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Screenshot of a breaking news alert e-mail from Q2 2017
The widely used metaphor ‘old habits die hard’ best describes the subject of the most recent contretemps with Australia’s financial markets regulatory authority concerning former representatives of the ill-fated portfolio management and financial planning dealer group AAA Financial Intelligence Pty.
Today, ASIC has announced that it has accepted an enforceable undertaking (EU) from PGW Financial Services, a company based in Adelaide, Australia, which appointed a number of former representatives of AAA Financial Intelligence Pty, as a result of which the attention of the Australian Securities and Investments Commission (ASIC) was drawn to the company.
In February 2013, ASIC withdrew AAA Financial Intelligence Pty’s AFS license and wound the company up, with ASIC Commissioner Peter Kell stating publicly at the time that AAA Financial Intelligence Pty’s “appalling record” put the quality of advice provided to clients at risk.
AAA Financial Intelligence failed to manage its conflicts of interests, did not adequately train and monitor its advisers, nor did it have adequate human resources to properly identify its representatives.
Furthermore, the dealer group also failed on the compliance front, all of which eventually lead to its demise.
On this basis, ASIC considered PGW Financial Services’ utilization of a number of representatives that had formerly provided service to AAA Financial Intelligence Pty a reason to conduct real-time surveillance via ASIC’s advanced systems in order to ascertain appropriate conduct.
The result of the surveillance concluded that PGW Financial Services has been cited by the regulator for deficiencies in its advice to clients and arrangements for supervising its authorized representatives, for which an EU has been accepted by the regulatory authority.
A particularly poignant matter with regard to this case is that it is particularly important for firms operating in financial services which use introducing brokers or have representative offices to ensure that the conduct within those representative offices is in line with the regulatory rulings, hence, as per this case, the regulatory authority may seek to pursue the actual company itself which utilizes representatives as opposed to the representatives themselves.
Keeping good company is important, as PGW Financial Services was incorporated in Australia in 2007, and had not been the subject of any regulatory transgression, nor given ASIC any reason to dedicate specific surveillance resources to its activities prior to the firm engaging with representatives which had previously been associated with AAA Financial Intelligence.
It did not take long for ASIC to commence its surveillance, as AAA Financial Intelligence was wound up in February 2013, and the regulatory authority began surveillance into PGW Financial Services just two months later in April last year.
ASIC identified numerous instances where financial product advice provided by PGW to clients did not demonstrate a reasonable basis for the recommendations made, nor conduct correct compliance with disclosure obligations applying to advice on switching financial products.
ASIC also had concerns regarding the alleged failure of PGW to maintain adequate human and technological resources, and records of financial services provided to clients.
Regarding the supervision of its authorized representatives, ASIC was concerned that PGW failed to assess the competency of representatives before their appointment ensure the adequate training of representatives, and respond to failures identified during the licensee’s audit process.
Whilst ASIC acknowledges PGW’s cooperation and constructive engagement throughout the process, Deputy Chairman of ASIC Peter Kell stated today that “Licensees must ensure they have appropriate resources and procedures in place when providing financial services to retail clients. These arrangements should be reviewed when licensees rapidly increase their numbers of representatives, particularly where those representatives have come from other licensees.”
“Licensees need to assess the competency of representatives at the time of appointing them and put in place rigorous checks to ensure financial services provided by them are of the expected standard.”
“We would expect licensees who take on representatives previously authorized under licensees that have been the subject of ASIC action to be especially prudent, recognizing they may have been exposed to a less robust or non-compliant supervisory environment” concluded Mr Kell.
In response to ASIC’s concerns, PGW Financial Services has agreed to implement a regime of supervision, review and audit, by an ASIC-approved compliance expert for a period of at least 15 months. This will incorporate the implementation and review of any remedial action plans that are developed to resolve any deficiencies identified by the compliance expert.
It does appear indeed, that a gentleman is distinguishable by the company he keeps.