ASIC v NSG: Duty of Care Analysis

This assignment delves into the legal case of ASIC v NSG Services Pty Ltd, analyzing how the company breached its statutory duty of care owed to retail clients. It examines the inadequate compliance policies of NSG, a lack of disciplinary action against defaulting advisors, and the court's finding that NSG failed to act in the best interests of its clients as required by section 961B of the Corporation Act 2001.

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Cover page
Name of the student
Student ID
Word count

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Contents
ASIC v NSG services Pty ltd (2017)...........................................................................................................3
Introduction.................................................................................................................................................3
Facts............................................................................................................................................................3
The main contentions of Australian Securities and Investment Commission..............................................4
Section 916 of the Corporation Act 2001 - Observations by the court.........................................................6
Decision by the Court..................................................................................................................................7
Reference List...........................................................................................................................................10

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ASIC v NSG services Pty ltd (2017)
Introduction
The decision laid down by Federal court in the leading case of Australian Securities and
Investment Commission v NSG services pty ltd1 is a landmark case which was decided on 30th
March 2017. The leading case establishes the civil penalty action that is taken by Australian
Securities and Investment Commission for the violation of the ‘best interest duty’ established
under section 961 (B) of the Corporation Act 2001 and also in evaluating the nature of the ‘best
interest duty’ that is imposed under the Corporation Act 2001.
The decision is very significant from the point of view that the duty to act in the best interest is
imposed upon the advisor who is providing advice to their retail clients.
Facts
Prior understating the basis upon which the decisions of laid down by the federal court, it is first
important to understand the background facts on the basis of which the preset case is raised.
In 2012, there are two statutory changes that are brought in, that is, Corporations Amendment
(Future of Financial Advice) Act 2012 (Cth) and the Corporations Amendment (Further Future
of Financial Advice) Act 2012 (Cth) which are considered as the Future of Financial Advice
reforms2. The Corporations Amendment (Further Future of Financial Advice) Act 2012 (Cth) is
the enactment that has established an obligation of ‘best interest’ under Part 7.7A, Division 2 of
the Corporations Act 2001 (Cth).3
Now, because of the said enactments, a duty of best interest is imposed upon the people who
provide personal advice to its retail clients. The duty that is enshrined under Part 7.7A, Division
2 of the Corporations Act 2001 (Cth) (section 961 (1) & (2)), is not an exhaustive list and there
are various statutory duties that are incorporated in the same, for instance4:
i. Section 961-B-F establish duty to act in the best interest of the client;
1 ASIC v NSG services Pty ltd (2017).
2 Vrisakis and Zhou (2017) The Best Interests Duty: Process Or Outcomes? (online). Available at:
<https://www.herbertsmithfreehills.com/latest-thinking/the-best-interests-duty-process-or-outcomes>. Accessed on 26th
September 2017.
3.ASIC (2017) ASIC v NSG services Pty ltd (2017) (online). Available at: http://download.asic.gov.au/media/4210761/17-100mr-
asic-v-nsg-services.pdf. Accessed on 26th September 2017.
4 Section 961, Corporation Act 2001.

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ii. As per section 961G – A duty to furnish advice to the clients is only imposed upon
the advisers when the advisor would reasonably conclude that the advice so provided
is appropriate to the clients;
In the said case, the best interest of FoFA is under scanner and the obligations of the licensees
and advisors are taken into account. The case laws establishes as how the licensees and the
advisors are not able to comply with their duties to furnish best interest of their clients.5
The facts submit that an Australian Financial Services Licensee (NSG) is under the tasks of
providing advice regarding the life risk insurance and superannuation products. The advice is
normally provided by the authorized representatives of the representatives of the NSG. NSG has
provided personal advice to their client and it was alleged by the ASIC that when furnishing such
personal advice, the NSG is in violation of section 961B and section 961G of the Corporation act
20016.
Thus, on the basis of these facts, there were few contentions that were raised by Australian
Securities and Investment Commission.
The main contentions of Australian Securities and Investment Commission
Based on the said fact, the Australian Securities and Investment Commission has initiated
pecuniary penalties, declaratory relief and costs proceedings against NSG. The proceedings were
initiated by Australian Securities and Investment Commission in mid 2016.
There are several contentions that are raised by the Australian Securities and Investment
Commission against the NSG Services Pty Ltd and the same are submitted herein below:
i. It is submitted that when NSG Services Pty Ltd representatives were providing advice
to its retail clients, then, at that time, they fail to meet the statutory requirements that
are mentioned under section 961B and 961 G of the Corporation Act 2001 because of
which the retail clients entered into arrangements that were unsuitable. Costly and
result in un-required financial arrangements.
5 Soljo and Walsh (2017) UNRAVELLED: RECENT DECISION ON FOFA ADVICE PROVISIONS – ASIC V NS (Online).
Available at:https://www.allens.com.au/pubs/fsr/170505-unravelled-02.htm. Accessed on 27th September 2017.
6 Ashurst (2016) Financial Services Update - Developments in disputes in the Australian financial markets and financial services
sector (Online). Available at: https://www.ashurst.com/en/news-and-insights/legal-updates/financial-services-update---
developments-in-disputes/. Accessed on 27th September 2017.

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ii. Violation of section 961L of the Act – There are various instances where it was found
that there is violation of section 61L of the Act. the same are:
a. One of the representative of NSG failed to take reasonable steps and violated
section 961B (1) and section 961G of the Act when furnishing advice to Person C,
Person D on 15th July 2014.
b. one of the representative of NSG failed to take reasonable steps and violated
section 961B (1) and section 961G of the Act when furnishing advice to Person E,
on 15th July 2013 and 20th August 2013 meetings respectively.
c. Also, one of the representative of NSG failed to take reasonable steps and violated
section 961B (1) and section 961G of the Act when furnishing advice to Person F, on
24th November 2014.
d. Also, one of the representative of NSG failed to take reasonable steps and violated
section 961B (1) and section 961G of the Act when furnishing advice to Person G, on
15 July 2014.
e. Also, one of the representative of NSG failed to take reasonable steps and violated
section 961B (1) and section 961G of the Act when furnishing advice to Person H, on
20 August 2013.
f. Also, one of the representative of NSG failed to take reasonable steps and violated
section 961B (1) and section 961G of the Act when furnishing advice to Person A, on
19 July 2013.
g. Also, one of the representative of NSG failed to take reasonable steps and violated
section 961B (1) and section 961G of the Act when furnishing advice to Person B, on
20 August 2015.
Thus, it is submitted that when the representations were furnishing advice to their retail
clients at that time they did not take reasonable steps to make sure that the best interest
obligation towards their retail clients are met and thus they are in violation of section
916L of the Corporation Act 2001.

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iii. That there is violation of section 961K (2) of the Act – That the representatives (other
than authorized representative of NSG) are in violation of section 961K (2) of the
Act.
a. It is submitted that one representative of NSG (Trinh) violated section 961B (1)
and section 961G of the Act when furnishing advice to Pearson A (client of NSG)
on 19th July 2013 meeting.
b. Also, there is violation of section 961K (2) of the Act when the representatives
(Ozak) violated section 961B (1) and section 961G of the Act when furnishing
advice to Pearson A (client of NSG) on 20th August 2013 meeting.
Thus, some of the representatives of NSG Services Pty Ltd who were not the authorized
representatives of NSG Services Pty Ltd failed to comply with their best interest obligations and
thus were in violation of section 961K (2) of the Corporation Act 2001.
It is submitted that all the allegations that are raised by the Australian Securities and Investment
Commission, that is, violation of section 61B, 961G, 961L and 961K of the corporation Act 2001
were accepted by NSG Services Pty Ltd7.
Both NSG and Australian Securities and Investment Commission have applied to the court for
declarations by consent8.
It is now first important to analyze the provisions of section 961 of the Corporation Act 2001 that
are applicable in the given scenario.
Section 916 of the Corporation Act 2001 - Observations by the court
Before analyzing the decision that laid down by the Federal court, there are two important
observations that are made by MOSHINSKY J. The same are9:
7 Soljo and Walsh , n 5; Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd (2009) 179 FCR 46,
8 Australian Securities and Investments Commission v Newcrest Mining Ltd (2014) 101 ACSR 46
9 Karin Ottesen (2010) Financial services licensee found liable for breach of the FOFA reforms (online). Available at:
http://karinottesen.com.au/financial-services-licensee-found-liable-for-breach-of-the-fofa-reforms/. Accessed on 27th September
2017.

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i. That the duty that is imposed under section 961 B (2) must be treated as a safe
harbour for the advice providers. This implies that if the advisers are able to prove
that all the statutory requirements that are mentioned under section 961 B (2) of the
corporation Act 2001 is comply with then the advice providers has comply with his
duty to look for the best interest of his retail clients.
ii. The court observed that the main concern of section 961B is that procedure or the
process that is to be comply with by the adviser prior furnishing advice which must
be in the best interest of the client. But, section 961G of the Corporation act contains
the substance or content of the advice.
On the basis of the above two observations, the court has tried to interpret the two meaning of
section 961B of the Corporation Act 2001. It was submitted by the court that the functions that
are attributed by section 961B (1) and section 961B 2) are different in nature. The core duty to
serve best interest is served under section 961B (1) of the Corporation Act 2001 whereas the
statutory defense is provided under section 961 B (2) of the Corporation Act 2001. Both the
sections are affected in the manner and the process in which the advice is furnished by the advice
provider.
The court submitted that the correct and justified interpretation of section 961B of the
Corporation Act 2001 is that it deals with the manner and the process in which the advice is
furnished. The basic interpretation that is provided by the court to interpret section 961 of the
Corporation Act 2001 is that:
i. That the steps that are laid down in section 961B (2) mainly deals with the process
within which the advice is furnished and is not concerned with the outcomes that
results from such advice;
ii. That section 961G of the act is different from section 961B of the Act. Section 961B
deals with the process within which the advice is furnished and is not concerned with
the outcomes
Decision by the Court
The main reasons for the decision that are made by the court are10:
10 Federal Court of Australia (2017) ASIC v NSG (online). Available at:
http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2017/2017fca0345. Accessed on 27th September 2017.

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i. That the client advice process that is adopted by NSG is complied very quickly.
Because of the quickness the clients are not able to reflect on the advice so furnished
proper its implementation. Because of this quick procedure the information that is
provided to the clients was found to be insufficient in nature;
ii. There are various obligations that must be comply with by the representatives of the
NSG prior providing advice to their retail clients however, the regulatory and the
legal obligations that must be required to be followed are not provided to the advisors
neither NSG has provided with proper training to their representatives which has
ultimately has resulted in the violated of their statutory obligations.
iii. The advisors who are representing NSG while furnishing advice to the retail clients
are representing NSG, but, NSG has not laid down any kind of review analysis of
such representatives (substantial or regular). There were instances when few internal
audits are conducted by NSG but whenever any advisor has been found to be in
contravention of the statutory provisions of the Corporation Act, then, there were no
disciplinary actions that were taken by NSG against such defaulting advisors.
iv. The external audits of NSG are carried out by third parties. These audits identify the
issues relating to the provisions of advice. But, the advice which is so furnished by
the external auditors were not comply with of followed by the NSG. Neither any
changes that were addressed or implemented by the external auditors were ever given
heed11.
v. The court also observed that the compliance policies that are adopted by NSG were
also not adequate as per the given circumstances. No regulator or legal duties that
must be furnished by the representatives were quoted in the compliance policies of
the NDG, if any. Even if complaints are received by the NSG regarding any
irregularity, still, no action is ever taken up by NSG.
Considering all the above acts that are carried out by the NSG and its representatives while
catering advice to its retail client, it has been observed by the court that the duties to act in the
11 Turks Legal (2017) Federal Court finds first breach of best interests duty (online). Available at:
http://www.turkslegal.com.au/sites/default/files/Case_ASIC%20v%20NSG_.pdf. Accessed on 27th September 2017.

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best interest as enshrined under section 961B of the Act are not comply with resulting in
violation of the duties.
Thus, the federal court was right in imposing penalties over NSG for its violation of statutory
obligations.

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Reference List
Case laws
Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd (2009) 179 FCR 46,
ASIC v NSG services Pty ltd (2017);
Australian Securities and Investments Commission v Newcrest Mining Ltd (2014) 101 ACSR 46
Legislation
Corporation Act 2001
Online Material
ASIC (2017) ASIC v NSG services Pty ltd (2017) (online). Available at:
http://download.asic.gov.au/media/4210761/17-100mr-asic-v-nsg-services.pdf. Accessed on 26th
September 2017.
Federal Court of Australia (2017) ASIC v NSG (online). Available at:
http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2017/2017fca0345.
Accessed on 27th September 2017.
Soljo and Walsh (2017) UNRAVELLED: RECENT DECISION ON FOFA ADVICE
PROVISIONS – ASIC V NS (Online). Available at: https://www.allens.com.au/pubs/fsr/170505-
unravelled-02.htm. Accessed on 27th September 2017.
Turks Legal (2017) Federal Court finds first breach of best interests duty (online). Available at:
http://www.turkslegal.com.au/sites/default/files/Case_ASIC%20v%20NSG_.pdf. Accessed on
27th September 2017.
Vrisakis and Zhou (2017) The Best Interests Duty: Process Or Outcomes? (online). Available at:
<https://www.herbertsmithfreehills.com/latest-thinking/the-best-interests-duty-process-or-
outcomes>. Accessed on 26th September 2017.