicant arranged for Sha to apply for AMP Flexible super. This was a further financial service arising out of the advice.
The Applicant did not give Sha the Sha SOA until 9 December 2013.
On account of the Applicant’s failure to comply with these financial services laws, the Tribunal’s power to make a banning order against the Applicant is enlivened by s 920A(1)(e).
The Section 920(1)(da) Breaches
The Respondent relies on all the above breaches to support the view that the Applicant is not adequately trained or is not competent, to provide financial services.
Further, the Respondent also asserts that upon a review of the Applicant’s documents it is apparent that his files were very poorly maintained. For example:
(a) some documents were largely blank and some were unnamed, unsigned or undated;
(b) there were few file notes;
(c) the dates of clients’ signatures on SOAs predated the printed dates;
(d) dates, values, providers and other details on documents, including SOAs were incomplete or inconsistent; and
(e) there appears to have been intermingling between mortgage broking and financial services files.
Although the Applicant has acknowledged his need for remediation education followed by supervision, audit and review, the Respondent does not understand him to have engaged in any such further education.
Sub-section 920A(1)(da) imports a responsibility on a person to be adequately trained and competent. The Respondent asserts that the Applicant is downplaying the importance of this requirement by suggesting that his conduct is “at least partially attributable to the egregiously inadequate internal controls on the part of Lionsgate”: ASIFC paragraph 55(b).
On account of these matters, the Respondent concluded that there was reason to believe that the Applicant is not adequately trained and is not competent to provide financial services, and its power to make a banning order against Mr Prasad is enlivened by s 920A(1)(da).
THE APPLICANT’S POSITION
For the most part, the Applicant does not fundamentally disagree with the assertions made by the Respondent in respect of these breaches but disagrees about the nature and consequences that flow from those breaches.
In particular, the Applicant argues that:
· The Respondent erred in failing to give proper weight to the fundamental principle that the primary intent of a banning order is preventative in that it is designed to protect the public. The Applicant voluntarily ceased providing financial services some time ago and is willing to provide detailed comprehensive undertakings as a pre-condition to providing financial services in the future;
· The Respondent failed to address the Applicant’s submission that remedial education and a supervision regime would address the Respondent’s concerns about his lack of training;
· The Respondent’s assertion that the Applicant’s failure to complete legally required paperwork (namely the SOA) shows a “complete disregard for the law” and compliance with regulations is “hyperbolic and melodramatic and unsupported by the evidence”. Clearly the Applicant views this conclusion to be an over-statement on the part of the Respondent;
· The Respondent failed to address issues of general deterrence the Applicant points out that there is nothing in the Delegates Reasons[1] to demonstrate that consideration was given to whether a banning order would act as a deterrent; and
[1] T-documents pp 39-49.
· The Respondent’s own Regulatory Guide 98[2] suggests that administrative action in the nature of a banning order is not appropriate in the current circumstances because:
[2] ASIC Regulatory Guide 98, Licensing: Administrative action against financial services providers, July 2013.
(a) there is no suggestion of dishonesty or intentional contravention of the law in this case;
(b) the Applicant gained no benefit from his misconduct;
(c) there is no suggestion that anyone lost money as a result of his misconduct;
(d) the conduct is not continuing;
(e) the Applicant has fully co-operated with the Respondent, has acknowledged the need for remediation and has made formal offers to the Respondent to undertake remedial education and supervision;
(f) the Applicant has fully accepted the need for remediation and voluntarily ceased providing financial services in 2013 well before the banning order was imposed on him;
(g) the Applicant has suffered significant hardship as a consequence of the banning order – his mortgage broking business has effectively been destroyed;
(h) the misconduct identified by the Respondent was relatively isolated relating as it does to four SOAs, only two of which lead to any client action and one of the recipients was the Applicant’s domestic partner;
(i) there are no consumer complaints against the Applicant and no detriment to consumers has been established.
The Applicant also argued that there are other cases where banning orders of less than 3 years duration have been imposed in circumstances involving behaviour which is “demonstrably more egregious than the conduct of the Applicant” in this case.
Examples given include:
Fraser and Australian Securities and Investments Commission [2011] AATA 944: six month ban from providing financial services for 37 instances of dishonest conduct relating to failure to remit fees and commissions received, which resulted in a guilty plea to criminal charges.
Musumeci and Australian Securities and Investments Commission [2009] AATA 524: two year ban from providing financial services for multiple market manipulation offences, resulting in guilty pleas to criminal charges.
Seagrim and Australian Securities and Investments Commission [2012] AATA 583: six month bans from providing financial services for multiple contraventions relating to failures to provide appropriate advice and complete Statements of Advice, and failure to implement compliance measures recommended in an audit report.
Hickie and Australian Securities and Investments Commission [2013] AATA 853: two year ban from providing financial services for failure to comply with conditions of an Australian Financial Services Licence; failure to exercise reasonable care and diligence; failure to comply with financial services law; failure to maintain professional indemnity insurance; failure to lodge audited financial reports.
Accordingly the Applicant argues that a banning order in this case of 3 years is manifestly excessive.
TRIBUNAL’S CONSIDERATION
The Respondent has raised a number of serious breaches in this matter and whilst the Applicant has sought to argue a number of matters in response to those allegations it is regrettable that the Applicant has not specifically and sequentially directly addressed each of the five breaches specified above.
Rather, the Applicant has sought to put forward various general arguments that go to some of these breaches and more general comments applicable to all of them.
In relation in particular to the specific breach which lead to the Respondent concluding that the Applicant had conducted himself in a manner which was in “complete disregard of the law”[3] this related to advice which had been provided which “did not identify the client, and was undated”[4] and was “predominantly blank”.[5]
[3] T-documents, p49.
[4] T-documents, p47.
[5] T-documents, p47.
Whilst I accept that there may be different views as to the seriousness of this matter, I do not think it is hyperbolic, melodramatic or unsupported by the evidence to suggest that someone preparing an SOA who leaves the contents predominantly blank without mentioning the name of the client and also leaves the document undated, is demonstrating a complete disregard for the law. The law does require such statements to be completed largely for the benefit of the client and the extent of the failings, in this regard, were material and serious. Quite frankly, reviewing the manner in which the documents were completed, suggests that the Applicant adopted what could only be described as a “could not be bothered” attitude to the preparation and completion of such documents. They were generally poorly completed, if completed at all, often left unsigned and contained inaccuracies and inconsistencies such as wrong dates being inserted and risk profile descriptions being used which did not accord with risk profile descriptions in other documents.
In relation to Breach 4, s 961B(1) provides a safe harbour in that the Applicant can show he has acted in the best interests of clients by establishing all the matters referred to in s 961B(2). However, the Applicant argues and I agree that is not the only way in which acting in the best interests of the client can be demonstrated. In this case, I do not believe there are any serious matters that would suggest that the Applicant has at any given time not acted in the best interests of his clients even though he has clearly not followed the requirements spelt out in the legislation.
I have also considered in detail the Applicant’s argument that there are other cases where more egregious behaviour has resulted in banning orders of less than 3 years duration.
In this context I do not accept that direct comparisons of this nature can or should be made. Each case is heavily fact dependent and the duration of banning orders cannot therefore be easily compared without more detailed analysis of the facts.
Having said that I do accept that this case is one involving a high degree of carelessness rather than dishonesty or deliberate deception and that is an important factor that clearly suggests that a banning order of shorter duration than 3 years is appropriate.
Finally, it may well be the case that some of the Applicant’s deficient conduct may be attributable to the poor internal control mechanisms adopted by Lionsgate but the responsibility ultimately is that of the Applicant. Sub-section 920A(1)(da) imports a responsibility on a person to be adequately trained and competent and this responsibility cannot be diminished by pointing the finger at the company in relation to which the Applicant acts as an authorised representative.
CONCLUSION
I do not believe that the Applicant has made out a case for no banning order being made here. It is clear that there were lapses of a serious nature in the way in which the Applicant interacted with and dealt with his clients.
However, that this is not a case where there has been:
(a)Serious dishonesty such as deception of clients; or
(b)Conduct that is so poor as to lead to a high risk client losses.
Rather, this is a case where there has been a failure on a number of occasions to provide the detailed and timely advice relating in particular to product recommendations that is expected under the laws and regulations that govern such behaviour.
This behaviour cannot be lightly dismissed but it does not in my view warrant a 3 year ban. A lesser ban of 18 months is in my view the appropriate duration for such a ban having regard especially to the fact that:
(a)The Applicant was not acting dishonestly at any relevant time;
(b)The Applicant made no personal gain from the identified deficiencies; and
(c)The clients in question incurred no financial detriment as a result of the identified deficiencies.
DECISION
The decision of the Respondent to ban the Applicant from providing financial services is varied; the length of the ban is reduced from 3 years to 18 months. In all other respects the decision under review is affirmed.
I certify that the preceding 63 (sixty-three) paragraphs are a true copy of the reasons for the decision herein of Professor R Deutsch, Deputy President
.....................[sgd]...................................................
Associate
Dated 8 June 2016
Date(s) of hearing 17 December 2015 Solicitors for the Applicant J Wheeldon, Wheeldon Lawyers Counsel for the Respondent M Avenell Solicitors for the Respondent N Goodstone, ASIC
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