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FSP’s Failure to Supervise Representatives a Breach of Obligation

By December 11, 2017 No Comments

AFSL holders are generally responsible for the conduct of their representatives unless:
·         the conduct is outside the AFSL holder’s authority;
·         that fact was disclosed to the client before the client relied on the conduct, and
·         the disclosure was sufficiently clear and prominent.

Current application

The Applicants alleged that they received an inappropriate advice to invest in two unlisted property syndicates (Syndicates) from Mr W who was an authorised representative of the financial services provider (FSP). They also alleged that the FSP failed to appropriately supervise the activities of Mr W.

FSP’s defence

The FSP claimed that any advice provided by Mr W during the concerned period was not in his capacity as an authorised representative of the FSP because:
·         the FSP was not aware that Mr W had formed Syndicates;
·         the Syndicates were not on the FSP’s approved product list; and
·         the FSP had no record of the Applicants or the Syndicates.

Panel’s view

The nature of advice was of an investment and wealth creation and not accountancy related. Thus, it made the Applicants believe that Mr W was acting in the role of a financial planner and adviser.

1.       Inappropriate advice

It was established that no Statement of Advice was provided to the Applicants. In the absence of a Statement of Advice or other supporting documentation, there was no basis to determine the reasonableness of Mr W’s advice to the Applicants. Accordingly, the FSP, through Mr W, failed in its duty as an AFSL holder to ensure the advice provided to the Applicants to invest was appropriate.

2.       FSP’s responsibility

Based on the information provided, the Panel was not satisfied that the FSP adequately monitored and supervised the activities of Mr W as its authorized representative. In failing to do so, the FSP acted in breach of its obligations as an AFSL holder.

Determination

The Panel determined the application in favour of the Applicant. The determination was adjusted down to $280,000 as the award of loss was subject to the maximum claim amount set out in the FOS Terms of Reference.