Experts weigh in on s923A breach penalties

In late June, ASIC issued a clarification explaining that advisers using the terms ‘independently-owned’, ‘non-aligned’ or others of “like import” will now need to meet the criteria set forth in section 923A of the Corporations Act.

Commenting on the clarification, Brett Walker, a former investigator with ASIC predecessor organisation the ASC and director of SMART Compliance, told ifa that ASIC is likely to take non-compliance with the new clarification seriously.

“Obviously ASIC has drawn a line in the sand,” Mr Walker said. “If you fail to comply with s923A there are potential consequences like EU, fines and even banning or loss of licence if ASIC wants to make a statement.

“I suspect most likely they would impose an EU on any AFSL that they felt breached s923A in first instance but if, for example, a defective disclosure document was issued – such as an SOA or FSG – based upon a breach of s923A, there are significant offence provisions.”

The former investigator said a knowingly defective disclosure document can carry a fine of $36,000 and potentially a five-year prison sentence, while a defective document without knowledge could still get you two years in jail or a $18,000 fine.

However, Sophie Gerber of Sophie Grace Compliance anticipates that ASIC would generally take a softer approach to breaches in the first instance, giving advisers or licensees an opportunity to explain their position once a breach has been identified.

“It would be very unlikely for ASIC to launch in with an accusation of a breach straight off the bat,” Ms Gerber said. “So that should give some level of comfort … If you feel nervous about receiving a question letter about this point don't use the term.”

Meanwhile, in a letter to AIOFP executive director Peter Johnston, seen by ifa, barrister Arwed Turon advised that ASIC’s clarification is not yet set in stone and could be challenged in the courts.

“The approach now taken by ASIC, based on external legal advice, is not law: it is an interpretation adopted by it of the provisions of s923A,” Mr Turon wrote.

ifa will expand on the fallout from ASIC’s clarification in the August edition of ifa magazine.