Spectrum Wealth Advisers Pty Ltd (Spectrum), the holder of an AFS licence, was in the business of authorising representatives to provide financial planning advice to clients. It also provided marketing and other support services and received a share of the fees charged by its representatives. ASIC claims that Spectrum failed to diligently recruit, train, monitor and supervise its authorised representatives and found that Spectrum had a culture that promoted growth over compliance, which led to the failure to adequately monitor and supervise its representatives. By extension, its responsible manager, Mr Mark Schroeder, was also found to have engaged in contraventions of the financial services laws.
In February 2020, ASIC banned Mr Schroeder from providing financial services for six years for his role in numerous compliance failures by Spectrum. He had multiple roles as a responsible manager and key person on the licence and was also a director and chief executive officer. Among the reasons for the banning order was his involvement in Spectrum’s contraventions of financial services laws, being its most senior manager and the person primarily responsible for its activities and day-to-day management.
ASIC considered that those contraventions arose due to Mr Schroeder’s poor understanding of the obligations of AFS licensees and therefore determined that Mr Schroeder is likely to contravene a financial services law in future. ASIC had identified serious concerns about Spectrum’s compliance and its failure to do all things necessary to ensure that financial services were provided efficiently, honestly and fairly.
A major regulatory concern was that Spectrum failed to take reasonable steps to ensure that its representatives complied with the law. ASIC noted the failure to audit representatives regularly and also a failure to ensure that representatives were adequately trained and competent.
ASIC expects that people holding a position of responsibility with an AFS licensee must understand the legal/regulatory obligations of financial services providers and make every effort to ensure compliance, particularly the directors and responsible managers. The function of the responsible manager is to make significant day to day decisions and the key person clause is imposed by ASIC on a licence in certain situations, including where an individual has a senior management role and the licensee is heavily dependent on the competence of that responsible manager.
Mr Schroeder appealed ASIC’s decision to the Administrative Appeals Tribunal (AAT). The AAT found that Mr Schroeder:
- was not a “fit and proper” person to provide financial services;
- was involved in contraventions of financial services laws by Spectrum because of his senior management role; and
- was not adequately trained or competent to manage the provision of financial services.
Mr Schroder stated that he was not in a position to know or affect the operations of the company and that he should not be held responsible for the behaviour of others. He felt that he was unfairly targeted by ASIC over those who had greater involvement in the operations of Spectrum.
He also stated that he did not alert ASIC about irregularities at Spectrum or resign from his important roles because he felt powerless and that he did not dare speak up or resign from his position because he did not want to be denied an opportunity to acquire Spectrum. He also stated that he was a director in name only despite being a member of the board of three directors.
The AAT considered that Mr Schroeder allowed himself to be compromised in his directors duties and that he was reluctant to do anything about the problems at Spectrum because of his self-interests. For example, he had raised the issue that there was insufficient resources to monitor the authorised representatives but this was not done in a timely manner. He did not take any further steps to address the gaps in compliance resourcing and failed to take reasonable steps to ensure that the representatives complied with financial services laws.
He was found to be involved in Spectrum’s contraventions because he was aware of the prohibited conduct even if he might not have realised the full extent of the contraventions. Sounding an internal warning over Spectrum’s shortcomings was not regarded as having taken adequate steps to deal with the contraventions. That he took no further action and did not resign as a director, responsible manager and key person or report his concerns to ASIC, and apparently made only a half-hearted attempt to speak with Spectrum’s auditor, counted against him. The AAT considered that office holders must faithfully, competently, fearlessly and diligently discharge their obligations and cannot disclaim responsibility on the basis that they are constrained.
Mr Schroeder was not considered to be a “fit and proper person” because he allowed himself to be bullied by other officers although he was an officer, responsible manager and key person. The AAT concluded that the evidence did not suggest that he had the training or competence required to be involved in the management of financial services or provide financial services.
ASIC’s banning decision was broadened by the AAT to ban Mr Schroeder from providing any financial services and performing any function involved in the carrying on of a financial services business, including as an officer, manager, employer, contractor or in any capacity for a period of six years.
If you are a Responsible Manager and would like guidance as to your role and responsibilities, please contact Know Compliance: (03) 9689 1186 or admin@knowcompliance.com.au. The new breach reporting requirements are far more onerous than previously.