Libertas Financial Planning is the first Australian Financial Services Licensee to be cancelled by the corporate regulator for failing to pay an outstanding AFCA determination that has gone to the Compensation Scheme of Last Resort had to step in.
The cancellation of its AFSL sees Libertas making history as the first former financial advisory business to lose its licence following a compensation payment by the CSLR, which commenced operations in April 2024.
AFCA made a determination against Libertas on 24 July 2023, which Libertas failed to pay. On 24 July 2024, the CSLR paid an amount of compensation to a person for the AFCA determination, notifying ASIC which led to the AFSL cancellation on 14 August.
The move by a parent company to put a subsidiary into voluntary administration to avoid financial liabilities will draw comparisons to Dixon Advisory which has similarly left the advice sector footing the bill to compensate financial misconduct and potentially creating a loophole in the regulation.
Sequoia’s liquidation of Libertas prior to the CSLR payment absolves the company of any fiscal responsibility. If Libertas was not in administration, Sequoia would be obligated to make the payment.
Sequoia acquired Libertas in 2019, when the business had approximately 70 authorised representatives. At the time, it was agreed that Libertas would continue to operate under its own AFSL brand and identity.
However, in September 2023 Sequoia announced it had decided to close Libertas with advisers given the option to join InterPrac or Sequoia Wealth Management, find another licensee or go self-licensed.
The reason for this was attributed to potential liabilities and “to achieve operational and cost synergies”.
At the time, Sequoia chief executive officer Garry Crole told Professional Planner that Sequoia informed Libertas advisers that it was no longer going to provide services and they had the choice whether to stay in the Sequoia network or leave.
Crole estimated that 85 per cent chose to stay with a different Sequoia licensee and the other advisers left the parent company.
When there were no advisers left at Libertas, Sequoia began the process of liquidating the business.
The CSLR is the ‘last resort’ for victims of financial misconduct to receive compensation. During a webinar earlier in August, CSLR chief executive officer David Berry explained the difficulty of recovering funds from a liquidated business.
Before a claim can be lodged with the CSLR, the AFCA complaint process must be completed. All reasonable steps must be taken to obtain payment from the firm in question before the CSLR can be invoked.
If the business is in administration, then whether the determination by AFCA is recognised as a debt or not is at the discretion of the liquidator or administrator. If they accept the claim as a debt, the next step is to recover funds from the liquidated business. The CSLR pays the compensation if the business fails to do so.
When the CSLR makes a payment to a claimant in relation to an AFCA determination where the business refused to pay, ASIC must cancel the business’ AFSL.
