ASIC has announced that it has commenced proceedings against NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) for breaches of the ‘best interests duty’ introduced under the ‘Future of Financial Advice’ (FOFA) reforms in Part 7.7A of the Corporations Act 2001 (Cth). This is the first civil penalty action ASIC has taken against a licensee alleging breaches of the best interests duty and it is seeking declarations of breaches and financial penalties.
Earlier this year ASIC announced that it had accepted an enforceable undertaking (EU) from ACE Insurance Limited (ACE Insurance) following an investigation into Combined Insurance, a division of ACE Insurance.
ACE Insurance EU
Under the EU, ACE Insurance admitted that there had been contraventions of section 961L of the Corporations Act which required ACE Insurance to take reasonable steps to ensure its representatives complied with the best interests duty.
ACE Insurance contracted salespeople who travelled door-to-door selling and renewing Combined Insurance products. The majority of policies were sold in regional communities Australia wide.
As a part of the EU, ACE Insurance admitted that in the period from 1 January 2012 to 30 June 2014 a limited number of Authorised Representatives (ARs) in the Combined Insurance division engaged in some of the following conduct:
1. Overselling of Policies – ARs sold policies to consumers which duplicated coverage already held by the consumer and exceeded the underwriting limits imposed by Combined;
2. Twisting/Churning of Policies – ARs encouraged consumers to cancel their existing policies and take up new policies which resulted in a change of coverage for no benefit, and on some occasions a detriment;
3. Selling of Unsuitable Policies –ARs advised consumers to take up policies under which they would not be eligible for coverage, as they:
a. were ineligible to hold a Combined policy (such as disability pensioners), or
b. sought coverage for potential injury caused as a result of activities that were specifically excluded under the Policy (such as professional sports and off-road dirt-bike riding).
Under the EU, ACE Insurance is required to appoint an independent expert to review Combined’s compliance systems, implement a remediation plan to compensate affected consumers and make a donation of $1 million to financial counselling and financial literacy initiatives.
NSG is licensed to provide personal advice on risk insurance and superannuation products to retail clients. NSG employs advisers to provide financial services advice on its behalf as its representatives and authorised representatives (NSG advisers).
ASIC alleges that:
- NSG failed to take reasonable steps to ensure that its advisers complied with the best interests obligation when providing advice to clients; and
- as a result, on numerous occasions, NSG advisers did not act in the best interests of their clients.
In addition, ASIC alleges that:
- NSG has not provided appropriate training to its advisers to ensure clients receive advice in their best interests. Instead, ASIC contends that NSG has trained its advisers that it is almost always in a client’s best interest to take out some form of life risk insurance, regardless of a client’s financial situation;
- NSG’s written policies relating to legal and regulatory compliance and risk management have been inadequate, and in any event, not followed or enforced;
- since 1 July 2013, on eight specific occasions, and because of advice provided by NSG advisers, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements; and
- regular and or substantive performance reviews of advisers have not been conducted, and disciplinary action against advisers who do not act in compliance with their obligations under the Corporations Act has not been taken.