The Australian Securities and Investments Commission (ASIC) has stepped up enforcement against those involved in operating a financial services business without holding an Australian Financial Services Licences (AFSL) or being an authorised representative of an AFSL holder.
As described in ASIC’s Media Release on 18 April 2018, the Director of Investment Intelligence Corporation (IIC), Mr Senen Pousa, had charges bough against him in relation to his conduct between September 2011 and June 2012 as the sole director of IIC in providing financial mentoring services via an online platform. The platform provided consumers with modules on a variety of topics including general financial literacy, life coaching and foreign currency trading advice. Mr Pousa was given a suspended sentenced of 12 months’ imprisonment on the condition that he be of good behaviour for a period of 5 years for charges brought on by ASIC in relation to carrying on a financial services business without holding an AFS Licence.
In continuing its actions against unregistered and unlicensed operators, ASIC stated in a Media Release on 20 April 2018 that it obtained orders to wind up an illegal investment scheme known as the VKK Investments Unit Trust (VKK scheme) along with the trustee and operator of the scheme, Gem Management Group Pty Ltd (GMG). A total of approximately $22 million was invested into the VKK scheme by approximately 125 investors.
ASIC’s investigation identified that:
- the VKK scheme had been operating since May 2010 and is considered a managed investment scheme;
- the scheme has not been registered, as required under the Corporations Act; and
- the trustee of the scheme, GMG, does not hold an Australian financial services licence.
These types of generic advisory services and land banking schemes (or other managed investments or “funds”) are common, with many providers assuming their services do not fall within the financial services licensing regime. Unlicensed providers should ensure they review their service offering and obtain independent advice from a legal or compliance consultant to ensure they do not cross the line into the provision of financial product advice. Those who are found to be providing financial services should obtain the appropriate licence or authorisation before commencing their operations.
ASIC has produced some helpful resources in relation to the provision of financial services in Australia. We suggest reviewing the following ASIC Regulatory Guides, available on ASIC’s website, to understand ASIC’s view on some of these issues:
- RG36: Licensing – Financial Product Advice and Dealing
- RG121: Doing Financial Services Business in Australia
- RG244: Giving Information, General Advice and Scaled Advice
Further information on land banking can be found on ASIC’s Money Smart website.
It is an offence to carry on a financial services business without an AFSL, punishable by a fine of $22,000 or imprisonment for two years, or both. The conduct of an unlicensed financial services business may also expose offenders to other enforcement action, including banning orders. Those providing unlicensed financial services should expect ASIC to continue conducting surveillance, targeting businesses that are illegally operating or otherwise breaching the financial services laws.
This emphasis on compliance is intended to protect the interests of consumers and uphold the integrity of the industry. ASIC will treat very seriously any individual or company that continues to operate whilst unlicensed or fails to meet the responsibilities and obligations imposed by the reforms to the Corporations Act.
ASIC previously investigated Mr Pousa in July 2012. Further information can be found in ASIC’s Media Release 12-175MR ASIC freezes suspect funds held by unlicensed financial mentoring company.
ASIC commenced proceedings in July 2017 to wind up the VKK scheme and GMG, please refer to ASIC Media Release 17-238MR ASIC takes action to wind up land banking scheme and its operator.
For further information on ASIC’s continued actions against illegal land banking schemes, see media release 18-117MR ASIC takes action to wind up five land banking companies and to disqualify officers from managing corporations.
ASIC will continue conducting compliance checks on those who appear to be conducting a financial services business without an AFSL and on current AFSL holders who appear to be mismanaging their businesses.
Our previous blog article ‘Financial Services not a safe place for Inappropriate Activities’ can provide more information on ASIC’s enforcement in this area.
Should you have any questions in relation to licensing and your obligations, please contact us.
Ivana is responsible for all Marketing activities for Sophie Grace and assists both the Compliance and Legal teams with a particular focus on Compliance services. Ivana focuses on website development, management and ensures clients receive the latest regulatory updates through Sophie Grace social media channels, the newsletter and website blog page. Ivana also assists the Compliance team with drafting and amending compliance documentation, preparing AFSL and ACL Applications and implementing ongoing compliance solutions.