Acting ‘efficiently, honestly and fairly’

by Stanley Drummond*

The Federal Court has found an Australian financial service licensee contravened the Corporations Act 2001 (Cth) by devising and conducting an unfair program for referring customers.

Justice Wendy Abraham in Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2) [2022] held that, from January 2015 to May 2017, Select contravened s912A(1)(a) of the Act which requires a licensee to do all things necessary to ensure financial services covered by AFSL are provided “efficiently, honestly and fairly”.

Background

Select AFSL sold life insurance policies with optional add-on covers. At the end of a successful phone call for the sale of a policy, the sales agent would ask the newly acquired customer to provide contact details of friends and family members who might be interested in purchasing a policy, and offer them a gift voucher for each referred customer who went on to buy a policy.

ASIC’s contentions

ASIC contended the referral program had been devised and executed unfairly in at least four ways:

• the program did not require sales agents to obtain consent from referred customers to use their details, or give referring customers the opportunity to obtain consent from the individuals whose contact details they were providing
• sales agents repeatedly name-dropped referring customers, impliedly suggesting to referred customers that the referring customers endorsed the policy
• sales agents did not ask whether referring customers wished to participate in the program at all, but would seamlessly launch into the offer and request contact details, once the referring customer had purchased a policy, and
• sales agents were participating in various incentive programs while using the referral program to achieve sales.

The court’s decision

Justice Abraham found the licensee:

• had not adequately monitored phone calls of sales agents soliciting contact details from newly acquired customers for the purpose of the referral program
• had not adequately monitored agents’ phone calls to persons whose contact details were obtained through the referral program, and
• had not identified that use of the referral program would, or was causing or contributing to, a spike in sales in postcodes with a high proportion of Aboriginal or Torres Strait Islander populations.

She found the referral program had been devised and executed unfairly and s912A(1)(a) contravened.

As for dishonesty, Justice Abraham noted one instance where the licensee had failed to detect that a sales agent had dishonestly suggested to a referred customer that the referring customer had “really wanted” her to attempt to provide him with a rundown of an insurance policy and provide him with a free quote. She made no finding of inefficiency.

Comment

The section 912A(1)(a) contraventions in this case pre-dated 13 March 2019, from which date a contravention may attract a civil penalty.

*Stanley Drummond is a partner at Thomson Geer.

Editor’s note: Select AFSL was the subject of an adverse case study at the financial service royal commission. More information is here.

Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2) [2022] FCA 786