Focus: ASIC crackdown on use of the terms 'independent', 'impartial' and 'unbiased'
7 May 2012
In brief: The Australian Securities and Investments Commission has issued a warning to all financial services licensees, after a surveillance operation identified a number of insurance brokers and financial planners who were unlawfully using certain terms. Partner Dean Carrigan , Senior Associate Rhiannon Eagles and Lawyers Tanvir Ahmed and Stephen Lloyd report.
How does it affect you?
- Companies and individuals holding an Australian financial services licence are prohibited from using certain restricted words or expressions in relation to their business or services if they receive specified payments, such as commissions or volume payments, from the issuers of financial products.
- The Australian Securities and Investments Commission (ASIC) has recently turned its attention to this issue, and has ordered 17 general insurance brokers, one life insurance broker and three financial planners to remove or amend the offending statement from their published materials.
- ASIC has indicated that, in future, it will 'name and shame' financial services licensees who unlawfully use the words 'independent', 'unbiased' or 'impartial' in their published materials.
- Licensees need to ensure that any material published by authorised representatives is also compliant.
The Corporations Act 2001 (Cth) prohibits financial services licensees from using the words 'independent', 'impartial' and 'unbiased' in relation to the business or the service that the person provides, unless:
- the licensee does not receive any:
- payments calculated on the basis of the volume of business the licensee places with an issuer; or
- other gifts that could be reasonably expected to influence the licensee,
- the licensee's employer, or a person providing financial services on behalf of another person, or a person identified in any regulations does not receive any of the benefits listed above;
- a licensee receiving 'volume payments' does not receive any such payments in relation to the provision of the particular service to which the restricted words used relate;
- the licensee is free of direct or indirect restrictions relating to the financial products for which they provide services; and
- the licensee operates without any conflicts of interest arising out of their relationship with issuers of financial products that might reasonably be expected to influence the licensee in how they provide their services or carry out their business.1
Each of the above is a separate requirement failing to meet any one of those exceptions will disentitle a licensee from using the terms 'independent', 'impartial' or 'unbiased' in their published materials. In any proceedings brought by ASIC, the licensee has the burden of establishing that each requirement was met.
Unlawfully using a restricted word is an offence under the Corporations Act. On application by ASIC, a court may make any order against a licensee it thinks fit, including restraining the licensee from carrying on its business or providing financial services or products, or requiring the licensee to disclose the breach to its customers or to publish advertisements relating to the contravention.
The recent surveillance operation by ASIC was triggered by a single complaint and the operation demonstrates that this issue is now squarely on ASIC's radar. Insurance brokers and financial planners must be especially careful to ensure that they meet the requirements set out in the Corporations Act before they use any of the restricted terms 'independent', 'impartial' or 'unbiased' in any published materials.
One of the licensees identified in the surveillance operation was found to have breached the Corporations Act because its authorised representative had used one of the restricted words in its published materials. This demonstrates the need for brokers and financial planners to also be aware of the content of any materials that their authorised representatives are publishing, and to require representatives to comply with the relevant content requirements and restrictions set out in the legislation.
- Section 923A of the Corporations Act.
- Louise JenkinsPartner,
Ph: +61 3 9613 8785
- Jamie WellsPartner,
Ph: +61 7 3334 3268