On the 21st March 2022, National Advice Solutions Pty Ltd appeared at the Southport Magistrates Court in Queensland, charged with 11 anti-hawking offences of offering to issue or sell a financial product via unsolicited phone calls.
Background – National Advice Solutions anti-hawking
An ASIC investigation alleged that National Advice Solutions made unsolicited calls to 11 consumers encouraging them to roll over their superannuation (super) into different super products.
National Advice Solutions is a privately owned company and characterises itself as a “dealer group offering end to end financial planning solutions”. The company is lead by managing director and responsible manager Gail Glasby and Paul Carcallas.
The anti-hawing matter has been listed for a mention hearing on 16 May 2022.
The Commonwealth Director of Public Prosecutions will be prosecuting, following the referral of a brief of evidence from ASIC.
At the time of the purported offending, the maximum penalty per breach of s992A(3) of the Corporations Act was $133,200 for a corporation.
Reforms to the anti-hawking regime were enacted under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, that commenced on the 5th October 2021. These reforms were designed to tackle consumer harm arising from consumers being approached with unwanted products through cold calls or other unsolicited contacts.
The charges against National Advice Solutions are brought under the previous anti-hawking provisions because they relate to conducting that allegedly occurred before 5 October 2021.
Anti-Hawing prohibition reforms
In the last of a raft of compliance changes commencing in October 2021 to be finalised, ASIC has now released its guidance concerning the adapted anti-hawking regime. The anti-hawking reforms strive to provide retail clients with greater control over their decisions to purchase financial products. The reforms include allowing retail clients to dictate how they can be contacted by a financial services provider and the types of financial products offered.
What are the requirements?
Since the 5th October 2021, AFS licensees are prohibited to offer, issue or sell a financial product to a retail client if the offer, issuance or sale is made during the course of, or due to, unsolicited contact with the retail client. This deportment is prohibited under the Corporations Act. It is known as the general prohibition concerning the hawking of financial products.
Unsolicited contact comprises any contact with a retail client concerning a financial product that is conducted via telephone, face-to-face meeting or any other real-time interaction, where:
- the retail client did not consent to the contact; or
- the retail client consented to the contact, but the unyielding requirements imposed by the general prohibition concerning consent were not fulfilled.
Who does the regime Apply to?
The general prohibition applies only to retail clients. Particularly, it does not apply when an offer, request or invitation is made to a retail client to provide them with personal financial product advice.
The Corporations Regulations also embargo some financial products and situations from the general prohibition, such as:
- an offer for the sale or issue of listed securities or an interest in a listed managed investment scheme made via telephone by an AFS licensee;
- an offer for the sale or issue of securities or an interest in a managed investment scheme that an AFS licensee makes through whom the retail client has obtained or disposed of a securities product or interest in a managed investment scheme in the preceding twelve months;
- a crowd-sourced funding offer;
- low-value non-cash payment facilities;
- property rental schemes;
- managed discretionary account (MDA) providers; and
- mortgage investment schemes with twenty investors or less.
The general prohibition is not restricted to the provider of the financial product but applies to the actions of all employees, agents and representatives of an AFS licensee.
Anti-hawking Remedies
A breach of the general prohibition is a severe liability criminal offence, and offenders can be subject to fiscal penalties (for corporations) and imprisonment (for individuals).
Additionally, where a retail client is sold or issued a financial product in breach of the general prohibition, the client has a right of return and refund. The timeframes and amount to refund to a retail client exercising their right of return and refund depend on the financial product acquired.
Breach reporting
One of the most notable legislative reforms concerns breach reporting. In December 2020, the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (the Act) received Royal Assent and came into effect on the 1st October 2021. The Act introduced new, demanding and wide-ranging obligations on Australian financial services and credit licensees concerning breach reporting to ASIC.
There are three fundamental changes:
- Significantly widening the scope of what is reportable: formerly, the reporting procedure required that a licensee take part in a significance assessment prior to reporting a breach or probable breach. Under the new regime, the significance assessment is only required in some cases. Three categories are automatically reportable:
- infringements of civil penalty provisions, deceptive and misleading conduct provisions in the Corporations Act and ASIC Act, contraventions that will result, or probably result, in material loss or damage to clients, or an offence punishable by a penalty longer than three months (relating to dishonesty) or 12 months in all other cases;
- where an investigation into whether a serious breach (or likely serious breach) continues for longer than 30 days, a licensee must report that investigation and the result; and
- additional reportable situations, which include gross negligence and severe fraud;
- Adjusting the time to report breaches: reports to ASIC must be provided within 30 days of the licensee first realising that there are reasonable grounds to believe the reportable situation has occured. Time will begin when a person with actual or apparent authority to determine if there is a reportable situation knows that reasonable grounds exist; and
- Including credit licensees: formerly, credit licensees were excluded from the reporting regime but are now included.
Failure to report to ASIC under the new regime may result in civil and criminal penalties.
Outlook and conclusions – anti-hawking
In previous years, the Australian financial services industry has been the subject of unprecedented enforcement activity, litigation (including criminal prosecutions and class actions), public inquiries, legislative reforms, and general public scrutiny. We forecast that ASIC’s new leadership team and corporate plan – both of which only recently commenced – will additionally impact the Australian banking litigation landscape, although precisely how remains to be seen.
Despite this intense period of change, we continue to witness new civil and class action proceedings and enforcement actions, along with regulatory investigations, being commenced against numerous financial services entities in high numbers. In addition, two criminal prosecutions were also recently commenced against financial services institutions concerning a previously untested area of law.
The changes, together with the ongoing impacts of the Royal Commission and associated legislative reforms, suggest that the Australian banking litigation landscape will continue to remain robust over the coming years. Australian banking case law is likely to evolve as other untested areas significantly and recently introduced legislation come before the courts.
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