Case note: understanding financial services licence authorisations

If you look at your Australian Financial Services Licence authorisations to see whether you can provide a financial service or product you will see that the first two headings are usually “Provide Financial Product Advice” and “Deal in a Financial Product” and that “Deal in a Financial Product” is usually divided into “Deal in a financial product” and “Arrange for a person to deal in a financial product”. What does “Arrange for a person to deal in a financial product” mean?

In Australian Securities and Investments Commission v One Tech Media Ltd [2020] FCA 46 ASIC alleged, amongst other things, that One Tech, by operating websites offering trading in binary options, conducted a financial services business in Australia without holding an Australian financial services licence, contrary to section 911A of the Corporations Act.

ASIC also argued that paying agency services provided by Allianz Metro Pty Ltd were “clearly an essential part of the arrangements for the issue of the binary options in this case” and that without those arrangements, the binary options would not have been issued as there would have been no ability to pay for them, and alleged that Allianz Metro thereby conducted a financial services business without an Australian financial services licence in contravention of s 911A of the Corporations Act.

Australian financial services licence required to offer trading in binary options

Justice Davies of the Federal Court of Australia decided that One Tech was required to hold an Australian financial services licence to offer trading in binary options.

She summarised the relevant provisions as follows:

(a) a person provides a financial service by dealing in a financial product: s 766A(1)(b);

(b) a person deals in a financial product by issuing the financial product: s 766C(1)(b);

(c) derivatives are financial products: s 764A(1)(c);

(d) a person deals in derivatives by entering into the legal relationship that constitutes the derivative: s 761E(3);

(e) a person who carries on a financial services business in Australia must hold an Australian financial services licence covering the provision of the financial services: s 911A;

(f) a person carries on a financial services business in Australia if, in carrying on that business, the person engages in conduct that is intended to induce people in Australia to use the financial services the person provides; or is likely to have that effect: s 911D.

Arranging for a person to deal in a financial product

Section 766C(1) provides that the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:

(a) applying for or acquiring a financial product;

(b) issuing a financial product;

(c) in relation to securities and interests in managed investment schemes–underwriting the securities or interests;

(d) varying a financial product;

(e) disposing of a financial product.

Section 766C(2) of the Corporations Act also provides that “arranging for a person to engage in conduct referred to in subsection (1) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice”.

The Corporations Act does not define the expression “arranging for” as that expression is used in section 766C(2).

Justice Davies concluded:

“The question is whether the paying agency services constituted “arranging for” One Tech to deal in a financial product, namely the issue of binary options. The evidence plainly showed, in my view, that the paying agency services were an essential part of the trading in binary options through the website. The verb “to arrange” has a broad meaning which includes “to make preparations” (Macquarie Dictionary, 7th edition, p 76) and there is no warrant for giving the term “arranging for” in the context of s 766C(2) of the Corporations Act a narrow or restricted meaning. The services included the provision of the bank accounts to be used to receive deposit funds from One Tech’s website customers, the vetting of customer information to open an account for trading and the facilitation and dealing with the receipt and remittance of website customers’ funds. Those services were integral to the binary options trading by website customers using the bank transfer method through the websites and the issue of binary options by One Tech.

I therefore find that Allianz Australia contravened s 911A of the Corporations Act by arranging for One Tech to issue binary options without holding an Australian Financial Services Licence. “

Other issues

ASIC also alleged that One Tech’s conduct directed at its website customers consisted of false and misleading statements and was misleading or deceptive and dishonest conduct in relation to financial services, contrary to ss 1041E, 1041G and 1041H of the Corporations Act, and unconscionable conduct, contrary to s 12CB, or alternatively s 12CA, of the ASIC Act.

Justice Davies decided:

“I further find, that the false and misleading representations were likely to induce, and did induce, persons within Australia to apply for the trading in, or to acquire, binary options through the website and that, when making the representations, One Tech and the One Tech brokers/representatives knew them to be false in a material particular. I find therefore that One Tech committed multiple contraventions of s 1041E(1).

The evidence given by the investors also provides a sufficient basis for a finding of dishonest conduct against One Tech for the purposes of s 1041G(1), which I also make….

The evidence revealed a deliberate deception of vulnerable people to trap them into parting with their money in a way that deprived them of any opportunity to recover it. I find that One Tech engaged in unconscionable conduct in connection with the financial services contrary to s 12CB(1) of the ASIC Act…

Each of those investors was in a position of great vulnerability which was known by, or should have been sufficiently evident to, the Titantrade brokers who dealt with them and who took advantage of their vulnerabilities in a morally culpable way.”

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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