Q1

ABZ Bank (ABZ), an ADI and AFS Licensee, operates through 700 branches across Australia. "Z Super" is a superannuation product issued and promoted by Zpac Super, a wholly-owned subsidiary of ABZ. ABZ runs an aggressive marketing campaign to distribute "Z Super" through its retail branch network. Any branch staff who sells "Z Super" is paid a substantial commission. "Z super" is sold to customers by ABZ's branch staff who are authorized to provide general advice to retail customers and to assist retail customers to apply for superannuation products. The distribution process developed and implemented by ABZ involved the following steps:

• Firstly, the branch staff member asks the retail customer to fill in a questionnaire of 25 questions (called '1-25 review') on the financial situation, needs and circumstances of the retail customer.
• Secondly, the branch staff member asks whether the retail customer would like to be provided with information about "Z Super".
• Thirdly, if the retail customer agrees, the retail customer is provided with a detailed Product Disclosure Statement and brochure. The branch staff also provides a quick appraisal of benefits to invest in "Z Super" and provides them with a general advice warning.
• Fourthly, the branch staff obtains (1) signatures on blank forms for 'Z Super' and (2) a letter of authorization for cancelling the existing superannuation account.

The application will only be proceeded upon confirmation from the retail customer through an email or telecall. ASIC's surveillance on branch sales of "Z Super" has revealed that 45-50% of customers opted for "Z Super" soon after the '1-25 review' on the same day. ASIC is concerned about the promotion of "Z Super" through branches and initiates an investigation. You are employed in the legal division of ABZ and are asked to review if the sale and distribution of "Z Super" breach any provisions of Chapter 7 of the Corporations Act, 2001 (Cth). You are specifically asked to include a detailed analysis of whether ABZ's staff comply with the best interests duty and related obligations under C7.7A of the Corporations Act, 2001 (Cth).

SAMPLE FROM SIMILAR QUESTION

1) Do we have a financial product?

Under Chapter 7 of the Corporation Act (s.763A): A financial product is a facility through which, or through the acquisition of which, a person' makes a financial investment, or manages a financial risk, or makes non-cash payments'.This includes insurance, superannuation, etc.

2) Has Andrew provided financial product advice?

Yes as Andrew has provided financial product advice on a recommendation or statement of opinion that is intended to influence a person to make a decision in relation to a financial product or could be reasonably be regarded to intentionally have such an influence (s.766B).

In this scenario, Andrew has provided financial product advise as he is a professional, he asked her questions - even though they were brief but in response to the brief questions he has given advice as to what to say to do with her superannuation, what should happen to insurance and if she does those she gets the cash rebate.

Thus, Andrew has given Anna that advice and that was intended to influence her.

3) Is Anna a retail client or not?

Under s.761G+s.761GA Anna is classified and treated as a retail client In the following events:

General insurance products - s.761G(5) - we don't exactly the type of insurance we are talking about as we haven't been told so we don't know whether it is house insurance, car insurance, content insurance but we know it is insurance.

Superannuation - s.761G(6) - yes

Price or value of the financial product is less than $500000 - s.761G(7)(a) - we don't have full information on that but one could assume on the fact that we have been told that she doesn't have a lot of money that we could probably say yes to that.

Not a high net worth client s.761G(7)(b) - the person has net assets of at least $2.5 million or has a gross income for each of the last two financial years of at least $250,000 - no Anna has nothing like that.

Not a sophisticated investor (s.761GA) - client has previous experience in using financial services and investing in financial products that allows the client to assess the merits, value and risks of the product or service - doesn't sound like Anna has done this before and knows the risks

Not a professional investor(s.9) - no

Thus Anna is a retail client based on the advise above.

4) What sort of advice was Anna given? Was it personal or general advice?

Personal advice (s.766B(3)) is defined as financial product advice that is given or directed to a person in circumstances where the provider of the advice has considered one or more of the following:

-of the person's objectives,

-financial situation and needs, or

-a reasonable person might expect the provider to have considered

Do we think what Andrew gave Anna fits into personal advice? Yes it would, Andrew has only collected very brief details from her but it is still personal advice. Andrew, a representative of ABC Pty Ltd gave deficient and defective advice to clients (ASIC v Westpac).

Now I know it was only a brief discussion, Andrew asked Anna about her age, occupation, he didn't ask to clarify any of her answers, he didn't ask her any details about her financial position, didn't ask for wage statements, etc, so personal advice -Andrew just pushed a product that he wanted.

5)Has Andrew breached the "best interests duty" and "appropriate advice duty" under s 961B (1) and/or 961G of the Corporations Act 2001 (Cth)?

In this scenario, the legal issue is whether Andrew has breached the "best interests duty" and "appropriate advice duty" under ss 961B (1) and/or 961G of the Corporations Act 2001 (Cth).The best interests duty are obligations that ensures that the clients receive advices that meet their financial situations and that the advices act in the best need of the clients.

Sections 961B(1) and 961B(2) serve fundamentally different functions: s 961B(1) sets out the core best interests duty while s 961B(2) sets out a statutory defence. The content of the duty in s 961B(1) will of course be influenced by the various steps which constitute the defence contained in s 961B(2).

s.961B(1): the provider 'must act in the best interests of the client in relation to the advice'.

s.961B(2): the provider ' (satisfies the duty in subsection (1), if the provider proves that the provider has done each of' the things set out in paragraphs (a) to (g):

The client must act in the best interests of the client and the provider Andrew satisfies the duty in S 961B(1), if they have done each of the following things in S 961B(2) - this is where we find the definition so they must act in the best interests of the client and the provider Andrew satisfies the duty in subsection S 961B(1), if they have done each of the following things in S 961B(2a-g).

(a) identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions;

(b) identified:

(i) the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and

(ii) the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client's relevant circumstances);

(c) where it was reasonably apparent that information relating to the client's relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information;

(d) assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice;

(e) if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:

(i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and

(ii) assessed the information gathered in the investigation;

(f) based all judgements in advising the client on the client's relevant circumstances; and

(g) taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client's relevant circumstances.

Andrew has breached the "best interest's duty" and "appropriate advice duty" through several ways:

- The details Andrew collected from Anna were brief, he did not clarify them and he wanted to get out to lunch on time as he was hungry. Anna gave vague responses about her finances and did not give proper answers to Andrew's questions. Andrew only collected data regarding her age, occupation and income without further query as it would be time-consuming to conduct a reasonable investigation. Thus Andrew does not satisfy any of the subsection 2 in section 961B because he clearly has not clarified any information or asked for very much. He is not even asked to see a payment statement or evidence of her earnings, Andrew has not asked to see her financial liabilities and has not asked to see how much Anna pays in rent and bills due to the purchase of a new phone or even how much she pays a fortnight on outgoings etc. Andrew has no idea about Anna's true financial position and what is really going on in her life. The subject matter of receiving cash fast and to receive the full cash rebate was not explicitly or implicitly discussed. Andrew goes and makesa decision essentially for her. There are all these fees that she didn't know about and then she essentially gets a lot of fees taken out.

- Andrew has breached the duty to act in Anna's best interest and the duty to provide appropriate advice. Under section 961G, the provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client. Has Andrew taking into account Anna's personal circumstances or needs or anything like that? - no so that duty is breached as well.

Together these do not fulfil the requirements for the provider to act in the best interests of the client and to issue appropriate advice. Therefore Andrew breached the best interest duty and the appropriate advice duty.

6)Is there any chance that Andrew can rely on s 961(B)(2) as a defence in regard to his conduct?

No as Andrew's breach are too severe, Andrew has deliberately and quite knowingly breached what was under section 961B (1) and section 961B (2). If you have knowingly breached those, you can't possibly have a defence - there is nothing accidental about that, Andrew is not acting in good faith, he deliberately told that he wanted to get out to lunch.

Also he has not done what has been put out in s.961H which requires the providers to warn the client if the advice is based on incomplete or inaccurate information. Andrew would have known that he didn't have enough information for Anna in order to make a decision - we were told on the facts that it was very brief. Andrew didn't ask for any clarification or any information so he failed that one and also 961J. Andrew didn't ask any information on what he was told to. Thus, Andrew did not inquire about the relevant information of Anna, the law requires the client to give complete and accurate information about their income, financial situations, occupations, savings, income, etc.

In relation to 961J we also know that Andrew was told by his employer that he was to tell Anna to move her superannuation and insurance to a certain provider without telling her the risks and ramifications.ABC internal policy mandates that the representatives must always switch the insurance providerand superannuation policies to a new company called "Insurance & Super" in order to comply with his company policy. There is need only for the recommended licensing to be used, in this case Andrew referred Anna to a company that was not recommended instead of referring her to Insurance & Super. As a result of the advice, Anna's superannuation fund declined by 30% because of the commission that ABC got for the switch that Anna made. Under s.961K(2) and s.961L, Andrew definitely will be facing penalties and you can obviously see based on the discussion above

ABC Pty Ltd contravened s 961 L of Corp. Act by "failing to take reasonable steps to ensure that its authorised representatives comply with sections 961B [best interest duty], 961G [appropriate advice duty], and 961J (duty of priority).

Q2

Jordan, an existing customer of ABZ Bank (ABZ) visits the Caulfield branch and discusses a number of basic bank deposit products that he could use to invest $100000 that he has recently inherited. He works at Alpha University as a research assistant (History) earning $80000 annually. He wants to keep $10000 for emergencies and the balance of the money for buying a new car next year. He wants to earn a higher interest rate on the money while he decides on the car. Zachary, an employee of ABZ provides a pamphlet that details different features of a number of deposit options, which are an online savings account, an incentives account and a term deposit. The pamphlet also provides ratings for each of the above-mentioned deposit options. The incentives account is given five-star rating while the online savings account and term deposit are given four-star ratings. The interest rates for an online savings account, incentives account and term deposit are 3.5%, 5% and 3% respectively as described in the pamphlet. At the end of the pamphlet, the following statement is given in fine print:

"The Incentives Account currently offers account holders a basic variable interest rate of 1.5% and also pays a bonus of 3.5% if the customer deposits at least $2500 per month and makes no more than four withdrawals in a given month. If the customer satisfies those criteria in a given month, according to current interest rates, they will receive 5%, which is higher than the current interest rate for the Online Savings Account."

Jordan approaches Zachary to open an incentives account and explains that he would not need the money for another 12 months. Zachary specifically makes inquiries to identify if Jordan would be able to deposit at least $2500 per month and makes no more than four withdrawals in a given month. Jordan informed paying essential bills, groceries and rent would not be limited to four transactions a month. Zachary recommends opening an online savings account linked to his transactions account for $10000 and a term deposit for $90000.

Later in the day, Zachary telephones Jordan in his registered mobile with the bank and says "Congratulations, your term deposit for $90000 is now opened". However, the call was attended by Jordan's partner Emily which Jordan realises later. Emily left Jordan for not disclosing his inheritance fortune and Jordan sued the ABZ.

Identify if the given scenario describes any breaches of financial services laws.

SAMPLE FROM SIMILAR QUESTION

In this scenario the issue is whether UNO Bank has breached any provisions under the financial services law.

UNO Bank satisfies Section 961B(3) in that we have a basic banking product. Section 961B(3) - If theprovideris an agent or employee of anAustralian ADI or otherwise acting byarrangementwith anAustralian ADIunder the name theAustralian ADI; and the subject matter of the advice sought by theclientrelates only to the following:

(i)abasic bankingproduct

ii)ageneral insuranceproduct; theprovidersatisfies the best interests duty in relation to the advice given in relation to thebasic banking productand thegeneral insurance productif

theprovidertakes the steps mentioned inparagraphs(2)(a), (b) and (c) of s.961B.

The extent of the advice given by Jacob to Ms. Rebecca was not investigated in the facts so we don't know the extent this is satisfied. When an employee or agent of an Australian ADI provides advice on these products, the provider is deemed to have complied with the best interests duty obligation if they:

i) identify the objectives, financial situation and needs of the client (961B(2)(a);

ii) identify the subject matter of the advice sought by the client and the objectives, financial situation and needs of the client considered relevant to the client (961B(2)(b); and

iii) where reasonably apparent that information relating to the client's relevant circumstances was incomplete or inaccurate, make reasonable enquires to obtain complete and accurate information (961B(2)(c).

The ASIC Act,Part 2, Division 2deals with unconscionable conduct and consumer protection in relation to financial services. Section 12DA and 12DB relate to the following scenario.

1) Misleading or deceptive conduct: a person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive (s.12DA).

Whether UNO Bank is liable for misleading/deceptive conduct (s.1041H CA + s.12DA ASIC Act)?

A) Is Jacob an employee of an Australian ADI?

Yes a bank is so Jacob is an employee of an ADI.

B) Is an ADI a financial product?

A financial product (s.763A) is a facility through which, or through the acquisition of which, a person' makes a financial investment, or manages a financial risk, or makes non-cash payments. Section 764A outlines some of the financial products such as insurance, ADI accounts, superannuation product, RSA products, government bonds, managed investment schemes, a derivative, share or debenture of a body corporate, margin lending.

ADI's are considered a financial product as a bank is a facility making a financial investment or managing financial risk. Jacob a branch staff member is promoting a deposit contract calledUNO Deposit Account which looks after term deposits.

C) Is there a conduct?

Yes there is conduct as there was aterm deposit contract in bold letters detailing the material in the term deposit.

D) Is the conduct likely to lead the target audience to an error (objective test)?

Theterm deposit contract in bold letterswould make you think that the term deposit is something different to what it was so the statements on the contract are very much misleading and deceptive.

However we know when we read theterm deposit contracton the ad that is not what is going on and obviously there are different terms and conditions to the contract. For example, the statements seem a bit confusing and Rebecca didn't quite know about the penalty rates, etc.

2) False/misleading representation: regarding price, quality, standard, value, false testimonials etc.(s.12DB). The false or misleading representations relate to the amount of cover that the product provides, and the conditions that need to be met in order for a claim to be successful.

In particular, the advertisement states that the product will pay an additional interest rate of 2% above the bank's base rate, when in reality it only pays out the base rate. It also states that the interest will be paid monthly, when in reality it will only be paid after the term has been completed. Additionally, the advertisement fails to mention the quarterly maintenance fees that will be charged on the account.

Thus, UNO Bank has breached provisions under the Financial Services Law. In particular, UNO Bank contravened s 12 DA & s 12 DB of ASIC Act for misleading statements in relation tosafe, risk-free and definite' money through higher interest rates.In particular, they have made false or misleading representations in relation to the product.