ASIC Calls AAA Compliance ‘Appalling’

ASIC has released more details behind its decision to cancel the licence of national dealer group, AAA Financial Intelligence and AAA Shares (AAA).  Following an extended period of surveillance, ASIC found the licensee had demonstrated “… an appalling record that put at risk the quality of advice it provided to retail clients.”

Further to its announcement that it had cancelled AAA’s Australian Financial Services licence, the regulator said AAA had comprehensively and repeatedly failed to comply with the Corporations Act 2001 and the conditions of its AFS licence.

ASIC … was particularly concerned about the level of supervision of AAA’s 186 authorised representatives…

ASIC said it was particularly concerned about the level of supervision of AAA’s 186 authorised representatives, their conduct and the advice they provided to retail clients.

Following its surveillance activities, which began in June 2010, ASIC found AAA had breached the majority of its licence obligations.  It said AAA had:

• Adopted a business model that only allowed it to increase cash flow by increasing the number of advisers it authorised.  The fee charged did not maintain sufficient financial resources to comply with its general obligations.
• Failed to maintain adequate human resources and technological resources to identify who its representatives were, the clients being serviced and the products being sold and to carry out supervisory arrangements
• Failed to ensure that representatives had the necessary knowledge and skills prior to appointing them as authorised representatives and after they were appointed, failed to ensure that they were adequately trained and competent to provide financial services under the licence
• Failed to implement adequate supervision and compliance measures, including advice audits.  AAA outsourced its advice audit program to an external party without adequate supervision, failed act in accordance with its own audit policy and failed to remediate advice and conduct issues when they were identified.
• Failed to ensure that its representatives complied with relevant financial services laws when providing financial advice to retail clients
• Failed to identify and manage conflicts of interest
• Failed to act efficiently, honestly and fairly in respect of the templates and guidelines it provided to its representatives, representative audit reports, complaints handling and record keeping

ASIC Commissioner, Peter Kell said the cancellation of AAA’s licence demonstrates ASIC’s commitment to ensuring advice industry participants are meeting their key obligations, including having adequate compliance measures in place.

ASIC also advised it has put in place a communication strategy for the representatives of AAA, which indludes asking all representatives of the licensee to communicate the consequences of the licence cancellation to their clients.