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18-005MR ASIC acts against Melbourne-based financial services and credit business
The Federal Court of Australia has made interim orders restraining Financial Circle Pty Ltd (Financial Circle) from engaging in a number of activities including carrying on a financial services business, providing financial advice or entering into credit contracts.
ASIC commenced proceedings in the Federal Court against Financial Circle on 15 December 2017 alleging breaches of the Corporations Act 2001, the National Consumer Credit Protection Act 2009 and the Australian Securities and Investments Commission Act 2001, including breaches of the best interests duty and unlicensed conduct. ASIC has sought injunctive relief as well as declarations of contraventions and financial penalties.
Financial Circle offers loans to consumers which ASIC alleges can only be obtained if the consumer agrees to obtain and implement financial advice. The advice recommends purchasing personal insurance products and switching superannuation providers. When consumers implement the advice, significant advice fees are paid to Financial Circle from the consumer’s superannuation and in commissions from the insurers. ASIC alleges that Financial Circle’s conduct is misleading, deceptive and unconscionable.
Following a contested hearing on 22 December 2017, Financial Circle gave an undertaking that until 4pm on 10 January 2018, it would not:
- carry on a financial services business;
- provide financial product advice or deal in financial products;
- Enter into credit contracts as a credit provider;
- Promote, advertise or offer loans or cash payments to prospective retail clients.
The orders made by the Court on 10 January 2018 prohibit Financial Circle, until the final hearing of the matter, from engaging in activities including:
- carrying on a financial services business;
- providing financial product advice or dealing in financial products;
- Entering into credit contracts as a credit provider;
- Promoting, advertising or offering loans or cash payments to prospective retail clients.
The Court made interim injunctive orders on the basis that there was an "appreciable risk" of future contraventions by Financial Circle of each of the provisions relied upon by ASIC.
Financial Circle holds an Australian financial services licence which authorises it to advise clients about life risk insurance and superannuation products, and deal in those products. Financial Circle also holds an Australian credit licence which authorises it to engage in credit activities other than as a credit provider. Financial Circle authorises representatives to provide personal financial advice to retail clients who access their services via their website.
The order is in place until the hearing and determination of the matter.
Part 7.7A of the Corporations Act 2001 (Cth) which include the best interests obligations was enacted as part of the “Future of Financial Advice” (FoFA) reforms which are aimed at ensuring that financial advice companies and their advisers act in the best interests of the client.
Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure provides guidance to help licensees understand ASIC's expectations for meeting the best interests duty, and to ensure that it is consistent with ASIC's guidance in Regulatory Guide 244 Giving information, general advice and scaled advice.
Section 912A of the Corporations Act 2001 sets out the general obligations of Australian Financial Services Licensees.
Section 29 of the National Consumer Credit Protection Act 2009 prohibits a person from engaging in a credit activity if the person does not hold a licence authorising the person to engage in that activity.
On 16 February 2018 the Federal Court made a number of timetabling orders, including listing the matter for trial, commencing 29 October 2018.