The public may never find out that some financial advisers have been slapped with a ban by the industry watchdog due to a legal loophole.
Financial advisers banned by ASIC can avoid the public shaming if an appeal to the Administrative Appeals Tribunal is successful. The request for a stay order suspends the operation of implementation of a decision until a review is finalised.
Most applications are also accompanied by a non-publication order, which may prevent ASIC from issuing a media release about a ban.
A Brisbane financial adviser is furious that the loophole exists. “Given the high number of adviser businesses changing hands, this means that advisers can actually hide their ban while selling their business, which is a risk buyers take,” the adviser, who wished to remain anonymous, says.
Hamilton Locke partner Simon Carrodus explains that ASIC determines whether, when and how to issue a media release about a banned financial adviser on a case-by-case basis.
“Previously, ASIC would publish its media release shortly after the banning was handed down, regardless of whether the adviser had applied to the AAT for a stay,” he tells Professional Planner.
“More recently, however, ASIC has shown a propensity to hold back its media release until the issue of stay has been heard and decided by the AAT. There may have been a formal change to ASIC’s internal processes regarding media releases, but they haven’t released any public statement to this effect.”
Cowell Clarke Commercial Lawyers senior associate Richard Hopkin says stay orders and non-publication orders are more common when the adviser thinks there’s a prospect of appealing the ASIC decision or in a small number of cases, the ban being overturned.
A banned adviser won’t want their case publicised to avoid reputational damage if the ban is later overturned, Hopkin explains.
“ASIC has a statutory right to publish its decisions, on top of that, you’ve have a pretty good argument that publishing these decisions is in the public interest,” Hopkin says.
“The stated purpose of banning orders is that it’s about consumer protection, and part of that is consumers being able to search online to find out whether an adviser has previously been banned. I would argue that there’s a real public interest in ASIC being able to publish this, because it’s literally the point of the law.”
Despite the attitude among some in the industry that ASIC is trigger happy when it comes to bans, that has not been his experience. “ASIC is very thorough when it comes to running an investigation,” Hopkin says.
He adds the AAT may modify or shorten the ban, but will rarely overturn an ASIC decision.
“That being said, the whole point of a stay order is that no one knows about it, so there’s potentially more out there that we don’t know about,” Hopkin says.
If the banned financial adviser makes an AAT stay application before ASIC manages to get its media release published, then depending on the terms of the stay application, ASIC may be precluded from issuing the media release until the AAT rules on the stay application, a spokesperson from ASIC confirmed.
The spokesperson added that the stay application doesn’t mean that ASIC’s banning order is suspended.
“The banned individual is still banned from doing whatever the banning order prohibits until the AAT rules on their stay application,” the spokesperson says.
The AAT would not confirm how many stay orders it had granted to financial advisers in the past two years.
The spokesperson explained that a stay order can be sought by an applicant subject to conditions, which vary depending on the circumstances of the decision under review.
Meanwhile, the AAT is in the process of being abolished and replaced with a new federal administrative body. Applications for a review of a decision will not need to be submitted for review.
