Last week, the Federal Court has ordered Australian financial services licensee RM Capital to pay a $575,000 penalty and its authorised representative The SMSF Club to pay a $350,000 penalty over conflicted remuneration breaches.
The penalties follow a court finding in February 2024 that RM Capital had failed to take reasonable steps between August 2013 and August 2016 to ensure that SMSF Club did not accept conflicted remuneration.
The court also made findings that on multiple occasions between November 2014 and July 2016 SMSF Club accepted conflicted remuneration. It found that SMSF Club received a total of $135,863.65 in referral fees from real estate agent Positive RealEstate Pty Ltd for assisting SMSF Club clients to set up a self-managed superannuation fund (SMSF) and purchase property from Positive RealEstate.
The referral fees were paid as part of a referral agreement between SMSF Club and Positive RealEstate. On each occasion it accepted a referral fee, SMSF Club breached the provision of the Corporations Act that prohibits an authorised representative from accepting conflicted remuneration.
As the licensee that authorised SMSF Club to provide financial services, RM Capital contravened s963F of the Corporations Act by failing to take reasonable steps to ensure SMSF Club did not accept the payments.
Sarah Court, ASIC deputy chair, said the court’s judgment reflects RM Capital’s systemic failure to uphold important consumer protection safeguards over a sustained, three-year period.
“RM Capital should have provided proper oversight of SMSF Club as an authorised representative in relation to its compliance with the conflicted remuneration provisions,” she said.
“Conflicted remuneration has the potential to cause consumers to be given financial product advice that is weighted to the provider’s interests and may not suit consumers’ needs.”
In his decision, Justice Jackson said he was conscious that RM Capital is a small organisation with limited resources.
“But in its capacity as an AFSL holder, these responsibilities were not mere inconvenient distractions from its business activities; they were core responsibilities,” he said.
“That RM Capital took this passive approach even in the face of an ASIC investigation, an adverse liability judgment, and an approaching penalty hearing, suggests that from the point of view of specific deterrence, at least, a high penalty may be necessary to motivate it to change its approach.”
His Honour ordered that within six months:
- RM Capital is to provide ASIC with a written report of an independent expert stating whether it has in place appropriate systems, policies and procedures to ensure that its representatives comply with s963G(1) of the Corporations Act; and
- SMSF Club is to provide ASIC with a written report of an independent expert stating whether it has in place appropriate systems, policies and procedures to ensure that it complies with s963G(1) of the Corporations Act.
In the judgment last year, Justice Jackson questioned the level that James Richardson, managing director of RM Capital, understood the rules regarding conflicted remuneration.
“Mr Richardson did not, however, impress me as someone with a firm grasp on the details of the regulatory environment in which his business was operating,” Justice Jackson said.
“His oral evidence was often at an unhelpfully high level of generality that, as will be seen, was consistent with his affidavit evidence and the other affidavits that RM Capital relied on.”
Among the evidence presented to the court were reports from an external auditor that also noted concerns with The SMSF Club’s understanding of conflicted remuneration.
“RM Capital did not raise these responses with SMSF Club or take any other action with respect to the expressed views of these three advisers as to what constituted conflicted remuneration,” Justice Jackson said.
“So, for example, RM Capital did not correct [Justin] Beeton’s mistaken view that conflicted remuneration arrangements could be ’managed’ by disclosure. It did not correct [Richard] Nordin’s apparent view, also mistaken, that conflicted remuneration was confined to benefits that were provided by promoters to ’specifically to use their products’.
“It did not investigate what [Mark] Small had in mind when he referred to ’general conflict’ and how that related to his understanding of the ban on conflicted remuneration. In these instances at least, even when a review (perhaps falling short of an audit) was undertaken, it appeared not to have any consequence for better compliance by SMSF Club with the prohibition on the acceptance of conflicted remuneration.”
