Federal Court imposes first best interest duty breach fine
The Federal Court has imposed a civil penalty of $1 million against Melbourne-based financial advice firm, NSG Services for breaches of the best interests duty, the first civil penalty imposed on a financial services licensee for a breach of the best interests duty.
The penalty was in relation to financial advice provided to retail clients by NSG advisers on eight occasions between July 2013 and August 2015. The clients were usually sold insurance and were advised to roll over superannuation accounts that committed them to expensive, unsuitable and unnecessary financial arrangements.
The court found NSG’s failure to ensure compliance by its representatives were systemic in nature. In his reasons, Justice Moshinsky said, “I regard the contraventions as very serious ones”.
The court found NSG representatives breached the Corporations Act by failing to take reasonable steps to ensure they provided advice that complied with best interests obligations, and that the advice provided was appropriate to clients.
The breaches formed the basis of 20 contraventions in total by the firm.
The court made declarations based on various deficiencies in NSG’s processes and procedures, including insufficient training on legal and regulatory obligations to ensure advice was in the clients’ best interest.
NSG also had a “commission only” remuneration model, which meant representatives would be paid commissions for sales of personal risk insurance products and superannuation rollovers.
ASIC deputy chair, Peter Kell, said: “This outcome makes clear to the industry the serious consequences of financial services licensees failing to comply with their FOFA [Future of Financial Advice] obligations. ASIC will continue to pursue licensees who fail to do so”.
NSG agreed to pay the amount immediately and made joint submissions to the orders, and was also ordered to pay $50,000 in costs to ASIC, and will also pay $50,000 towards ASIC’s investigation costs under the ASIC Act.
AUTHOR
Malavika Santhebennur
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