Assignment 3 Individual Assignment Subject Name LAW OF BUSINESS AND FINANCIAL MARKETS Subject Code LAW2486 Word Count 3317 Student Name Dao Mai Anh Student ID S3817957 TABLE OF CONTENTS BACKGROUND 1 1. Assignment 3 Individual Assignment Subject Name LAW OF BUSINESS AND FINANCIAL MARKETS Subject Code LAW2486 Word Count 3317 Student Name Dao Mai Anh Student ID S3817957 TABLE OF CONTENTS BACKGROUND 1 1. Can Morgan successfully claim that Thomas misled her? 5 2. Was it appropriate for Thomas to recommend that Morgan invest in Technology Ltd? 5 3. Was it appropriate for Thomas to recommend that Morgans business buy insurance from Insurance Ltd? 6 4. Was it appropriate for Thomas to recommend that Morgan roll over her superannuation fund XYZ Super Fund Ltd to another fund and invest in a related company of Ricca Pty Ltd called Incentive Management Systems Ltd (IMS)? 6 5. Was Ricca Pty Ltd required to disclose the commissions they received from Insurance Ltd? 7 6. Was Ricca Pty Ltd required to disclose the restrictions on its licensees regarding motor vehicle insurance? 7 7. Was Ricca Pty Ltd required to disclose the soft dollar benefits received by its authorized representatives? 7 8. Was Ricca Pty Ltd required to train its representatives, including Thomas? 8 9. Was Ricca Pty Ltd required to disclose the fees associated with using the account? 8 10. Was Ricca Pty Ltd required to have an internal dispute resolution system in place? 8 REFERENCES 9 BACKGROUND This topic brings up a number of different legal difficulties that need to be addressed. There is the question of whether or not Morgan was fully informed of the potential downsides associated with the transaction by the licensee and its authorized agents. Secondly, there is the question of whether the licensee and its authorized agents violated their duty of care to Morgan. Thirdly, there is the question of whether or whether the licensee broke its requirements under the Corporations Act 2001 (the Act) by failing to notify the issuance of the commissions in a timely way. This brings us to our fourth and last question according to Bird’s case . Fourthly, there is the question of whether or not the licensee violated its responsibilities under the Act by advertising that certain transactions are free while, in reality, there is a fee to use the account. This brings us to our fifth and last point. Concerning the first problem, it is abundantly apparent that the licensee and its authorized agents failed to provide Morgan with a sufficient disclosure of the risks associated with the transaction. When in reality, the investment was a highrisk venture that had the appearance of being a wealthy and unique opportunity for a select few, Morgan was not informed that the licensee and its authorized agents were earning commissions when they recommended the investment. This was another piece of information that was withheld from Morgan. Concerning the second matter at hand, it might be argued that the licensee and its authorized agents were negligent toward Morgan and violated their duty of care to him. In a number of instances, the courts have given consideration to the question of whether or not financial counselors owe a duty of care to the customers they serve. The New South Wales Court of Appeal decided in the case of Edey v. RBS Morgans Ltd (1998) 44 NSWLR 481 that financial advisors owe a duty of care to their customers and have an obligation to provide financial advice with a level of care that is commensurate with a reasonable standard of care. This includes the need to provide significant information about the investment and to warn the customer about the risks that are associated with the transaction. Because the licensee and its authorized agents did not make Morgan aware of the potential downsides of the transaction, they may have violated the duty of care that they owe to Morgan and other investors. In regard to the third problem, it is abundantly evident that the licensee violated its responsibilities outlined in the Act by failing to disclose the issue of the commissions in a timely way. This is the case since the licensee is in blatant violation of the terms of the Act. Licensees are required to inform the Australian Securities and Investments Commission (ASIC) of any circumstances that may represent a substantial risk to the licensees compliance with its responsibilities under the Act, as stipulated in Section 912D of the Act . The issue of the commissions paid to the licensee and its authorized representatives was a material risk to the licensees compliance with its obligations under the Act, and it should have been reported to ASIC in a timely manner. In this particular case, the issue of the commissions paid to the licensee and its authorized representatives was a material risk. Concerning the fourth problem, it might be argued that the licensee violated its responsibilities outlined in the Act by advertising that certain transactions are free while, in reality, there is a fee to use the account. This is one of the points in question here. According to Section 12DA of the Act , licensees are not allowed to engage in misleading or deceptive behavior. Because it provides the idea that there are no costs connected with the account, but in reality, there are fees associated with the account, the use of the term free in the context of the account fees in the current instance might be considered misleading or deceptive. The preceding explanation makes it abundantly evident that the circumstances of this case give rise to various legal difficulties and that these questions must be addressed. It is recommended that Morgan seeks legal advice in relation to her investment in Technologia Ltd, as well as the other investments that she made on the recommendation of the licensee and its authorized representatives. In addition, it is recommended that Morgan seeks legal advice concerning the other investments she made. As a consequence of the misrepresentations made to her, she may have grounds to seek compensation for the damages that she has incurred due to those misrepresentations. ● Failure to disclose commissions Despite the high level of risk that was associated with an investment in Technologia Ltd., the licensee and its authorized representatives were paid commissions for recommending the companys various financial products . This was done despite the high level of risk that was associated with an investment in Technologia Ltd. Thomas did not address the prospect that the customer may lose her money and assets, which may have an effect on the customers capacity to increase her wealth. The clients ability to increase her wealth may be affected. On the other hand, this specific investment opportunity was pitched to prospective investors as one that was both profitable and restricted in its reach. Morgan was completely unaware of the fact that there were any commissions to be made.
Assignment Individual Assignment Subject Name LAW OF BUSINESS AND FINANCIAL MARKETS Subject Code LAW2486 Word Count 3317 Student Name Dao Mai Anh Student ID S3817957 i TABLE OF CONTENTS BACKGROUND 1 Can Morgan successfully claim that Thomas misled her? .5 Was it appropriate for Thomas to recommend that Morgan invest in Technology Ltd? .5 Was it appropriate for Thomas to recommend that Morgan's business buy insurance from Insurance Ltd? Was it appropriate for Thomas to recommend that Morgan roll over her superannuation fund XYZ Super Fund Ltd to another fund and invest in a related company of Ricca Pty Ltd called Incentive Management Systems Ltd (IMS)? Was Ricca Pty Ltd required to disclose the commissions they received from Insurance Ltd? .7 Was Ricca Pty Ltd required to disclose the restrictions on its licensees regarding motor vehicle insurance? .7 Was Ricca Pty Ltd required to disclose the soft dollar benefits received by its authorized representatives? .7 Was Ricca Pty Ltd required to train its representatives, including Thomas? Was Ricca Pty Ltd required to disclose the fees associated with using the account? 10 Was Ricca Pty Ltd required to have an internal dispute resolution system in place? REFERENCES ii BACKGROUND This topic brings up a number of different legal difficulties that need to be addressed There is the question of whether or not Morgan was fully informed of the potential downsides associated with the transaction by the licensee and its authorized agents Secondly, there is the question of whether the licensee and its authorized agents violated their duty of care to Morgan Thirdly, there is the question of whether or whether the licensee broke its requirements under the Corporations Act 2001 (the Act) by failing to notify the issuance of the commissions in a timely way This brings us to our fourth and last question according to Bird’s case1 Fourthly, there is the question of whether or not the licensee violated its responsibilities under the Act by advertising that certain transactions are free while, in reality, there is a fee to use the account This brings us to our fifth and last point Concerning the first problem, it is abundantly apparent that the licensee and its authorized agents failed to provide Morgan with a sufficient disclosure of the risks associated with the transaction When in reality, the investment was a high-risk venture that had the appearance of being a wealthy and unique opportunity for a select few, Morgan was not informed that the licensee and its authorized agents were earning commissions when they recommended the investment This was another piece of information that was withheld from Morgan Concerning the second matter at hand, it might be argued that the licensee and its authorized agents were negligent toward Morgan and violated their duty of care to him In a number of instances, the courts have given consideration to the question of whether or not financial counselors owe a duty of care to the customers they serve The New South Wales Court of Appeal decided in the case of Edey v RBS Morgans Ltd (1998) 44 NSWLR 481 that financial advisors owe a duty of care to their customers and have an obligation to provide financial advice with a level of care that is commensurate with a reasonable standard of care This includes the need to provide significant information about the investment and to warn the customer about the risks that are associated with the transaction Because the licensee and its authorized agents did not make Morgan aware of Bird, H., & Gilligan, G (2016) Deterring corporate wrongdoing: penalties, financial services misconduct and the Corporations Act 2001 (Cth) Company and Securities Law Journal, 34(5), 332-359 1 the potential downsides of the transaction, they may have violated the duty of care that they owe to Morgan and other investors In regard to the third problem, it is abundantly evident that the licensee violated its responsibilities outlined in the Act by failing to disclose the issue of the commissions in a timely way This is the case since the licensee is in blatant violation of the terms of the Act Licensees are required to inform the Australian Securities and Investments Commission (ASIC) of any circumstances that may represent a substantial risk to the licensee's compliance with its responsibilities under the Act, as stipulated in Section 912D of the Act2 The issue of the commissions paid to the licensee and its authorized representatives was a material risk to the licensee's compliance with its obligations under the Act, and it should have been reported to ASIC in a timely manner In this particular case, the issue of the commissions paid to the licensee and its authorized representatives was a material risk Concerning the fourth problem, it might be argued that the licensee violated its responsibilities outlined in the Act by advertising that certain transactions are free while, in reality, there is a fee to use the account This is one of the points in question here According to Section 12DA of the Act3, licensees are not allowed to engage in misleading or deceptive behavior Because it provides the idea that there are no costs connected with the account, but in reality, there are fees associated with the account, the use of the term "free" in the context of the account fees in the current instance might be considered misleading or deceptive The preceding explanation makes it abundantly evident that the circumstances of this case give rise to various legal difficulties and that these questions must be addressed It is recommended that Morgan seeks legal advice in relation to her investment in Technologia Ltd, as well as the other investments that she made on the recommendation of the licensee and its authorized representatives In addition, it is recommended that Morgan seeks legal advice concerning the other investments she made As a consequence of the misrepresentations made to her, she may have grounds to seek compensation for the damages that she has incurred due to those misrepresentations Corporations Act 2001 (Cth) s 912D ASIC Act 2001 (Cth) s 12EA ● Failure to disclose commissions Despite the high level of risk that was associated with an investment in Technologia Ltd., the licensee and its authorized representatives were paid commissions for recommending the company's various financial products4 This was done despite the high level of risk that was associated with an investment in Technologia Ltd Thomas did not address the prospect that the customer may lose her money and assets, which may have an effect on the customer's capacity to increase her wealth The client's ability to increase her wealth may be affected On the other hand, this specific investment opportunity was pitched to prospective investors as one that was both profitable and restricted in its reach Morgan was completely unaware of the fact that there were any commissions to be made ● Soft dollar benefits In exchange for the presentation of information regarding the company's various financial products, MS Ltd provides a number of soft dollar benefits, such as the payment of a sizeable sponsorship fee to the licensee and authorized representatives In addition, the licensee is eligible to receive certain benefits Other soft dollar advantages for financial advisors include invitations to attend conferences held abroad, flights in business class, rooms at five-star hotels, and networking meals at the most sumptuous restaurants; all of these things are paid for by IMS Ltd Morgan was not provided with any information on this matter ● Restrictions on early release of superannuation Clients such as Morgan placed their faith in Thomas' suggestions and erroneously assumed that it was good to invest their retirement savings in IMS when in fact, this was not the case5 However, as a result of the strategy that Thomas recommended, facilitated, and permitted for his clients, those clients breached the restrictions on the early release of benefits from their superannuation accounts This is not legally permissible or appropriate, but it happened because of the strategy that Thomas recommended, facilitated, and Anagol, S., Cole, S., & Sarkar, S (2017) Understanding the advice of commissions-motivated agents: Evidence from the Indian life insurance market Review of Economics and Statistics, 99(1), 1-15 Bhatia, N., & Porceddu, L (2021) Emptying the nest egg to fill the nursery: Early release of superannuation to fund assisted reproductive technology UNSWLJ, 44, 513 permitted for his clients Thomas is to blame for violating these rules and regulations in every way he can ● Failure to disclose motor vehicle insurance restrictions Ricca Pty Ltd places specific restrictions on the kinds of motor insurance that its licensees are permitted to carry, and those restrictions are mandatory Thomas made a vehement recommendation to Morgan that he works with Insurance Ltd for the requirements of his company's insurance Morgan was not given any information on the confinements to the property In addition, the fact that Insurance Ltd pays significant commissions to those who sell its insurance products was not made explicit; somewhat, this information was concealed from the audience according to Economides6 The Australian Securities and Investments Commission (ASIC) demanded that Ricca Pty Ltd tell them of these issues as soon as they were found; however, the company did not comply with this requirement The board's monitoring, as well as the licensees' risk management, requires the reporting of breaches as an integral component of the process ● Lack of training for representatives The Australian Securities and Investments Commission (ASIC) made the startling revelation that the licensee did not provide enough training to its salespeople, including Thomas Customers usually not know whom to talk to in the event that they have a complaint since there is no mechanism in place for internally resolving disputes, and there is no system in place for internally resolving conflicts No risk management system can adequately handle the risks There is a deficiency in identifying and reporting possible risks that may be posed not only to the organization but also to its clients ● Lack of internal dispute resolution Ricca Pty Ltd had stated on their websites that certain transactions on an account were free, but in fact, the account was subject to account-keeping fees or monthly fees, as discovered Economides, N., Hubbard, R G., & Palia, D (1996) The political economy of branching restrictions and deposit insurance: A model of monopolistic competition among small and large banks The Journal of Law and Economics, 39(2), 667-704 by the Australian Securities and Investments Commission (ASIC) However, despite the fact that the particular transaction in issue does not result in any extra charges, there is still a fee connected with utilizing the account7 Because it conveys such a strong meaning, the term "free" should never be used in contexts where there is a charge of any type involved with utilizing the product This is because the word "free" gives off such a strong connotation Can Morgan successfully claim that Thomas misled her? It is not impossible for Morgan to be correct in her assertion that Thomas misled her about anything According to the evidence, Thomas used a number of different sorts of pressure, including words, in order to emphasize the point that the businesses were just as safe and secure as a bank He emphasized the stability of these assets, and his results indicate that both their share prices and their returns are likely to see a parabolic increase in the near future This led to an impression that was not accurate, which led Morgan to assume that the investment contained a low level of risk while, in fact, the transaction involved a high level of risk As a consequence of this, Morgan made a wrong decision about the investment Thomas failed to mention another important fact: that he would be eligible for commissions for recommending the investment Before making a decision, Morgan would want to be aware of this pertinent information since it is crucial, but Thomas did not share it with him Was it appropriate for Thomas to recommend that Morgan invest in Technology Ltd? It was wrong for Thomas to advise Morgan that he made an investment in Technology Ltd., and Thomas should not have made the recommendation According to the information that was readily accessible, investing in technology was a venture that carried a significant degree of risk The licensee and its authorized agents could become eligible for commissions if they suggested one of the many financial products offered by the firm Thomas did not address the risk that the client may lose her money and assets, which may have an effect on the customer's ability to increase her wealth This was a mistake on Thomas's part On the other hand, this specific investment opportunity was presented in the Hodges, C (2019) Delivering dispute resolution: a holistic review of models in England and Wales form of one that was appealing and restricted in its sphere of application Morgan was completely unaware of the fact that there were any commissions to be made Was it appropriate for Thomas to recommend that Morgan's business buy insurance from Insurance Ltd? Thomas's recommendation that Morgan's company get insurance from Insurance Ltd was inappropriate and should not have been made According to the evidence, Ricca Pty Ltd places limits on its licensee in reference to the kind of automobile insurance they may get Insurance Ltd pays hefty fees to those who offer their insurance products; however, this information was not made public When Ricca Pty Ltd uncovered these problems, it did not notify ASIC of them in a timely way as required by the regulator The reporting of breaches is an essential component of the board's monitoring and the licensees' risk management Was it appropriate for Thomas to recommend that Morgan roll over her superannuation fund XYZ Super Fund Ltd to another fund and invest in a related company of Ricca Pty Ltd called Incentive Management Systems Ltd (IMS)? It was inappropriate for Thomas to suggest that Morgan move her retirement savings from XYZ Super Fund Ltd to another fund and invest in Incentive Management Systems Ltd, which is a connected firm of Ricca Pty Ltd It was inappropriate for Thomas to suggest that Morgan move her retirement savings from XYZ Super Fund Ltd to another fund and invest in Incentive Management Systems Ltd (IMS) According to the evidence that is currently available, IMS Ltd provides non-tangible monetary incentives, such as the payment of a significant sponsorship fee to the licensee and authorized agents, in return for the presentation of information about the company's numerous financial products IMS Ltd foots the bill for financial advisers' business class flights, rooms at five-star hotels, networking lunches at the most lavish restaurants, and invitations to attend conferences held outside of the country as further soft dollar benefits Morgan was not provided with any information on this matter In addition, clients such as Morgan placed their trust in Thomas' advice and, as a result, made the erroneous assumption that it was OK to deposit their funds for retirement in IMS due to his reassurances However, as a result of the strategy that Thomas recommended, facilitated, and permitted for his clients, those clients breached the restrictions on the early release of benefits from their superannuation accounts This is not legally permissible and is not appropriate, but it happened as a result of the strategy that Thomas recommended, facilitated, and permitted for his clients Thomas is accountable for the infringement of these limits Was Ricca Pty Ltd required to disclose the commissions they received from Insurance Ltd? It was necessary for Ricca Pty Ltd to declare the commissions that they had received from Insurance Ltd According to the evidence presented, Insurance Ltd pays significant commissions to those who market their insurance products; however, this information was not disclosed When Ricca Pty Ltd uncovered these problems, it did not notify ASIC of them in a timely way as required by the regulator The reporting of breaches is an essential component of the board's monitoring and the licensees' risk management Was Ricca Pty Ltd required to disclose the restrictions on its licensees regarding motor vehicle insurance? It was essential for Ricca Pty Ltd to disclose the limits on its licensees regarding the types of auto insurance they may carry According to the evidence, Ricca Pty Ltd places limits on its licensee in reference to the kind of automobile insurance they may get Morgan was not informed of these prohibitions and limits In addition, the fact that Insurance Ltd pays substantial commissions to those who market its insurance products was not made public When Ricca Pty Ltd uncovered these problems, it did not notify ASIC of them in a timely manner as required The reporting of breaches is an essential component of the board's monitoring and the licensees' risk management Was Ricca Pty Ltd required to disclose the soft dollar benefits received by its authorized representatives? Therefore, the answer to your question is "yes," since the authorized representatives of Ricca Pty Ltd were required to record any benefits in the form of soft dollars they had received According to the evidence that is currently available, IMS Ltd provides nontangible monetary incentives, such as the payment of a significant sponsorship fee to the licensee and authorized agents, in return for the presentation of information about the company's numerous financial products IMS Ltd foots the bill for financial advisers' business class flights, rooms at five-star hotels, networking lunches at the most lavish restaurants, and invitations to attend conferences held outside of the country as further soft dollar benefits Morgan was not provided with any information on this matter Was Ricca Pty Ltd required to train its representatives, including Thomas? It was Ricca Pty Ltd's responsibility to provide appropriate training for its staff, which included Thomas According to the information that was given, ASIC came to the conclusion that Ricca Pty Ltd had not provided an adequate degree of training to any of its representatives, including Thomas Customers often not know whom to contact in the event that they have a complaint about the company's products or services since there is no internal dispute resolution procedure in place No risk management system can adequately handle the risks There is a deficiency in identifying and reporting possible risks that may be posed not only to the organization but also to its clients Was Ricca Pty Ltd required to disclose the fees associated with using the account? In point of fact, Ricca Pty Ltd was required to clarify the fees associated with using the account According to the evidence, Ricca Pty Ltd represented on their websites that some transactions on an account are free, despite the fact that the account is subject to accountkeeping or monthly costs8 This was done even though the account was subject to fees There is still a cost connected with utilizing the account, even if there are certain transactions that not result in any additional fees being charged Even though there are no additional costs connected with that particular transaction, this is nonetheless the case Because it has such a strong connotation, the word "free" should never be used in circumstances where there is a charge of any type involved with making use of the product This is because using the word "free" sends the wrong message 10 Was Ricca Pty Ltd required to have an internal dispute resolution system in place? Indeed, Ricca Pty Ltd needed to establish some kind of in-house mechanism to settle disputes According to the evidence presented, ASIC found that Ricca Pty Ltd had not provided its representatives, including Thomas, with an acceptable level of training Because there is no system for internally resolving disputes, customers often not know whom to speak to if they have a complaint There is not a risk management system that is Corporations Act 2001 (Cth) s 961B sufficient There is a lack of identification and documentation of potential dangers to the company and the customers REFERENCES Bird, H., & Gilligan, G (2016) Deterring corporate wrongdoing: penalties, financial services misconduct and the Corporations Act 2001 (Cth) Company and Securities Law Journal, 34(5), 332-359 Anagol, S., Cole, S., & Sarkar, S (2017) Understanding the advice of commissionsmotivated agents: Evidence from the Indian life insurance market Review of Economics and Statistics, 99(1), 1-15 Bhatia, N., & Porceddu, L (2021) Emptying the nest egg to fill the nursery: Early release of superannuation to fund assisted reproductive technology UNSWLJ, 44, 513 Economides, N., Hubbard, R G., & Palia, D (1996) The political economy of branching restrictions and deposit insurance: A model of monopolistic competition among small and large banks The Journal of Law and Economics, 39(2), 667-704 Hodges, C (2019) Delivering dispute resolution: a holistic review of models in England and Wales Australian Securities and Investments Commission (ASIC) | Practical Law (2022) Retrieved 11 September 2022, from https://uk.practicallaw.thomsonreuters.com/w-0074449?transitionType=Default&contextData=(sc.Default)&firstPage=true Legislations ASIC Act 2001 (Cth) s 12EA Corporations Act 2001 (Cth) s 912D Corporations Act 2001 (Cth) s 961B ... (1996) The political economy of branching restrictions and deposit insurance: A model of monopolistic competition among small and large banks The Journal of Law and Economics, 39(2), 667-704... resolution: a holistic review of models in England and Wales form of one that was appealing and restricted in its sphere of application Morgan was completely unaware of the fact that there were... (1996) The political economy of branching restrictions and deposit insurance: A model of monopolistic competition among small and large banks The Journal of Law and Economics, 39(2), 667-704