Managing director of Spring Financial Group, Keith Cullen, has urged the regulator to work with, not against, licensees to weed out bad apples. This comes as the self-licensed firm pursues damages through legal action against former corporate authorised representative Royale Capital and its principals Justin Gibson and Jason Burrows.
The Australian Securities and Investments Commission slapped Spring Financial Group with an enforceable undertaking for lax compliance on Tuesday after an investigation it carried out between October 2011 and June 2012 found Royale Capital and related business ActiveSuper had deceived approximately 200 investors, accounting for $4.75 million, about their investments.
The regulator acknowledged Spring Financial Group’s cooperation in the matter, but expressed concern about the licensee’s level of monitoring and supervision of authorised representatives.
Under the enforceable undertaking, Spring Financial must appoint an independent consultant to review the business and develop a plan to rectify any shortcomings.
Cullen said he was confident that a review would reveal a robust compliance framework.
“We are bitterly disappointed that ASIC did not bring its concerns to us earlier, because we would’ve immediately terminated Royale Capital as a corporate authorised representative,” he said.
“ASIC should raise any concerns with licensees sooner rather than later and have a mechanism in place to bring licensees into the camp when they suspect bad behaviour.”
Royale Capital was Spring Financial’s first and only corporate authorised representative and, according to Cullen, was only authorised to provide general advice – not personal advice.
The practice joined Spring Financial in October 2011, after ASIC cancelled the Australian Financial Services License of its previous dealer group, Romad Financial Services, due to concerns that it had not fulfilled its obligations, nor would do so in the future.
Spring Financial, which employs 12 salaried advisers in three locations, estimates the cost of the enforceable undertaking and its legal action against Royale Capital and ActiveSuper will “run into tens, if not hundreds, of thousands of dollars”.
“Enforceable undertakings are an important part of the regulatory framework and we are not the first, nor will we be the last, to enter an EU, but this case is not indicative of systemic failures in our business,” Cullen said. “There is nothing for us to be ashamed of. We have never been in trouble with the regulator before or even had a Financial Ombudsman Service claim. We will be pursuing Royale Capital for breach of contract and seeking damages.”
ASIC alleges Royale Capital and ActiveSuper operated an unlicensed financial services business and failed to meet disclosure requirements when they offered self-managed superannuation fund clients shares in property companies based in the United States and British Virgin Islands.
In further news, ASIC also accepted an enforceable undertaking from Victorian financial adviser, James Thomas Banfield, which prevents him from providing financial services for four years.
Banfield, who was previously an authorised representative of Lotus Securities, did not act honestly and in the best interests of clients when he submitted approximately 10 to 15 change-of-adviser forms without client consent.
