An Australian financial services licensee (Kalkine) must appoint an independent compliance consultant to address ASIC concerns that the Kalkine’s customer service representatives were giving unlicensed advice. (refer ASIC Media Release 25-085MR)
New licence conditions have been imposed on the Kalkine’s licence to ensure compliance with its obligations as an AFS licensee. These conditions require Kalkine to engage a consultant to review, assess and report to ASIC whether Kalkine’s interactions with its customers are compliant and its supervision mechanisms are adequate.
ASIC had concerns that:
- Kalkine’s representatives, who are based in India, may have provided personal advice as part of the sale of subscription services when Kalkine’s AFS licence only authorised it to provide general financial product advice,
- Kalkine’s representatives may have misrepresented to customers the kind of advice being given, by qualifying this as general advice but leaving customers with the impression that the advice was directed to their own personal circumstances,
- Kalkine failed to do all things necessary to ensure that the financial services covered by its AFS licence were provided efficiently, honestly and fairly including but not limited to ensuring the advice being given by its representatives was appropriate and within the scope of its licence, and
- Kalkine’s processes to ensure that its representatives were complying with the law when interacting with consumers were inadequate.
Westpac case and personal advice
The High Court in Westpac Securities Administration Ltd v Australian Securities and Investments Commission [2021] HCA 3 held that WSAL and BTFM breached the Corporations Act by providing personal financial product advice in calls made to 14 customers. Neither company was licensed to provide personal financial advice.
The decision of the High Court clarified the difference between general and personal advice for consumers and financial services providers.
ASIC Commissioner Danielle Press said (ASIC Media Release 3 February 2021), ‘The High Court has provided clarity concerning the differences between personal advice and general advice. Westpac were actively conducting a sales campaign aimed at rolling customers into Westpac products under the banner of general advice.’
In the judgment, Justice Gordon reinforced that s766B(3) of the Corporations Act, which outlines the meaning of general and personal advice, ‘is directed to the protection of the retail client’ and clarified that ‘[…] the general advice warning must be assessed in light of all the circumstances. The general advice warning was given only once, at the beginning of the telephone conversation. Members were subsequently asked directly about their personal objectives. Members were not encouraged to seek personal advice before deciding whether to accept the rollover service.’
Key compliance takeaways
- A General Advice Warning does not make the advice provided general advice. It is substance over form
- When you are giving general advice to a client, in addition to giving a general advice warning, it is good practice to take reasonable steps to ensure that the client understands upfront that they are getting general advice and not personal advice. You should take reasonable steps to ensure that the client understands that you have not taken into account their objectives, financial situation or needs in giving the general advice. This will avoid confusion and help the client to understand the nature of the advice they are getting. (RG 244.44)
- When providing general advice, a general advice warning must be provided covering the matters in s949A(2) Corporations Act and, importantly, is given to retail clients at the same time and by the same means as the advice is provided: see s949A(3). This may also mean providing the GAW a number of times throughout the communication.
- You (and your representatives) are not permitted to provide personal advice if your licence is limited to providing general financial product advice only
- You need to take into account the overall impression created by a communication, and all the surrounding circumstances in which it is provided (refer RG 36.21)
- The customers perception of the advice being provided to them is critical
- ‘Personal advice’ is where the person giving the financial product advice has considered one or more (note it doesn’t have to be all) of the client’s objectives, financial situation and needs, or a reasonable person might expect the person giving the advice to have considered these matters. All other financial product advice is ‘general advice’.
- A modified best interest duty applies to personal advice provided to retail clients in relation to general insurance products (section 961B(2)(a)–(c) Corporations Act)
- A Statement of Advice must be provided where personal advice is provided to Retail clients in respect of sickness and accident insurance
- Tier 1 training (sickness & accident) & Tier 2 training (other general insurance products) is required when providing any form of financial product advice (RG 146)
- An FSG must be provided or make website disclosure available where any form of financial product advice is provided to retail clients
- From 9th July, insurance brokers providing poersonal advice to Retail clients must obtain written informed consent in respect of commission payments before any offer or sale of general insurance products
Who is a Retail Client?
The person to whom the advice is provided is a retail client if the financial product to which the advice relates is prescribed under s761G(5)(b) (including regulations made for the purposes of that paragraph) and:
- the client is a natural person; or
- the product is or would be used in connection with a small business (s761G(5) and 761G(12)).
Note: General insurance products prescribed under s761G(5)(b) are motor vehicle, home building, home contents, sickness and accident, consumer credit, travel, personal and domestic property, and medical indemnity insurance (as defined in Regs 7.1.11-7.1.17A).
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