ASIC actions against Diversa

Earlier this month, ASIC commenced civil penalty proceedings in the Federal Court against Diversa Trustees Limited (Diversa) in relation its alleged involvement with promoter Mr Nizi Bhandari, whose company was under investigation by ASIC.

The action is the latest in a series taken against professional superannuation fund trustees operating a third party “promoter” business model.

ASIC’s allegations against Diversa

Diversa’s business model relies on many day-to-day operations to be undertaken by outsourced service providers, including promoters who bring new customers into the super funds.  The OneVue company group, on Diversa’s behalf, facilitated Mr Bhandari’s company, The Australian Dealer Group Pty Ltd (ADG), promoting and bringing new customers into the super funds.

ASIC alleges that Diversa, between March 2019 and December 2020, failed to act efficiently, honestly or fairly when it failed to properly oversee OneVue’s activities, or take appropriate action regarding the activities of ADG and Mr Bhandari.  ASIC alleges Diversa:

• knew or ought to have known that ADG and Mr Bhandari may have been breaching the law, such as engaging in misleading, deceptive or unconscionable conduct, including because it knew ADG and Mr Bhandari were being investigated by ASIC for those suspected breaches;
• despite this, continued to allow ADG and Mr Bhandari to bring clients into Diversa’s super fund, and receive fees for doing so.

In March 2021, three months after the period of the alleged breaches by Diversa, , ASIC permanently banned Mr Bhandari from performing any function in relation to carrying on a financial services or credit business for acting dishonestly in encouraging consumers to make false statements to obtain early access to their super balances.  ADG’s licence was also cancelled.

In announcing the action, ASIC stated that:

Poor trustee oversight practices could enable inappropriate behaviour by service providers. Trustees need to implement appropriate risk management practices to ensure members are not adversely impacted. In making payments out of a superannuation fund, trustees are expected to have processes in place to ensure the expenditure is appropriate.

Parallels with ASIC action against Tidswell and MobiSuper

ASIC’s action against Diversa is the second such action against members of the Certane Group.  Another member of the group is fellow professional superannuation trustee, Tidswell Financial Services Ltd (Tidswell). In July 2021, ASIC obtained Federal Court declarations against Tidswell for breaches of the ‘efficiently, honestly and fairly’ obligation in relation to its outsourced service provider business model.  

In approving a settlement reached between Tidswell and ASIC, Court found that Tidswell failed to act efficiently, honestly and fairly (which was admitted by Tidswell) by failing to adequately monitor MobiSuper Pty Ltd (MobiSuper) in its promotion of a super fund which involved false and misleading representations and unauthorised personal advice.

In his judgment, Justice Jackson criticised Tidswell’s operation of its outsourced service provider model, stating that “…a superannuation trustee cannot outsource its responsibilities to the present and potential members of its superannuation funds. Depending on the circumstances, it will often be necessary for the trustee to take active steps to make sure that the functions performed on its behalf by others are performed in the best interests of members”.

In welcoming the Tidswell judgment, ASIC Deputy Chair Sarah Court forecasted further action in this space, stating that “Superannuation represents the future financial security of Australians and as the conduct regulator for superannuation, ASIC is dedicated to promoting trust and confidence in the superannuation system.  ASIC will continue to work to ensure trustees comply with their obligations to properly monitor the promotion of their products by outsourced service providers.”

As a result of the ASIC action, Tidswell requested that APRA cancel its Registrable Superannuation Entity (RSE) licence.  

However, the ‘efficiently, honestly and fairly’ obligation was not a pecuniary penalty provision at the time of the admitted breach by Tidswell, and Tidswell was not required to pay any such penalty.  Instead, Tidswell was ordered to pay to ASIC $50,000, being part of ASIC’s investigation expenses, and avoided a lengthy, costly and risky challenge to ASIC’s case by reaching the compromise.  Mobi continues to defend the action, with a trial set for December 2021.

Actions demonstrate ASIC’s increased collaboration with APRA on super

In recent years ASIC’s role in regulating superannuation trustees and promoters has significantly expanded.  Further, ASIC and the prudential regulator of super, APRA, have committed to liaising more closely in these areas.  The Diversa and Tidswell proceedings are just two examples.  In our view, this increased focus and closer relationship means the chances of ASIC taking enforcement action in this space, on a case-by-case basis, have increased significantly.

In November 2019, a few weeks after the Tidswell proceedings were commenced, APRA and ASIC updated their memorandum of understanding (MOU).  As a response to the Hayne Royal Commission, in the MOU the regulators committed to stronger engagement, cooperation and information sharing, with a view to quicker and more efficient investigations and enforcement action.  

In February 2020, ASIC and APRA jointly welcomed the introduction of law reforms to support their roles as co-regulators of superannuation, and in fact expand ASIC’s role as conduct regulator.  ASIC and APRA sent a joint letter to superannuation trustees explaining the impact of the proposed reforms.

In January 2021, as ASIC explains on its webpage outlining its increased role in superannuation, these reforms came into effect, aiming to strengthen regulation by:

• increasing ASIC’s responsibilities for consumer protection, market integrity, disclosure and record keeping under the SIS Act;
• increasing ASIC’s enforcement powers for a broader range of trustee conduct under the Corporations Act and ASIC Act;
• closing any ‘gaps’ regulatory oversight, empowering ASIC to more effectively regulate the conduct of superannuation trustees, while avoiding duplication of APRA’s role as prudential regulator; and
• ensuring trustees are treated equally and held to the same standards.

ASIC said at the time it “…remains focused on protecting consumers’ interests – we want to see superannuation funds operate in a way that is fair to members and promotes confidence in the superannuation system. ASIC will continue to work alongside APRA to improve trustee conduct and drive better outcomes for consumers”.

In June 2021, ASIC and APRA published guidance for trustees on appropriate oversight of advice fee payments for superannuation fund accounts.

ASIC’s Enforcement Update for January to June 2021, published in September 2021, highlighted ASIC’s enforcement action against superannuation trustees, including commencing civil penalty proceedings against:

• Retail Employees Superannuation Pty Ltd (REST) for false and misleading representations made about the ability of members to transfer their super; and
• Statewide Superannuation Pty Ltd (Statewide) for false and misleading representations about the insurance cover held by members.

Conclusion

ASIC’s action against Diversa, Tidswell and other RSEs demonstrates the increased focus on professional superannuation trustees and their promoter business models is continuing.

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