Former Aussie mortgage broker convicted of submitting false or misleading documents

ASIC says Mr Madhvan Nair, a former mortgage broker with AHL Investments Pty Ltd (trading as Aussie Home Loans), was convicted and sentenced in the Downing Centre Local Court last week on eighteen charges involving the submission of false or misleading information to banks.

RE-Jigsaw

Mr Nair was convicted after admitting to providing documents in support of eighteen loan applications to Westpac Banking Corporation (Westpac), Australia and New Zealand Banking Group (ANZ) and National Australia Bank (NAB) knowing that they contained false or misleading information.

The applications contained documents which purported to be from the applicant’s employer. These documents were false and in most instances, the loan applicant had never worked for the particular employer.

For each and all eighteen charges, Mr Nair was convicted and released upon entering into a recognizance in the amount of $1,000 on the condition that he be of good behaviour for three years.

In sentencing Mr Nair, Magistrate Atkinson noted that it was a serious matter and that there are tough laws for good reason.

Magistrate Atkinson described the nature of the offending in submitting 18 separate loan applications containing false information or documents as very troubling. Noting Mr Nair had no prior convictions, his ill health, the relatively small financial benefit he received, his plea of guilty and high level of cooperation with ASIC, Magistrate Atkinson stated that had any of the factors been different, the defendant may have faced full-time imprisonment.

ASIC Deputy Chair Peter Kell said, ‘ASIC wants to ensure that dishonest brokers are removed from the industry and we will take all necessary steps to achieve this.’

The Commonwealth Director of Public Prosecutions (CDPP) prosecuted the matter.

Background

ASIC’s investigation found that between September 2012 and June 2014, Mr Nair submitted eighteen loan applications containing false borrower employment documents. Of the eighteen loan applications, twelve were approved and disbursed, totaling $3,256,684.

Mr Nair received commission on those twelve loans of $7,583.49. In addition, Mr Nair received cash payments totalling $2,500 from two of the loan applicants upon approval of their loan applications. Mr Nair received a total financial benefit of $10,083.49 as a result of the approved loan applications.

The eighteen loan applications ranged in value from $10,000 to $490,875.

Mr Nair received his commission through Smee & Pree Nair Enterprises Pty Ltd (ACN 091 014 756), a company controlled and owned by Mr Nair.

On 5 July 2016, Mr Nair appeared at the Downing Centre Local Court and pleaded guilty to seventeen charges under sections 160D and one charge under the former section 33(2) of the National Consumer Credit Protection Act 2009.

Section 160D (formerly section 33(2)) makes it an offence for a person engaging in credit activities to give information or documents to another person which is false in a material particular or materially misleading.

Mr Nair was sentenced on 30 August 2016.

Since becoming the national regulator of consumer credit on 1 July 2010, ASIC has taken 80 actions involving loan fraud, including 61 actions to ban individuals and companies from providing or engaging in credit services or holding an Australian credit licence. ASIC has also commenced 14 criminal proceedings involving loan fraud.

ANZ to refund $28.8 million to more than 390,000 accounts as a result of unclear fee disclosures

ASIC says Australia and New Zealand Banking Group Limited (ANZ) is refunding $28.8 million to 376,570 retail accounts, and 17,230 business accounts, after it failed to clearly disclose when certain periodical payment fees would apply.

Complaint-TTy

Periodical payments are automatic ‘set and forget’ fixed-amount payments put in place by the customer. They are an alternative to direct debit arrangements, and allow customers to establish a regular payment to another account (for example, to make fortnightly rental payments). Banks may charge a fee for this service, depending on the terms and conditions for the account.

In ANZ’s case, the account terms and conditions stated that a periodical payment was a transaction to ‘another person or business.’ This meant that transactions made by the customer to another account in the customer’s own name, whether with ANZ or another financial institution, were not covered by ANZ’s own definition of a periodical payment and could not be charged the fees that could otherwise apply to periodical payments.

ANZ discovered that it was charging fees on payments made between accounts held in the customer’s own name, contrary to its definition of a ‘periodical payment’. ANZ subsequently reported the matter to ASIC as a significant breach of its financial services obligations. ASIC acknowledges the cooperative approach taken by ANZ in its handling of this matter, and its appropriate reporting of the matter to ASIC.

As a result, ANZ will refund fees that were charged to customers for payments into another account in the customer’s own name.  These fees include:

  • non-payment fees charged on personal and commercial accounts when the payment did not proceed because of insufficient funds held in the ANZ deposit account; and
  • payment fees charged on commercial accoumts when a payment is processed from the ANZ deposit account.

The total amount being refunded includes approximately $25.8 million of fees, with an additional $3 million in interest.

ANZ has subsequently changed its terms and conditions to clarify instances where fees for periodical payments apply to an ANZ deposit account.

ASIC Deputy Chairman Peter Kell said, ‘Good fee disclosure is integral to ensuring that consumers are in an informed position about how best to manage the cost of their banking.’

ANZ has commenced contacting affected customers to explain the impact and the reimbursement and expects to complete the remediation process by the end of September 2016.

In a separate release, ANZ confirmed it has begun refunding around 390,000 accounts in relation to unclear fee disclosures for certain periodical payments. For the majority of impacted accounts, the fee refunds are below $50.

The issue relates to fees being charged for periodical payments to a customer’s own accounts.

ANZ Group Executive Australia Fred Ohlsson said: “When we identify an issue where we haven’t got things right, we will make sure our customers are not left out of pocket.”

“We proactively reported this matter to ASIC and have been working hard to ensure customers are repaid as soon as possible. We’ve already begun making payments to our customers and expect all customers will be refunded by the end of September.

“I’d like to apologise to all our impacted customers for the concern that we know issues like this can cause,” Mr Ohlsson said.

A total of $28 million is being paid that includes fee refunds and around $3 million in additional compensation. ANZ has already refunded around $11 million to 192,000 accounts.

CommSec pays $700,000 in infringement notice penalties and refunds $1.1 million in brokerage

ASIC says Commonwealth Securities Limited (“CommSec”) has paid a total penalty of $700,000 to comply with two infringement notices given to it by the Markets Disciplinary Panel (“MDP”), and has voluntarily refunded $1.1 million in brokerage to more than 25,000 clients.

Complaint-TTy

Confirmations: disclosure of crossings and trading as principal

The MDP had reasonable grounds to believe that CommSec contravened subsection 798H(1) of the Corporations Act by reason of contravening:

  • rules 3.2.3 and 3.4.1(3)(f) of the ASIC Market Integrity Rules (ASX Market) 2010; and
  • rule 3.4.1(3)(f) of the ASIC Market Integrity Rules (Chi-X Australia Market) 2011.

These rules relate to confirmations of transactions which require disclosures in relation to crossings and trading as principal.  A crossing occurs where a market participant acts for both the buyer and the seller in a transaction.

Failure to disclose crossings

Between 1 August 2010 and 13 February 2014, CommSec issued 114,841 confirmations to retail clients whose orders were executed as crossings but which did not contain the required statement that the transactions had involved a crossing, namely:

  1. between 1 August 2010 and 13 February 2014, in relation to trading on the ASX market, CommSec issued 6,579 confirmations which failed to include the required disclosure of crossings. This failure was caused by different fields being used by the systems of CommSec and another NZ-based financial services company to identify crossings for the purposes of marking confirmations;
  2. between 1 August 2011 and 9 October 2012, in relation to trading on the ASX market, CommSec issued 56,522 confirmations which failed to include the required disclosure of crossings. This failure was caused by the CommSec’s systems not being able to interpret all of the different condition codes relating to crossings;
  3. between 15 August 2011 and 9 October 2012, in relation to trading on the ASX market, CommSec issued 46,231 confirmations which failed to include the required disclosure of crossings. This failure was caused by a configuration flag within CommSec’s settlement system not being turned on;
  4. between 17 October 2011 and 18 December 2013, in relation to trading on the ASX market, CommSec issued 1,768 confirmations which failed to include the required disclosure of crossings. This failure was caused by a system platform change for the settlement of options market contracts, which contained an incorrect data field, as a result of which it was unable to correctly identify that a crossing had taken place; and
  5. between 15 March 2012 and 26 April 2013, in relation to trading on the Chi-X market, CommSec issued 3,741 confirmations which failed to include the required disclosure of crossings. This failure was caused by CommSec’s retail and institutional participant identifier numbers being treated as two separate participants by Chi-X’s systems.

Failure to disclose trading as principal

Between 16 May 2011 to 13 February 2014, CommSec issued 50,484 confirmations to retail clients in relation to which CommSec had entered into transactions as principal but which did not contain the required statement that CommSec entered into the transactions as principal and not as agent, namely:

  1. between 16 May 2011 and 13 February 2014, in relation to trading on the ASX market, CommSec issued 3,949 confirmations which failed to state that CommSec entered into the transactions as principal. This failure was caused by different fields being used by the systems of CommSec and another NZ-based financial services company to identify principal trading for the purposes of marking confirmations;
  2. between 15 August 2011 and 9 October 2012, in relation to trading on the ASX market, CommSec issued 46,231 confirmations which failed to state that CommSec entered into the transactions as principal. This failure was caused by a configuration flag within CommSec’s settlement system not being turned on; and
  3. between 26 February 2013 and 6 March 2013, in relation to trading on the ASX market, CommSec issued 304 confirmations which failed to state that CommSec entered into the transactions as principal. This failure was caused by the introduction of new operator references in CommSec’s system which did not contain the phrase typically used by CommSec to indicate when a related entity was the originator of the orders.

The MDP specified a penalty of $400,000 for the alleged contraventions.

CommSec voluntarily refunded approximately $1.1 million in brokerage to more than 25,000 clients, and notified 48,205 clients of the lack of disclosure and to provide corrective disclosure.

CommSec also co-operated with ASIC throughout its investigation and did not dispute any material facts.

Download the infringement notice

The compliance with the infringement notice is not an admission of guilt or liability, and CommSec is not taken to have contravened subsection 798H(1) of the Corporations Act.

Verification of identity of selling shareholders

The MDP had reasonable grounds to believe that CommSec contravened subsection 798H(1) of the Corporations Act by reason of contravening rule 5.5.2 of the ASIC Market Integrity Rules (ASX Market) 2010. This rule requires a trading participant to maintain the necessary organisational and technical resources to ensure that, among other things, trading messages submitted by the participant do not interfere with the efficiency and integrity of the market.

The MDP has reasonable grounds to believe that, between 2 August 2010 to 14 April 2013, CommSec did not have in place adequate organisational and technical procedures or controls that verified the name and address on an issuer sponsored holding matched that of the client who provided the instructions prior to submitting the orders for the sale of the holdings.

The MDP specified a penalty of $300,000 for the alleged contravention.

Download the infringement notice

The compliance with the infringement notice is not an admission of guilt or liability, and CommSec is not taken to have contravened subsection 798H(1) of the Corporations Act.

Directors of Storm Financial found to have breached their director duties

ASIC says the Federal Court has found that the directors of Storm Financial, Emmanuel and Julie Cassimatis, breached their duties as directors.  The Court also found that Storm Financial provided inappropriate advice to certain investors.

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Since around 1994, Storm Financial operated a system created by the Cassimatises, in which what ASIC considered to be “one-size-fits-all” investment advice was recommended to clients.  The advice recommended that clients invest substantial amounts in index funds, using “double gearing” (Storm Model).  This approach involved taking out both a home loan as well as a margin loan in order to purchase units in index funds, create a “cash dam” and pay Storm’s fees.  Once initial investments took place, “Stormified” clients would be encouraged to take “step” investments over time.

By the time of Storm’s collapse in early 2009, approximately 3,000 of its 14,000 client based had been “Stormified”.  In late 2008 and early 2009, many of Storm’s clients were in negative equity positions, sustaining significant losses.

The case that ASIC advanced against the Cassimatises centered around a sample of investors who were advised to invest in accordance with the Storm Model.  ASIC alleged that the advice provided to those investors by Storm was inappropriate to their personal circumstances, considering that each of the investors were alleged to be over 50 years old, were retired or approaching and planning for retirement, had little or limited income, few assets and had little or no prospect of rebuilding their financial position in the event of suffering significant loss.

Among other things, it was also alleged that Storm failed to properly investigate the subject matter of the advice given to those investors.  As such, ASIC also alleged that Storm failed to do all things necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly.

ASIC further alleged that because the Cassimatises were responsible for the day-to-day significant decisions in relation to the provision of financial services to Storm’s clients and exercised a high degree of control over its systems and processes, they had caused Storm to contravene its obligations under the Corporations Act and did not exercise their powers as directors of Storm with the degree of care and diligence that a reasonable person would have exercised in that situation.

In a 217 page judgment, Justice Edelman found that:

  • Storm provided advice to certain investors, that was inappropriate to their personal circumstances and failed to give such consideration to the subject matter of the advice and did not properly investigate the subject matter of the advice given.
  • “A reasonable director with the responsibilities of Mr and Mrs Cassimatis would have known that the Storm model was being applied to clients such as those who fell within this class and that its application was likely to lead to inappropriate advice.  The consequences of that inappropriate advice would be catastrophic for Storm (the entity to whom the directors owed their duties).  It would have been simple to take precautionary measures to attempt to avoid the application of the Storm model to this class of persons.” (paragraph 833)

Commissioner Greg Tanzer said, “This is an important decision which emphasises the importance of directors’ duties to ensure that they do not cause the companies that they control, to breach the law.  The decision also highlights the significant obligation on financial services licensees to provide financial advice that is appropriate to the persons to whom it is given.”

The matter will be listed for a further hearing at a later date to determine what civil penalties and disqualification orders should be imposed on the Cassimatises as a result of the breach of their director duties.

ASIC Cancels the Registration of 133 SMSF Auditors

ASIC has cancelled the registration of 133 approved self-managed superannuation fund (SMSF) auditors who did not lodge their annual statements.

Audit-Pic

On 28 July 2016, ASIC sent a final warning to 185 approved SMSF auditors with outstanding annual statements. ASIC had alerted these auditors on a number of occasions that their registration would be cancelled if their outstanding statements were not lodged with fees paid.

SMSF auditors have had ample time to come to grips with their responsibilities. Auditors who do not ensure that they are aware of and meet their obligations face the risk of losing their registration. An unregistered auditor is not permitted to audit an SMSF. Conducting an audit of an SMSF when not permitted to do so may have further serious consequences for the fund and the auditor.

Approved SMSF auditors can confirm if they have lodged annual statements or update their contact details by accessing their ASIC Connect account.

SMSF trustees and members can check whether their auditor is registered, or whether a person has been disqualified, by searching ASIC’s SMSF Auditor register.

Background

From 1 July 2013, the Superannuation Industry (Supervision) Act 1993 required all auditors of SMSFs to be registered with ASIC. This was to ensure that all SMSF auditors at least meet the base standards of competency and expertise.

ASIC and the ATO work closely together as co-regulators of SMSF auditors. The ATO monitors SMSF auditor conduct and may refer matters to ASIC for possible action such as disqualification or suspension of their registration.

Approved SMSF auditors need to lodge an annual statement with ASIC within 30 days of the annual anniversary of their registration. ASIC sends email notifications on anniversary dates advising that annual statements are ready for completion. If an extension of time to lodge the annual statement is required, a written request to ASIC must be made before the due date. An annual statement is not considered to be lodged until the required lodgement fee has been paid.

ASIC notified 811 approved SMSF auditors that they had not met their annual statement requirement and that ASIC may cancel their registration. This included 95 auditors that had lodged annual statements but had not paid their lodgement fee. 626 auditors subsequently lodged their annual statement or paid outstanding fees.

Changes to approved SMSF auditor contact details, including email and mailing addresses, must be provided to ASIC within 21 days of the change occurring. There is no fee to update these details.

Approved SMSF auditors seeking to cancel their registration voluntarily can do so by completing a cancellation request form, available on ASIC’s website.

ASIC review highlights inconsistent practice by firms handling confidential information and conflicts

An ASIC review of risks related to the handling of confidential information and conflicts of interests, particularly in the provision of sell-side research and corporate advisory services, has found that most firms have policies and procedures in place to deal with these risks. However, there remain instances of poor and inconsistent practice in their application.

Investment-PigReport 486 Sell-side research and corporate advisory: Confidential information and conflicts of interest details the review’s findings and highlights areas of concern requiring a greater focus and care.

Between September 2014 and June 2016, ASIC conducted reviews of the policies, procedures and practices of a range of investment banks and brokers active in the Australian market and reviewed a sample of transactions, including initial public offerings (IPOs) and secondary offerings. This review followed on from previous monitoring and surveillance work undertaken by ASIC that had indicated some poor practices in these areas.

While most firms have specific policies and procedures in place, the review found considerable variation in the following market practices:

  • Identification and handling of confidential information: Some organisations do not have appropriate arrangements to handle situations where staff members come into possession of confidential information. This includes the inadequate use or supervision of information barriers and restricted trading lists.
  • Management of conflicts of interest: There is an inconsistency in how conflicts of interest are managed. This includes the structure and funding of research, insufficient separation of research and corporate advisory activities (particularly the involvement of research in soliciting business during the IPO process), decisions about share allocations in capital raisings, and mixed practices in relation to the disclosure of conflicts of interest.
  • Staff and principal trading:
    • There is also considerable variation in the strength of controls to manage staff trading, including trading by corporate advisory and research staff. In particular, some questions remained as to whether the approval process adequately addressed the conflicts of interest, and whether a staff member might be in possession of confidential information.
    • In mid-sized firms, it is more common for staff to participate in capital raising transactions that the firm is managing. This presents an increased risk of unacceptable or questionable activity that firms need to be aware of and manage.

ASIC Commissioner Cathie Armour said the purpose of the review was to understand current market practices and identify areas of particular concern.

‘The proper handling of confidential information and the management of conflicts is a key element in preserving and promoting market integrity, improving market efficiency and increasing investor confidence,’ she said.

‘Where confidential information is mishandled or conflicts are not managed appropriately there is a risk that a breach of financial services laws may occur. This may include insider trading, market manipulation, misleading and deceptive conduct, and breaches by Australian financial services licensees of their general obligations.

‘All firms should review this report and consider whether their controls – including policies, procedures, training and monitoring – are appropriate and sufficiently robust to meet legal and regulatory requirements’, Ms Armour said.

The Implications of Brexit for Australia

The Council of Financial Regulators (CFR) has issued a report to Government on the potential impact of Brexit on the Australian economy. It takes into account developments up to and including Tuesday 5 July. They conclude that the outcome of the vote on 23 June represented an appreciable negative shock, but the impact on domestic and international financial systems and markets was well-contained and orderly. On the evidence to date, they say it suggests that the domestic and international financial reform agenda adopted following the financial crisis is on the right track.

The CFR is comprised of the Reserve Bank of Australia (RBA); the Australian Prudential Regulation Authority (APRA); the Australian Securities and Investments Commission (ASIC); and the Treasury. The report is informed by CFR agencies’ close consultation with their respective counterparts in the UK, Europe and other jurisdictions.

It is uncertain how the UK’s exit will proceed and what the associated impacts on the stability of the rest of the EU will be. This will be a source of continuing uncertainty and market volatility for some time, against the backdrop of an already fragile global economy. Significant shocks could also come from other sources. While the Australian financial system has weathered the immediate reaction to the vote well, the event underscores the importance of pressing ahead with further reforms to enhance our system’s resilience.

The short-run negative effect on economic activity in Australia, through channels such as reduced trade, lower commodity prices and financial linkages, is expected to be very limited for several reasons. The effect on global activity is expected to be small, Australian trade is oriented more towards Asia than Europe, and Australian banks have limited direct exposure to the UK and Europe and are well-placed to handle disruptions to funding markets.

The medium- to longer-term implications for the UK and Europe, and the global economy more broadly, will depend on the degree and persistence of uncertainty, and the length and outcome of negotiations on exit. In the UK, business investment growth was already weak prior to Brexit and is likely to weaken further, at least until the nature of any future trade agreement with the EU, by far the UK’s largest export market, is known. Some firms may also choose to relocate from the UK to EU countries if their businesses depend on access to the single market. Concerns over job security and negative wealth effects will be a drag on household spending. Prior to Brexit, the IMF indicated that should Britain vote to leave the EU, GDP in the EU could be lower by up to 0.5 percentage points and GDP in the rest of the world could be up to 0.2 percentage points lower by 2018.2 There is a significant degree of uncertainty around the estimated economic impact of Brexit. The IMF forecast a wide variation in output losses across individual economies, reflecting differing trade and financial exposures to the UK, as well as the policy space to respond to negative spill-overs.

Beyond the central forecasts, the Brexit result has arguably added to global tail risks, particularly through heightened risk in Europe. The result could potentially strengthen exit momentum within euro area countries, which if successful would be considerably more disruptive given the common currency. Ongoing banking sector fragility also remains a potential trigger for political discord and financial instability. European banks have been grappling with weak profitability and a high stock of non-performing loans for many years, which has been reflected in low share price valuations. Market movements reflect increased apprehension about banks in a number of European countries post Brexit, most notably Italy, where the Italian Government has been denied permission by the EU to inject capital into its banking system. The newly established European bank resolution framework, which favours bail-in of private creditors and substantially precludes government support, is largely untested.

Brexit-LoansOverall, tail risk considerations aside, the implications of Brexit for the Australian economy are not likely to be significant, but will depend upon the nature and length of the transition to new arrangements. Australia has proved resilient during past periods of financial market volatility and remains well placed to manage the economic and financial market response from the UK referendum outcome. Additionally, Australia has a relatively small direct trade exposure to both the UK (2.8 per cent of goods and services exports) and the rest of the EU (4.6 per cent of goods and services exports). However, Australia’s major trading partners have larger exposures to these markets. For example, the EU (including the UK) accounts for 15.6 per cent of China’s goods  exports and 18.2 per cent of the US’s goods exports. A sharp slowdown in the EU economies with spill-overs into other major economies would place downward pressure on the demand for Australia’s exports.

The Australian economy may also be affected if the UK transition out of the EU is not orderly and uncertainty remains heightened for a significant period. This poses some downside risk to the domestic outlook, with negative wealth and confidence effects having the potential to affect household consumption and business investment.

The strengthening of the banking system’s capital position over recent years to meet the new ‘Basel III’ requirements represents a material increase in the banking sector’s ability to withstand a significant deterioration in asset quality. The Financial System Inquiry highlighted the importance of ensuring the soundness of the financial system. The Government endorsed its recommendation that capital standards be set such that bank capital ratios are ‘unquestionably strong’. While Australian banks are well-capitalised, a further increase in capital ratios is likely to be required over the coming years to satisfy the ‘unquestionably strong’ benchmark. The Government has also endorsed the implementation by APRA, over
time and in line with emerging international practice, a framework for loss absorbing and recapitalisation capacity.

APRA is also introducing further reforms to strengthen the resilience of the banking system. Of particular note, on 1 January 2018, APRA will implement the Basel III Net Stable Funding Ratio (NSFR) to discourage banks from being overly reliant on less stable sources of funding. The NSFR will be part of APRA’s prudential liquidity rules and will complement the Liquidity Coverage Ratio – introduced on 1 January 2015 – that requires banks to hold sufficient ‘high quality liquid assets’ to withstand a 30-day period of stress. APRA is currently consulting with the industry on the design of the NSFR and intends to finalise proposals by the end of 2016.

Consistent with the Government’s response to the FSI, further work is needed to clarify and strengthen regulators’ powers in the event a prudentially regulated financial entity or financial market infrastructure faces distress. A recent peer review by the Financial Stability Board identified some gaps and deficiencies in the Australian resolution framework and work is progressing on this as a matter of priority.

More broadly, such episodes of significant shocks and market volatility reinforce the value of Australia’s financial (and economic) policy frameworks. The separation of responsibility for prudential regulation and market conduct regulation (between APRA and ASIC), the operation of independent monetary policy and a floating exchange rate continue to serve us well.

Former AUSSIE mortgage broker false loan applications

ASIC says a former mortgage broker with AHL Investments Pty Ltd (trading as Aussie), has admitted through his solicitor to eighteen charges brought by ASIC. The charges related to the submission, by Mr Nair, of loan applications and supporting documents which he knew contained false information, to secure approvals for home loans from Westpac, National Australia Bank, and ANZ.

ASIC’s investigation found that between September 2012 and June 2014, Mr Nair submitted eighteen loan applications totalling $5,594,559 containing false borrower employment documents. Of the eighteen loan applications, twelve were approved and disbursed, totaling $3,721,684.

Mr Nair received commission on those twelve loans of $7,583.49. In addition Mr Nair received cash payments totalling $2,500 from two of the loan applicants upon approval of their loan applications. Mr Nair therefore received a financial benefit of $10,083.49 as a result of the approved loan applications.

The eighteen loan applications ranged in value from $10,000 to $490,875.

Mr Nair appeared before the Downing Centre Local Court and through his solicitor admitted to providing documents in support of loan applications that were false or misleading.

Mr Nair next appears  in court on 30 August 2016 for sentencing

The Commonwealth Director of Public Prosecutions (CDPP) is prosecuting the matter.

Background

Mr Nair was authorised to provide credit services as a credit representative to consumers from 1 July 2010 to 7 July 2014, when Aussie terminated his authorisation.

Mr Nair received his commission through Smee & Pree Nair Enterprises Pty Ltd (ACN 091 014 756) a company controlled and owned by Mr Nair.

Mr Nair was charged by ASIC under section 160D (and the former section 33(2)) of the National Consumer Credit Protection Act 2009 in relation to his conduct whilst he was engaging in credit activity on behalf of Aussie. Section 160D (formerly section 33(2)) makes it an offence for a person engaging in credit activities to give false or misleading information or documents to another person. He appeared in Court and pleaded guilty to the charges on 5 July 2016.

Mr Nair faces a maximum penalty of one year imprisonment or a fine of up to 60 penalty units (which in the case of sequence 1 equates to $6,600 and in the case of sequences 2 to 18 equates to $10,200), or both, for each charge.

ASIC crackdown on unlicensed retail OTC derivative providers

ASIC has warned of a dramatic increase in the extent of unlicensed conduct by retail OTC derivative providers seeking to expand their market with new customers for their complex and risky products such as binary options.

The recent Report 482 Compliance review of the retail OTC derivatives sector (REP 482) highlighted an increase in activity among licensed and other participants,  especially binary option providers, operating through online platforms or websites that are offering financial services to retail investors in Australia without an appropriate licence or authorisation.

ASIC has raised its concerns with more than 40 unlicensed providers. The majority are binary option issuers but also contacted were some binary option review websites, binary option trading signal providers, binary option broker affiliate websites, margin FX providers and managed FX service providers.

Of those providers contacted, 21 have agreed to co-operate with ASIC and take remedial steps to ensure they are no longer providing financial services in Australia until they are appropriately licensed or authorised.  Remedial actions that have been implemented include:

  • removing references to Australia on their website;
  • ceasing marketing campaigns directed at Australian investors;
  • adding appropriate disclaimers to websites and mobile apps;
  • blocking sign-up access to Australian investors;
  • educating introducing brokers and affiliates to cease targeting Australian investors;
  • closing down existing Australian accounts; and
  • informing Australian investors that the entity is not appropriately licensed in Australia.

Some of these entities have indicated an interest in obtaining the appropriate licence to operate in Australia and have been provided with information to assist them with that process.

A further nine entities have not directly responded to ASIC regarding our concerns but appear to have made some changes to their websites, including removing references to Australia.

Entities that agreed to implement remedial actions appropriate to their circumstances include:

  • IQ Option Limited and IQ Option Europe Limited trading as IQ Option
  • Rodeler Limited trading as 24Option, Quick Option, 24FX and Grand Option
  • BDB Services (Belize) Ltd trading as Banc de Binary
  • Ouroboros Derivatives Trading Ltd trading as AnyOption
  • NXB Financial Services Ltd trading as Stockpair.com
  • Up & Down Marketing Limited trading as OneTwoTrade
  • AM Capital Ltd trading as Tradorax
  • Centralspot Trading (Cyprus) Ltd and CST Financial Services Ltd trading as Opteck
  • Nuntius Brokerage & Investment Services S.A. trading as Topoption.com
  • OptionRally Limited trading as OptionRally
  • Market Punter Limited trading as Market Punter
  • Terapad services LTD trading as FMTrader
  • Growell Capital Ltd trading as GrowBinary
  • CherryTrade at www.cherrytrade.com
  • Tradersasset.com
  • Binary Options Pty Ltd via www.binaryoptions.net.au, www.binaryoptionsptyltd.com.au, www.privatesignalsgroup.com and www.freesignal.com
  • Best10binarybrokers.com.au
  • 10bestbinarybrokers.com.au
  • Binaryoptionrobot.org
  • Diamond Managed FX
  • Blackwell Global Investments (Cyprus) Limited trading as Blackwell Trader

Entities that have not directly responded to our concerns but appear to have made some rectification actions include:

  • OTP Solutions LTD operating as No1Options
  • Brevspandnz Limited trading as AutoTradingBinary.com
  • Pacificsunrise UK Ltd trading as AAOption.com
  • TTN Marketing LTD trading as Trades Capital
  • Lerona Impex SA and Norske Inter LP trading as Finpari
  • Chemmi Holdings Limited  trading as Binary Tilt
  • Peter Knight Advisors
  • Banc de Options at www.bancdeoptions.com
  • Advanced Binary Technologies Ltd trading as Ayrex

ASIC has also released a number of recent public warnings in relation to the entities that have not responded to our concerns in any way.

ASIC Commissioner Cathie Armour said, ‘The dramatic increase in unlicensed conduct – particularly in entities offering binary options – is of real concern to ASIC.

‘We remind investors to be wary of advertising on websites or unsolicited calls or emails by people offering these types of products, and to verify that product providers are appropriately licensed or authorised before dealing with them’, she said.

Products such as binary options and margin FX are very complex and risky. Australian investors may be exposing themselves to increased risk when they deal with an entity that is not appropriately licensed or authorised in Australia because they will not be able to rely on many of the protections available under Australian regulation.

Australian investors should check ASIC’s professional registers to determine if an entity is licensed to provide financial services in this jurisdiction and should not deal with an entity that does not hold the appropriate authorisation.

Background

A binary option is a financial product, in particular a derivative, under the Corporations Act.   Any entity that deals in, or provides advice about, binary options in Australia must hold an Australian financial services (AFS) licence, or be authorised by an AFS licensee.

Australian clients who receive financial services from an entity that is not appropriately licensed may have the right to rescind their agreement with the entity and may be entitled to recover brokerage, commissions and other fees paid to that entity.

Recent advances in technology have made it more possible for providers of retail OTC derivative products to quickly set up low cost website businesses often from overseas locations which may be largely outside our jurisdictional remit. ASIC has responded to this emerging risk by seeking timely public outcomes to;

  • better inform investors of the risks and give them the tools (e.g. ASIC Professional Register and the Moneysmart website) and information to make  informed investment decisions and promote consumer trust and confidence;
  • encourage industry standards; and
  • improve industry compliance with regulatory obligations.

Where ASIC has identified concerns it has adopted a more facilitative approach to encourage appropriate and timely remediation of unlicensed conduct. Where entities have not cooperated with ASIC, it has issued public warnings. Where the conduct identified is more serious ASIC may take further regulatory action as it considers appropriate.

ASIC targets misleading Chinese language home loan advertising

An ASIC review of advertising targeting Chinese speaking home buyers has prompted four mortgage broking firms to change their home loan advertising.

The mortgage broking firms which published the advertising are:

  • Ace Mortgage Market Pty Ltd (also known as 袁翹新會計師),located in Parramatta, NSW;
  • Aus Realty Group Pty Ltd (also known as 澳人信貸),located in Hurstville, NSW;
  • Apex Finance & Mortgage and its business owner (also known as 聯通信貸), located in Burwood, NSW; and
  • Trans Australia Mortgage Finance Pty Ltd (trading as Apple Home Loans, 全盛信), located in Burwood and Chatswood, NSW.

The range of concerns contained in the advertisements targeting Chinese speaking home buyers included:

  • representations in Chinese such as ‘lowest fixed rate’ and ‘no proof of income’ – which may be false and misleading statements, or indicate a breach of the responsible lending obligations,
  • heavy reliance  on disclaimers (such as ‘terms and conditions apply’) that did not explain qualifying terms and conditions in the same advertising. Also, promoters tended to advertise benefits in Chinese language, but stated the disclaimers and qualifications in English, when the advertising was aimed at non-English speaking consumers,
  • failure to disclose the required comparison rate when quoting an annual percentage interest rate,
  • failure to  disclose the required warning about the accuracy of the comparison rates, and
  • failure by their promoters to regularly review the advertisements  to ensure accuracy and compliance with the law.

The specific concerns identified in relation to each company are outlined further below.

ASIC Deputy Chair Peter Kell said, ‘The Australian Consumer Law applies to all advertising, including advertising in foreign languages. Consumers who are unable to understand written English are likely to be more reliant on advertising in their native language when in need of a financial product. Promoters should ensure that their advertising is up to date and complies with the law. If the majority of the advertising is in a foreign language, the warnings, disclaimers or qualifications should be prominently disclosed in the same advertising and explained in that same language.

‘ASIC will continue to monitor all forms of advertising, including advertising targeted at non-English speaking consumers’, Mr Kell said.