Fraudsters and the unlicensed pad out cost of regulating advisers

It costs the Australian Securities and Investments Commission (ASIC) twice as much to undertake enforcement activities against financial advisers as it does with respect to managed investment schemes (MIS) but its major enforcement actions in 2020/21 were against a bank, a licensee an unlicensed fraudster.

What is more, ASIC has acknowledged that it includes pursuit of unlicensed activity in the amount is apportions to financial advice.

As the Senate Economics Legislation Committee considers the funding of the Compensation Scheme of Last Resort (CSLR), ASIC has revealed that while it spent only $5.880 million on enforcement action against MISs while spending $10.448 million with respect to financial advisers, the raw numbers do not tell the whole story.

The monies expended in pursuing financial advisers involved 140 matters some of which the regulator admitted concerned other industry sectors such as responsible entities and superannuation, while that expended on MISs involved 40 matters but excluded wholesale MISs and “MISs which are investor-directed portfolio services or managed discretionary accounts”.

It said that in FY20/21, ASIC’s major enforcement actions concerning financial advisers included:

• civil penalty court action against National Australia Bank for financial advice fee disclosure statement failures and other breaches;
• civil penalty court action against Dixon Advisory concerning alleged failures to act in clients’ best interests and the provision of inappropriate advice; and
• court action against Maliver Pty Ltd and its director, Melissa Caddick, concerning the provision of financial advice and other financial services without holding an Australian financial services (AFS) licence.

“ASIC’s enforcement activities in this area also included a number of matters that specifically targeted financial advice in relation to MISs, for example:

• court action against Monica Kaur and associated persons and entities concerning the alleged operation of an unregistered MIS and the alleged provision of unlicensed financial advice, including to invest funds in the unregistered MIS;
• investigation and subsequent court action against Ultiqa Lifestyle Promotions Ltd for alleged failures to act in clients’ best interests and the alleged provision of inappropriate advice in relation to interests in the Ultiqa Lifestyle timesharing scheme, a registered MIS; and
• the criminal prosecution of John Bigatton, who faces charges including operating an unregistered MIS and providing unlicensed financial advice in relation to interests in online cryptocurrency platform BitConnect prior to its collapse.