Law Of ASIC v NSG services Pty Ltd (2017) †MyAssignmenthelp.com

Question: Discuss about the Law Of ASIC v NSG services Pty Ltd (2017). Answer: Introduction The decision laid down by Federal court in the leading case of Australian Securities and Investment Commission v NSG services pty ltd[1] is a landmark case which was decided on 30th March 2017. The leading case establishes the civil penalty action that is taken by Australian Securities and Investment Commission for the violation of the best interest duty established under section 961 (B) of the Corporation Act 2001 and also in evaluating the nature of the best interest duty that is imposed under the Corporation Act 2001. The decision is very significant from the point of view that the duty to act in the best interest is imposed upon the advisor who is providing advice to their retail clients. Facts Prior understating the basis upon which the decisions of laid down by the federal court, it is first important to understand the background facts on the basis of which the preset case is raised. In 2012, there are two statutory changes that are brought in, that is, Corporations Amendment (Future of Financial Advice) Act 2012(Cth) and the Corporations Amendment (Further Future of Financial Advice) Act 2012(Cth) which are considered as the Future of Financial Advice reforms[2]. The Corporations Amendment (Further Future of Financial Advice) Act 2012(Cth) is the enactment that has established an obligation of best interest under Part 7.7A, Division 2 of theCorporations Act 2001(Cth).[3] Now, because of the said enactments, a duty of best interest is imposed upon the people who provide personal advice to its retail clients. The duty that is enshrined under Part 7.7A, Division 2 of theCorporations Act 2001(Cth) (section 961 (1) (2)), is not an exhaustive list and there are various statutory duties that are incorporated in the same, for instance[4]: Section 961-B-F establish duty to act in the best interest of the client; As per section 961G A duty to furnish advice to the clients is only imposed upon the advisers when the advisor would reasonably conclude that the advice so provided is appropriate to the clients; In the said case, the best interest of FoFA is under scanner and the obligations of the licensees and advisors are taken into account. The case laws establishes as how the licensees and the advisors are not able to comply with their duties to furnish best interest of their clients.[5] The facts submit that an Australian Financial Services Licensee (NSG) is under the tasks of providing advice regarding the life risk insurance and superannuation products. The advice is normally provided by the authorized representatives of the representatives of the NSG. NSG has provided personal advice to their client and it was alleged by the ASIC that when furnishing such personal advice, the NSG is in violation of section 961B and section 961G of the Corporation act 2001[6]. Thus, on the basis of these facts, there were few contentions that were raised by Australian Securities and Investment Commission. The main contentions of Australian Securities and Investment Commission Based on the said fact, the Australian Securities and Investment Commission has initiated pecuniary penalties, declaratory relief and costs proceedings against NSG. The proceedings were initiated by Australian Securities and Investment Commission in mid 2016. There are several contentions that are raised by the Australian Securities and Investment Commission against the NSG Services Pty Ltd and the same are submitted herein below: It is submitted that when NSG Services Pty Ltd representatives were providing advice to its retail clients, then, at that time, they fail to meet the statutory requirements that are mentioned under section 961B and 961 G of the Corporation Act 2001 because of which the retail clients entered into arrangements that were unsuitable. Costly and result in un-required financial arrangements. Violation of section 961L of the Act There are various instances where it was found that there is violation of section 61L of the Act. the same are: One of the representative of NSG failed to take reasonable steps and violated section 961B (1) and section 961G of the Act when furnishing advice to Person C, Person D on 15th July 2014. one of the representative of NSG failed to take reasonable steps and violated section 961B (1) and section 961G of the Act when furnishing advice to Person E, on 15th July 2013 and 20th August 2013 meetings respectively. Also, one of the representative of NSG failed to take reasonable steps and violated section 961B (1) and section 961G of the Act when furnishing advice to Person F, on 24th November 2014. Also, one of the representative of NSG failed to take reasonable steps and violated section 961B (1) and section 961G of the Act when furnishing advice to Person G, on 15 July 2014. Also, one of the representative of NSG failed to take reasonable steps and violated section 961B (1) and section 961G of the Act when furnishing advice to Person H, on 20 August 2013. Also, one of the representative of NSG failed to take reasonable steps and violated section 961B (1) and section 961G of the Act when furnishing advice to Person A, on 19July 2013. Also, one of the representative of NSG failed to take reasonable steps and violated section 961B (1) and section 961G of the Act when furnishing advice to Person B, on 20August 2015. Thus, it is submitted that when the representations were furnishing advice to their retail clients at that time they did not take reasonable steps to make sure that the best interest obligation towards their retail clients are met and thus they are in violation of section 916L of the Corporation Act 2001. That there is violation of section 961K (2) of the Act That the representatives (other than authorized representative of NSG) are in violation of section 961K (2) of the Act. It is submitted that one representative of NSG (Trinh) violated section 961B (1) and section 961G of the Act when furnishing advice to Pearson A (client of NSG) on 19th July 2013 meeting. Also, there is violation of section 961K (2) of the Act when the representatives (Ozak) violated section 961B (1) and section 961G of the Act when furnishing advice to Pearson A (client of NSG) on 20th August 2013 meeting. Thus, some of the representatives of NSG Services Pty Ltd who were not the authorized representatives of NSG Services Pty Ltd failed to comply with their best interest obligations and thus were in violation of section 961K (2) of the Corporation Act 2001. It is submitted that all the allegations that are raised by the Australian Securities and Investment Commission, that is, violation of section 61B, 961G, 961L and 961K of the corporation Act 2001 were accepted by NSG Services Pty Ltd[7]. Both NSG and Australian Securities and Investment Commission have applied to the court for declarations by consent[8]. It is now first important to analyze the provisions of section 961 of the Corporation Act 2001 that are applicable in the given scenario. Section 916 of the Corporation Act 2001 - Observations by the court Before analyzing the decision that laid down by the Federal court, there are two important observations that are made by MOSHINSKY J. The same are[9]: That the duty that is imposed under section 961 B (2) must be treated as a safe harbour for the advice providers. This implies that if the advisers are able to prove that all the statutory requirements that are mentioned under section 961 B (2) of the corporation Act 2001 is comply with then the advice providers has comply with his duty to look for the best interest of his retail clients. The court observed that the main concern of section 961B is that procedure or the process that is to be comply with by the adviser prior furnishing advice which must be in the best interest of the client. But, section 961G of the Corporation act contains the substance or content of the advice. On the basis of the above two observations, the court has tried to interpret the two meaning of section 961B of the Corporation Act 2001. It was submitted by the court that the functions that are attributed by section 961B (1) and section 961B 2) are different in nature. The core duty to serve best interest is served under section 961B (1) of the Corporation Act 2001 whereas the statutory defense is provided under section 961 B (2) of the Corporation Act 2001. Both the sections are affected in the manner and the process in which the advice is furnished by the advice provider. The court submitted that the correct and justified interpretation of section 961B of the Corporation Act 2001 is that it deals with the manner and the process in which the advice is furnished. The basic interpretation that is provided by the court to interpret section 961 of the Corporation Act 2001 is that: That the steps that are laid down in section 961B (2) mainly deals with the process within which the advice is furnished and is not concerned with the outcomes that results from such advice; That section 961G of the act is different from section 961B of the Act. Section 961B deals with the process within which the advice is furnished and is not concerned with the outcomes Decision by the Court The main reasons for the decision that are made by the court are[10]: That the client advice process that is adopted by NSG is complied very quickly. Because of the quickness the clients are not able to reflect on the advice so furnished proper its implementation. Because of this quick procedure the information that is provided to the clients was found to be insufficient in nature; There are various obligations that must be comply with by the representatives of the NSG prior providing advice to their retail clients however, the regulatory and the legal obligations that must be required to be followed are not provided to the advisors neither NSG has provided with proper training to their representatives which has ultimately has resulted in the violated of their statutory obligations. The advisors who are representing NSG while furnishing advice to the retail clients are representing NSG, but, NSG has not laid down any kind of review analysis of such representatives (substantial or regular). There were instances when few internal audits are conducted by NSG but whenever any advisor has been found to be in contravention of the statutory provisions of the Corporation Act, then, there were no disciplinary actions that were taken by NSG against such defaulting advisors. The external audits of NSG are carried out by third parties. These audits identify the issues relating to the provisions of advice. But, the advice which is so furnished by the external auditors were not comply with of followed by the NSG. Neither any changes that were addressed or implemented by the external auditors were ever given heed[11]. The court also observed that the compliance policies that are adopted by NSG were also not adequate as per the given circumstances. No regulator or legal duties that must be furnished by the representatives were quoted in the compliance policies of the NDG, if any. Even if complaints are received by the NSG regarding any irregularity, still, no action is ever taken up by NSG. Considering all the above acts that are carried out by the NSG and its representatives while catering advice to its retail client, it has been observed by the court that the duties to act in the best interest as enshrined under section 961B of the Act are not comply with resulting in violation of the duties. Thus, the federal court was right in imposing penalties over NSG for its violation of statutory obligations. References Case laws Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd (2009) 179 FCR 46, ASIC v NSG services Pty ltd (2017); Australian Securities and Investments Commissionv Newcrest Mining Ltd(2014) 101 ACSR 46 Legislation Corporation Act 2001 Online Material ASIC (2017) ASIC v NSG services Pty ltd (2017) (online). Available at: https://download.asic.gov.au/media/4210761/17-100mr-asic-v-nsg-services.pdf. Accessed on 26th September 2017. Federal Court of Australia (2017) ASIC v NSG (online). Available at: https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2017/2017fca0345. Accessed on 27th September 2017. Soljo and Walsh (2017) UNRAVELLED: RECENT DECISION ON FOFA ADVICE PROVISIONS ASIC V NS (Online). Available at: https://www.allens.com.au/pubs/fsr/170505-unravelled-02.htm. Accessed on 27th September 2017. Turks Legal (2017) Federal Court finds first breach of best interests duty (online). Available at: https://www.turkslegal.com.au/sites/default/files/Case_ASIC%20v%20NSG_.pdf. Accessed on 27th September 2017. Vrisakisand Zhou (2017) The Best Interests Duty: Process Or Outcomes? (online). Available at: https://www.herbertsmithfreehills.com/latest-thinking/the-best-interests-duty-process-or-outcomes. Accessed on 26th September 2017.