Unregistered Block Earner crypto product needs license – February 9, 2024
Fintech company Block Earner (trading under the name of Web3 Ventures Pty Ltd) has been found to have engaged in unlicensed financial services conduct during its crypto-backed Earner offering with fixed yield returns between March – November 2022.
According to the court, the Earner product met the definition of a managed investment scheme, and the company was therefore found to be providing unlicenced financial services and to be operating as an unregistered managed investment scheme during its crypto offering.
The Commission will now seek orders from the Court imposing pecuniary penalties.
“This important decision provides some clarity as to when crypto-backed products should be considered financial products which require licensing under the law.”
Sarah Court, Deputy Chair, ASIC
Cancelled license for Brava Capital – February 9, 2024
The Australian financial services licence has been cancelled for Brava Capital Pty Ltd, (previously known as Dayton Way Securities Pty Ltd), after findings that the company no longer provides financial services.
Brava Capital was also charged with criminal offences for failing to lodge financial accounts in October 2023.
Stop orders on Shield Master Fund – February 7, 2024
Interim stop orders have been made on four product disclosure statements for classes of units of the Shield Master Fund – a registered managed fund promoted by Keystone Asset Management Ltd.
ASIC has set out nine points of concern, including misleading statements regarding Keystone’s legal role in the unregistered schemes, failing to classify assets correctly, and not properly disclosing possible performance fees and conflicts of interest.
If the concerns are not addressed in a timely manner, ASIC will consider making final orders.
Action against nine SMSF auditors – February 7, 2024
In Q4 2023, ASIC took action against nine self-managed superannuation fund (SMSF) auditors whose conduct did not meet the required standards. That included concerns about compliance with auditing and assurance standards, independence requirements, registration conditions, or for not being a fit and proper person to work as an SMSF auditor.
Between October 1, and December 31:
- five SMSF auditors were disqualified – Stephen Bray, Kerpal Harnam, Terence Murphy, Johann Preller and David Sidhu;
- two faced additional conditions – Timothy Davidson and Kylie Wilson; and
- two got their registration cancelled – Vincenzo Dissidomino and Vincent Crowe.
Of the nine SMSF auditors, five were referred to ASIC by the Australian Taxation Office.
“SMSF auditors are responsible for auditing over 611,000 SMSFs with total estimated assets of almost A$900 billion. In this privileged position, they play a key role in upholding the integrity and confidence of the SMSF sector.”
ASIC Deputy Chair Sarah Court
Brite Advisors ordered to wound up – February 7, 2024
Following an investigation by ASIC, Brite Advisors Pty Ltd has now been ordered by the court to be wound up on just and equitable grounds.
In the key findings, Brite was found ‘likely insolvent” from at least October 27, 2023, and a $69.1m difference was found between the amount Brite told clients and beneficiaries to hold on their behalf ($682m), and the identified amount in its financial institutions’ accounts ($612.9m).
Charges update on Joseph Cullia and Zoran Markovic – February 6, 2024
Following an investigation into a suspected self-managed super investment scam, charges have now been laid on Joseph Cullia and Zoran Markovic – which allegedly scammed Australian investors via a sophisticated self-managed super fund.
Cullia was charged with:
- two charges of conspiracy to defraud; and
- two charges of dealing with proceeds of indictable crime to the value of A$1m ($649,370) or more.
Markovic was charged with:
- 13 charges of aiding or abetting the commission of an offence by Cullia, moslty dealing with proceeds of indictable crime to the value of A$1m or more;
- one charge of dealing with proceeds of indictable crime to the value of A$10,000 ($6,494) or more; and
- one charge of holding of equipment to make, use, or supply identification documentation to commit fraud.
Both were charged with:
- one charge of possession of a false document; and
- one charge of possession of identification information intended to be used to commit fraud.
For conspiracy to defraud, the maximum penalty is 15 years imprisonment.
Dealing with proceeds of indictable crime to the value of A$1m and more can bring maximum penalties between 12 months to 25 years imprisonment.
For possession of a false document, the maximum is 10 years imprisonment, with three years for possession of identification information intended to be used to commit an indictable offence, or to possess of equipment to make, use, or supply identification documentation to commit an indictable offence.
Aryn Hala charged with providing unlicensed financial services – February 6, 2024
Aryn Hala been charged with nine offences for carrying on a financial services business without a licence – contravening section 911A (1) of the Corporations Act 2001 (Cth).
Following an investigation into Hala’s conduct, ASIC found that he was promising consumers yearly returns of at least 10-20% in investments that included crypto-assets from the company A One Multi Services Pty Ltd, where he was a director. He also encouraged consumers to create a self-managed superannuation fund, and to transfer existing funds into the new one, and in then invest in his company.
On February 5, 2024, Hala was released on bail, and the maximum penalty for each offence is five years imprisonment.
ASIC accepts court enforceable undertaking from Elepay – February 2, 2024
The court’s enforceable undertaking from buy now, pay later provider Elevare Pay Easy Pty Ltd has been accepted by ASIC.
The company has admitted to not making Target Market Determination (TMD) requirements for seven credit products it distributed to consumers between October 5, 2021 and March 15, 2023. During this time, A$13.748m ($9m) was lent to 1,658 retail clients.
To address ASIC’s concerns of the failure to make TMDs, and for not having adequate compliance systems within the Design and Distribution Obligations (DDO), Elepay will engage an independent expert to overlook certain issues.
If the expert finds that some clients fell outside of the TMD, Elepay must then notify set clients and immediately cease charging any fees and other charges, and refund what has already been paid.
Former Ralan Group managing director sentenced to imprisonment – February 2, 2024
William O’Dwyer, former Ralan Group managing director, has been sentenced to four years imprisonment after pleading guilty to six offences of obtaining a financial advantage by deception – breaching section 192E of the Crimes Act 1900 (NSW).
O’Dwyer pleaded guilty to:
- by deception, between April 17, 2015 and June 6, 2018, dishonestly letting companies in the Ralan Group draw down on finance facilities totalling A$251m ($163.8m);
- having the Ralan Group obtain loans regarding development of residential projects in Sydney, Arncliffe, Turramurra and Gordon;
- in the loan agreements, requiring companies to satisfy lenders that pre-sale deposits were held in trust before draw down on the loans could occur;
- deceiving lenders into believing that the pre-sale deposits were held in a trust account when they in fact were loaned back to the development companies as working capital;
- having about A$132m ($85.6m) drawn down upon the facilities, with about A$47m ($30.5m) repaid by the time the companies in the Ralan Group went into administration in 2019. A further amount is expected to be recouped by the lenders regarding their purchase and development of the Arncliffe property.
The companies in the Ralan Group entered voluntary administration in July 2019, and were placed in liquidation in March 2020.
“Today’s penalty is significant and emphasises the seriousness of fraudulent activities, together with ASIC’s commitment to investigate and prosecute such cases, and the importance of holding those responsible accountable for their actions.”
Sarah Court, Deputy Chair, ASIC
ASIC news weeks 5-6
A final reminder has been sent out to all unregistered financial advisers that have not yet registered with ASIC.
The Commission warns that all advisers that aren’t registered with ASIC before February 16, 2024 must cease providing personal advice to retail clients.
A summary document for the Indigenous Financial Services Framework Workshop from November 2023 has been released, which highlights identification challenges, but also projects and initiatives that can improve financial outcomes for First Nations peoples.
Two more workshops will be held before June 2024, which will centre on the credit, banking, general and life insurance sector, and the superannuation sector. Each workshop will focus on themes that have been prevalent challenges experienced by First Nations consumers, and where some progress and innovative solutions are emerging.
In an article, ASIC said this year – in particular – there would be a crack down on predatory lending and increased focus on high-cost credit and predatory lending to consumers and small business. “In today’s uncertain economic environment, with increased cost of living pressures and financial hardship, more people are likely to become the target of predatory lending practices, especially those on lower incomes,” ASIC Deputy Chair Sarah Court said.
Following the commencement of the Unfair Contract Terms reforms in November 2023, and the urgent application for no-action relief in advance of the changes regime, ASIC has now granted a limited class no-action position for institutional markets.
Speeches
At the Connexus Super Chair Forum, February 1, 2024, ASIC Deputy Chair Sarah Court spoke about the Commission’s three main enforcement priorities in the superannuation sector for 2024: member services failures, misleading conduct – including greenwashing, and failures to protect superannuation balances.
“These themes could be regarded as a call to action – they reflect areas of genuine harm we are still seeing through intelligence and surveillance and should serve as fair warning to the sector as to where it needs to lift performance,” Court said.
During 2023, ASIC:
- undertook 219 surveillances of superannuation entities (2023 CY);
- took legal action against four superannuation trustees: Mercer, Active Super, TelstraSuper, and AustralianSuper (2023 CY); and
- with the courts, imposed A$29m ($18.8m) in penalties over misconduct in the superannuation sector (2023 CY).
In a keynote at the at UTS Human Technology Institute Shaping Our Future Symposium on January 31, 2024, ASIC Chair Joe Longo spoke about the current and future state of AI regulation and governance – and the importance of identifying the gaps. “The responsibility towards good governance is not changed just because the technology is new. Whatever may come, there’s plenty of scope right now for making the best use of our existing regulatory toolkit.”
Longo also said that the Commission is preforming some tests now, but is willing to test out additional unclear regulatory parameters, or areas where corporations seek to exploit perceived gaps. “We’re already conducting a review into the use of AI in the banking, credit, insurance, and advice sectors. This will give us a better understanding of the actual AI use cases being deployed and developed in the Australian market – and how they impact consumers.”
In an opening statement on February 2, 2024, Commissioner Alan Kirkland responded to the inquiry of the 2022 major floods claims relating to the south-east Queensland and northern New South Wales flood events in February and March 2022.
Connected to data from that time period, ASIC’s Report 768 Navigating the storm: ASIC’s review of home insurance claims, found weaknesses across five main areas:
- communication with consumers about decisions, delays and complications;
- project management and oversight of third parties;
- recognition and management of complaints;
- identifying vulnerable consumers and responding to their particular needs; and
- resourcing of claims handling and dispute resolution functions.
“We will be monitoring the industry’s response through our regular contact with consumer organisations assisting people with claims, reports we receive directly from the public and issues reported to us by the Australian Financial Complaints Authority. And if we see serious failures by insurers to comply with their legislative requirements, we will consider enforcement action,” Kirkland said.
Guidance on pre-hedging
Due to concerns with how differences in market intermediaries’ approach to pre-hedging, ASIC published a letter to CEOs with guidance on pre-hedging practices in Australia. “If pre-hedging is not carried out in an appropriate manner it can be unfair, unconscionable and result in poor client outcomes. This may adversely impact investor confidence and undermine market integrity,” the letter stated.
Joint letter
A joint letter has been issued by ASIC and the Australian Prudential Regulation Authority (APRA) to all authorised deposit-taking institutions and their authorised non-operating holding companies – regarding their Financial Accountability Regime (FAR) obligations.
All entities are expected to have submitted their registration applications, including relevant notifications, no later than June 30, 2024.