ASIC Enforcement Wrap: July 2023 | Continued push against Greenwashing with ASIC commencing Civil Case against Vanguard

ASIC has kicked off FY2024 with a number of significant actions and penalties.

Key Takeaways

• ‍ASIC commenced civil penalty action against Vanguard as part of its continued focus on ESG and alleged greenwashing.  It is the second ASIC greenwashing civil penalty action this calendar year. ASIC alleges that Vanguard’s funds included a number of bond issuers which violated the applicable ESG criteria, and that Vanguard misled investors when it represented that the investments the fund would make were screened against certain ESG criteria, but they were not, the research undertaken being much more limited. This second civil penalty action for alleged greenwashing follows a number of infringement notices against other industry participants and Vanguard, and demonstrates an escalation of ASIC’s enforcement in relation to alleged greenwashing and the potential for similar actions in respect of other funds constructed in a similar manner.‍
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• The Markets Disciplinary Panel imposed a record penalty of $4.5 million on Openmarkets Australia. This involved a client placing Same Price Orders on over 2000 occasions. Openmarkets had a history of compliance failure, including another MDP infringement notice in the year 2017 relating to the very same client.
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• ‍In another first, an interim stop order was issued for enforcement of the design and distribution obligations (DDO) for a life insurance product. Clearview Life Assurance Limit’s product TMD failed to consider key eligibility criteria of its consumers, and the distribution conditions were deficient.

July in summary – enforcement actions and outcomes

Civil Action:

Civil Penalties:

• The Federal Court ordered a combined penalty of $13.6 million against Select AFSL Pty Ltd and related companies for unconscionable conduct and other contraventions of financial services laws when selling life, funeral and accidental injury insurance. Select mis-sold insurance to consumers, many of whom did not have English as their first language. Select also paid conflicted remuneration to sales agents, including cruises to Gold Coast and trips to Las Vegas. Russell Howden, the former managing director of Select, was also penalised $100,000 and disqualified from managing corporations for 5 years.‍

Civil Judgments Obtained:

• The Federal Court closed an ‘epic’ case against BHF and Cigno by declaring that they engaged in credit activity without holding a license between October 2019 and 14 April 2020 by operating the Business Model (see below), and ordered that Cigno be restrained from collecting any repayments from consumers, and from providing any new loans, pursuant to the Business Model.  BHF and Cigno operated a business model designed to circumvent credit licensing requirements, while charging substantial fees. For more information, please read our article here.

Civil Proceedings Commenced:

• ASIC has commenced greenwashing civil penalty proceedings in the Federal Court against Vanguard Investment Australia in relation to a Vanguard fund. The Fund was based on an Index which Vanguard claimed would exclude issuers in a range of industries, including fossil fuels. ASIC alleges that ESG research was not conducted over a significant proportion of issuers of bonds in the Index, and that there were at least 14 issuers in the Fund which violated the applicable ESG criteria.
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• ASIC took civil action in the Federal Court against Sasha Hopkins and The A Team Property Group (his company) for alleged unlicensed conduct and operating unregistered managed investment schemes. ASIC has also applied to wind up A Team, 5 investment schemes and associated companies and trusts. It was alleged that Mr Hopkins offered client property investment opportunities either personally or through their SMSF, but Mr Hopkins never held an AFSL that permitted this conduct.

Criminal:‍

• ‍Charges Laid – One individual had charges laid against him for four counts of making a false document to obtain a financial advantage.

Administrative Action:

• ‍Interim Stop Orders – ASIC issued an interim stop order on Clearview Life Assurance Limited’s income protection cover – the first ISO relating to DDO for a life insurance product –based on concerns that the TMD was deficient because:

1. It failed to consider the impact of key eligibility criteria (i.e., age and minimum employment criteria) on suitability of the product for certain classes of consumers for whom the project was not likely to be appropriate; and
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2. There were no meaningful distribution conditions to ensure that the income protection cover will be distributed to consumers in the target market.

• ‍Financial Services Bannings – One individual was permanently banned from financial services for not being a fit and proper person to provide financial services because of, inter alia, inducing another people to deal in financial products by making a statement that is misleading, false or deceptive or by a dishonest concealment of material facts.
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• ‍License Cancellation/Suspension– Two companies had their AFS license cancelled, including FTX Australia, which had its license suspended since it went into administration in November 2022.
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• Director Disqualification – Six individuals were disqualified from managing corporations. Of those, two were involved in misconduct or contraventions of financial services laws. The remaining four individuals were disqualified for their involvement in the failure of 14 companies, which owed unsecured creditors a total of over $25 million, over $3 million of which was owed to the ATO.
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• ‍Infringement Notices – The Markets Disciplinary Panel issued one infringement notice with a penalty of $4.5million against Openmarkets Australia Limited. Penalty could have been higher if it wasn’t for the fact Openmarkets entered an enforceable undertaking and not contesting the alleged contraventions. A client of Openmarkets placed Same Price Orders on 2,011 occasions. It was also found that Openmarkets contravened numerous market integrity rules over a period of several years. Crucially, the client involved in the present breach was the same client involved in a previous infringement notice issued against Openmarkets in the year 2017.
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• Court Enforceable Undertaking – One enforcement undertaking was accepted by Markets Disciplinary Panel in relation to the Openmarkets penalty.
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• SMSF Auditors – ASIC acted against 8 SMSF auditors for breaches of their obligations, including breaches of auditing and assurance standards, independence requirements, registration conditions, or because ASIC was satisfied the individual was not a fit and proper person to remain registered. Five auditors were disqualified, and additional conditions were imposed on three auditors.
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• Liquidator Registration Cancellation – One liquidator’s registration was cancelled because he drew remuneration without creditor or court approval, was not lodging documents with ASIC, and no longer had the required qualifications, experience, knowledge and abilities.

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If any of the above is relevant to you or you want to know more, please feel free to get in touch.

The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.