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ASIC suspends Kinetic Securities licence

by Martha.Ware 17. August 2011 15:28

ASIC has suspended the Australian financial services (AFS) licence of Sydney-based company, Kinetic Securities Pty Ltd (Kinetic), effective 15 August 2011.

Kinetic, which offers online trading services such as contracts for difference (CFDs) and margin foreign exchange to retail clients, went into voluntary liquidation on 8 August 2011.

Robyn Duggan and Max Donnelly of Ferrier Hodgson were appointed as liquidators last week. This appointment gave ASIC the power to immediately suspend or cancel Kinetic’s AFS licence without a hearing.

ASIC has been advised that Kinetic ceased carrying on its financial services business on, or before, the appointment of the liquidators.

Kinetic’s liquidators are currently conducting an investigation into the company’s affairs. Creditors who have information which may assist the liquidator’s inquiries should write to Ferrier Hodgson setting out full particulars.

Clients with trading inquiries and creditors of Kinetic wishing to lodge a proof of debt should contact:

Alex Campbell of Ferrier Hodgson on +61 2 9286 9840 or alex.campbell@fh.com.au

ASIC will continue to assess the timing of the cancellation of Kinetic’s AFS licence.



Credit licensees warned against misuse of ASIC name and logo

by Martha.Ware 17. August 2011 14:25

ASIC has today warned businesses and companies licensed by ASIC to not use the ASIC name or logo when promoting their businesses or the fact that they hold a licence with ASIC.

The warning is targeted to holders of an Australian credit licence who have recently come under ASIC’s regulatory responsibility for the first time. It follows a credit provider voluntarily agreeing to stop using ASIC’s name and logo on its website after ASIC found the use of the name and logo breached its intellectual property and was potentially misleading.

‘The National Consumer Credit Protection Act 2009 and the Corporations Act 2001 prescribe the information and documents that credit licensees and Australian financial services licensees respectively must include about their licence. This is an important part of informing consumers that they are dealing with a licensed and regulated entity,’ said ASIC Commissioner Dr Peter Boxall.

‘However, ASIC is concerned that use of the ASIC name and logo in conjunction with these identification requirements could cause consumers to believe the business or company is in some way endorsed or approved by ASIC.

‘ASIC reminds licensees that the correct way to inform the public that they hold a credit licence is to display the Australian credit licence number. Credit licensees must include their credit licence number in certain prescribed documents, including advertisements, from 1 April 2012. Licensees should have started the process of updating documentation which identifies them as holders of an Australian credit licence to avoid breaching the National Credit Act,’ Dr Boxall added.

More information about displaying an Australian credit licence number is contained in Getting a credit licence ([INFO 103]), which is available from the ASIC website at www.asic.gov.au.

ASIC also reminds consumers obtaining credit or seeking credit advice that they should only deal with credit licensees or their authorised representatives. Consumers can conduct a quick and easy check on the ASIC website.

Complaints concerning individuals or companies suspected of misusing ASIC’s name or logo, or trading without a credit licence or authorisation, may be lodged with ASIC via the website or by writing to any of our capital city offices across Australia at:

ASIC Complaints
Australian Securities and Investments Commission
GPO Box 9827



Beware of Frontline Financial Planning: ASIC

by Martha.Ware 17. August 2011 14:21

ASIC has urged consumers to be wary of an advisory firm purporting to specialise in equities and derivatives trading on Australian and international markets.

ASIC has received numerous complaints from investors about the firm known as Frontline Financial Planning (Frontline). Frontline allegedly contacts individuals by phone and encourages them to participate in a two-week trial with access to an investment account managed by a company broker. Complainants who have taken up the trial to date have been unable to recover their money following the two-week period.

ASIC Commissioner Dr Peter Boxall said investors need to be cautious when offered unsolicited investment advice.

‘Potential investors should be extremely wary of investment offers from companies they know little about. Investors should consider investing through advisers who hold a legitimate licence to offer investment advice,’ Dr Boxall said.

ASIC has shut down Frontline’s website (www.frontlinefinancialplanning.com) which contained a number of false statements including a claim that it holds an Australian Company Number (ACN) and an Australian financial services (AFS) licence issued by ASIC. Its website also quotes the licence and ACN details of a legitimate and unrelated company.

Frontline has recently registered a new website in Thailand - www.ftlfinancialplanning.com, and ASIC is working to ensure this website is removed.

ASIC’s action against Frontline is consistent with its focus on ensuring Australian investors are confident and well informed

Frontline is not associated with registered companies known as Frontline Financial Planning Pty Ltd (ACN 150 602 896) or FTL Financial Advice Pty Ltd (ACN 069 805 207).

ASIC's checklist for consumers who are contemplating using services from websites

  • Is the company a registered Australian company? (Check ASIC’s register and ensure the company name and number are identical to that stated on its website)
  • Does the firm hold an AFS licence or authorised representative status? (check ASIC’s AFS licensees register)
  • Does the firm’s licence conditions specifically authorise it to operate Managed Discretionary Account services (MDAs)? This licence authorises the licensee to carry on a financial services business; to provide financial product advice for MDA services; to deal in a financial product by issuing, applying for, acquiring, varying or disposing of a financial product in respect of MDA services; and to deal in a financial product by applying for, acquiring, varying or disposing of a financial product on behalf of another person in respect of MDA services.
  • Have you received a Financial Services Guide (FSG)?
  • Have you received a Statement of Advice and an Investment Program?
  • Does the firm have professional indemnity insurance?



ASIC extends consultation period on debentures and advertising and extends interim no-action position

by Martha.Ware 17. August 2011 14:19

ASIC today announced it will conduct further consultation on proposals that would revise its policy on how debt securities can be described in offer documents and the preferred form of advertising for these instruments.

In March 2011 ASIC published Consultation Paper 151 Debt securities: Modifying the naming provisions and advertising requirements (
CP 151). The proposals are in response to submissions from industry participants expressing concerns about our decision in June last year to discontinue the no-action position in relation to certain non-compliance with the debenture naming restrictions.

Following our review of the submissions received to CP 151, ASIC considers further consultation is required to finalise the policy and will shortly contact the initial respondents in order to seek further submissions.

ASIC also encourages other interested persons who did not provide formal submissions on CP 151 to contact us if they would like to make any comments in relation to the proposals.

In the meantime, ASIC advises that it has extended the interim no-action position that allows issuers to call their products ‘debentures’ where they have provided security over intangible property. This interim no-action position is now due to expire on 31 January 2012.



Nexbis Limited pays $33,000 continuous disclosure penalty

by Martha.Ware 17. August 2011 09:52

Nexbis Limited (Nexbis) has paid a $33,000 penalty after ASIC issued an infringement notice for an alleged failure to inform the market about an acquisition for US$30 million of all the rights in an agreement to supply the Nexcode security suite to the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China (AQSIQ) for the China National Gas Tank Project (the Project) in the period 26 August 2010 to 9.07am (EST) on 7 September 2010.

Nexbis is a provider of telecommunications products and services listed on the Australian Securities Exchange (ASX).

On 27 July 2011, ASIC issued the infringement notice because ASIC believes that Nexbis contravened the continuous disclosure obligation in section 674(2) of the Corporations Act 2001 by failing to notify the ASX on 26 August 2010 of the acquisition for US$30 million by its subsidiary of all the rights in an agreement to supply the Nexcode security suite to AQSIQ for the Project.

ASIC found that by 26 August 2010, Nexbis knew that:

  • on 6 May 2010, its subsidiary had entered into an assignment deed under which CITP Holdings (Hong Kong) Limited (CITP) assigned to the subsidiary all its interest in an agreement to supply the Nexcode security suite to AQSIQ for the Project, for US$30 million;
  • by 27 May 2010, Nexbis had paid US$27,500,000 (A$34,481,000) of the US$30 million payable to CITP under the assignment deed;
  • on 28 July 2010, government approval had been given for the conversion of a joint venture China domestic company into a Sino-Foreign joint venture, to roll out the Project; and
  • on 26 August 2010, approval had been received from the Foreign Exchange Bureau of China for the opening of a foreign currency bank account by the joint venture,

Nexbis did not announce the Information until 9.07am on 7 September 2010.

ASIC found that if the Information was generally available, it could have a material effect on the price or value of Nexbis’ securities because:

  • Nexbis had made regular statements about the significance of and revenue from the Project since it was first announced on 17 November 2008.
  • The purchase of the intangible assets under the assignment deed was material to Nexbis.
  • Throughout 2010, the Project was one of three live projects for Nexbis and therefore, was important to the business of Nexbis.
  • In the financial year ending 30 June 2010, Nexbis had a normalised cash loss of A$10,500,000, a net loss after tax A$49,600,000 and its revenue had fallen by 96% from the previous financial year to A$2,438,000.
  • Nexbis’ market capitalisation as at 31 December 2010 was $83,827,453.92.

Nexbis has elected to comply with the infringement notice. The Corporations Act states that compliance with the infringement notice is not an admission of guilt or liability, and Nexbis is not regarded as having contravened section 674(2) of the Corporations Act. The penalty of $33,000 is stipulated by the Corporations Act for disclosing entities with a market capitalisation at the relevant time of less than $100 million.

Further information about ASIC’s administration of infringement notices is available from the ASIC website under ‘Continuous disclosure’.



Former company director committed for trial on dishonest conduct charges

by Martha.Ware 17. August 2011 08:29

Former company director, Simon Finnigan, has been committed to stand trial on 14 criminal charges of dishonest conduct involving investor funds worth more than $2.2 million.

Mr Finnigan, 49, a former director of Financial Partners Pty Ltd, was committed for trial following a three day committal hearing in Sydney’s Downing Centre Local Court last week.

The charges relate to dishonest conduct in relation to the supply of a financial product or a financial service. Each charge carries a maximum penalty of five years imprisonment, a $220,000 fine or both.

ASIC alleges that Mr Finnigan raised funds through Financial Partners Pty Ltd, Venture Capital Management Pty Ltd and Biotech Solutions Pty Ltd by telling investors he would invest their money in shares, options, managed funds and property for returns of between 8 and 15 per cent.

According to ASIC, Mr Finnigan then deposited the money into bank accounts he controlled and used the funds for the three companies and his own personal use.

The charges follow an investigation, supporting ASIC’s priority of ensuring investors are confident and informed.

Mr Finnigan’s bail conditions are to continue with an additional requirement that he report to police weekly.

The matter returns to the District Court in Sydney on 2 September 2011.

The Commonwealth Director of Public Prosecutions is prosecuting the matter.


ASIC | Offences - finance

ASIC pushes for greater CFD disclosure

by Martha.Ware 15. August 2011 09:27

ASIC has released new disclosure benchmarks for contracts for difference (CFDs) that aim to improve disclosure and investor awareness about risks of these products.

The guidance also covers margin foreign exchange contracts.

In Australia, most CFDs are issued as over-the-counter (OTC) products, making them increasingly accessible and popular with retail investors. But CFDs are a high-risk financial product and their complexity means they are unlikely to meet the investment needs of many retail investors.

ASIC Chairman Greg Medcraft said action was needed to ensure people considering CFDs are aware of the downside as well as the upside.

‘CFDs are extremely risky financial products. Most investors don't understand that complexity and they don't get independent financial advice. That means we need CFD issuers to do a much better job of spelling out to investors the risks as well as the rewards of these complex products,’ Mr Medcraft says.

‘ASIC’s number one priority is ensuring investors and financial consumers are confident and informed. We want issuers to work harder to ensure people investing in CFDs better understand what they are getting into – before they start trading.’

Regulatory Guide 227 Over-the-counter contracts for difference: Improving disclosure for retail investors (RG 227) outlines seven benchmarks which aim to help investors understand the risks and benefits of OTC CFDs. Issuers must address these benchmarks in product disclosure statements (PDSs) from 31 March 2012.

The seven benchmarks (see ‘Background’ for further details) mean issuers will need to address each issue in their PDSs on an ‘if not, why not’ basis. The benchmarks are:

·          client qualification

·          opening collateral

·          counterparty risk - hedging

·          counterparty risk - financial resources

·          client money

·          suspended or halted underlying assets

·          margin calls.

RG 227 also outlines the standards ASIC expects issuers to meet when advertising OTC CFDs to retail investors.

ASIC has previously released an investor guide—Thinking of trading contracts for difference (CFDs)? to help investors understand the benchmarking information in disclosure documents. This guide has general information about CFD operation and risks and indicates what investors should look for when reading PDSs. This will be updated to explain the benchmarks when they become effective from 31 March 2012.

Details on ASIC’s consultation and industry responses are summarised in Report 246 Response to submissions on CP 146 OTC CFDs: Improving disclosure for retail investors (REP 246).


CFDs are leveraged derivative products that let investors take a position on the change in the market price of an underlying asset, such as a share or commodity, or the value of an index or a currency exchange rate.

There are currently around 39,000 active CFD investors in Australia. (Investment Trends, 2010 Australia CFD Report, May 2010). The CFD market has seen growth of over 300% in the last five years, and it is reasonable to infer that this growth will continue. (By comparison with the figure of 9000 CFD traders in Australia reported in Investment Trends, 2005 Contracts for Difference Report: Understanding current and next wave CFD traders, September 2005.)

ASIC benchmarks for OTC CFDs issued to retail investors

1 Client qualification

Benchmark 1 addresses the issuer’s policy on investors’ qualification for CFD trading.

2 Opening collateral

Benchmark 2 addresses the issuer’s policy on the types of assets accepted from investors as opening collateral.

3 Counterparty risk—Hedging

Benchmark 3 addresses the issuer’s practices in hedging its risk from client positions and the quality of this hedging.

4 Counterparty risk—Financial resources

Benchmark 4 addresses whether the issuer holds sufficient liquid funds to withstand significant adverse market movements.

5 Client money

Benchmark 5 addresses the issuer’s policy on its use of client money.

6 Suspended or halted underlying assets

Benchmark 6 addresses the issuer’s practices in relation to investor trading when trading in the underlying asset is suspended or halted.

7 Margin calls

Benchmark 7 addresses the issuer’s practices in the event of client accounts entering into margin call.

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Trio former chairman and director agrees to nine year exclusion from financial services industry

by Martha.Ware 15. August 2011 09:16

ASIC has announced it has entered into an enforceable undertaking (EU) with former chairman and director of Trio Capital Limited (Trio) Mr David Andrews.

Mr Andrews was a non executive director between November 2005 and January 2006 and then again from July 2006. He was Chairman of the board of Trio from February 2007. He was also chairman of the Investment Committee of Trio and a member of the Risk and Compliance Committee of Trio. Mr Andrews has agreed not to act in any role within the financial services industry for nine years. With the exception of a small private company in which Mr Andrews is sole director, he has also agreed not to act as a director of any corporation for nine years.

ASIC Chairman, Greg Medcraft, said: ‘We believe Mr Andrews failed in his duties as officer of the responsible entity of the Astarra Strategic Fund and therefore it's inappropriate for him to be involved in the financial services industry or act as director. This is the fifth outcome arising from ASIC's investigation of Trio Capital and its related entities as we continue to hold gatekeepers in the financial services industry to account. Also, it comes on the eve of the sentencing of Shawn Richard, investment manager of the related Astarra Strategic Fund.'

The announcement follows the EUs entered into with former Trio directors Rex Phillpott and Natasha Beck last month, the EU from Kilara Financial Solutions Pty Ltd, the Australian financial services licence suspension of Seagrims Pty Ltd and the financial services banning of the directors of Seagrims.

Mr Shawn Richard has pleaded guilty to two charges of dishonest conduct in relation to his role as a director of the investment manager of the Astarra Strategic Fund.


Trio Capital was formerly the trustee of five superannuation entities and the responsible entity for 25 managed investment schemes, including the Astarra Strategic Fund. The Astarra Strategic Fund was a fund of hedge funds which in December 2009 had reported assets of $125 million. Investors in the Astarra Strategic Fund included several superannuation trusts managed by Trio Capital as well as self-managed superannuation funds and direct investors.

The Astarra Strategic Fund invested in several questionable overseas hedge funds, mostly based in the Caribbean. ASIC commenced an investigation into Trio Capital in October 2009 over concerns about the legitimacy of its investments. Trio Capital was placed into administration on 16 December 2009 and on 16 April 2010 the NSW Supreme Court ordered that the Astarra Strategic Fund be wound up. Since this time the liquidator of Trio Capital has been unable to recover the vast majority of the investments made by the Astarra Strategic Fund.

Investigations into Trio Capital are continuing by both ASIC and the Australian Prudential Regulation Authority.



ASIC acts on Shield Mercantile debt collection practices

by Martha.Ware 15. August 2011 09:14

ASIC has taken action over the debt collection practices of Shield Mercantile Pty Ltd (Shield Mercantile) following complaints from consumers about harassment.

Among the complaints were concerns regarding unduly frequent contact with debtors, contact with third parties, inappropriate and aggressive phonecalls and inadequate internal dispute resolution policies and procedures.

Senior Executive Leader of ASIC’s Deposit Takers, Credit and Insurers stakeholder team, Greg Kirk, said: ‘Creditors and debt collectors can’t behave in a way that is misleading, or that amounts to undue harassment or coercion. ASIC will take appropriate steps to ensure that debt collectors comply with the law.’

In response to ASIC’s concerns, Shield Mercantile has reviewed its compliance system and processes and implemented a number of changes, including:

·          a telephone call recording system

·          regular audits of debt collecting telephone calls

·          improvement in the training of staff

·          improvement in internal dispute resolution procedures, and

·          appointment of a Quality Assurance Manager, Compliance Manager and Group Coordinator.

ASIC acknowledges the cooperation of Shield Mercantile in responding to and resolving these issues.



ASIC publishes ETF information for investors

by Martha.Ware 15. August 2011 02:41

ASIC today published new information on its consumer finance website, MoneySmart, to help consumers understand the different types of Exchange Traded Funds (ETFs), and their risks.

ETFs can provide a convenient and low-cost way for investors to diversify and receive returns close to the performance of market indexes or other assets, usually with lower fees than traditional managed funds. But while standard, ‘physical’ ETFs generally invest in the underlying investments they are designed to track, ‘synthetic’ ETFs also use derivatives, such as swap agreements, to achieve similar outcomes. Benefits to investors of synthetic ETFs may include access to new and varied asset classes and low performance ‘tracking error’. Downsides include increased complexity and counterparty risk.

Standard ETFs are widely available in Australia. A few synthetic ETFs are currently available in Australia and they are increasingly available overseas.

ASIC Chairman Greg Medcraft said: ‘ETFs are growing in popularity and people should understand the different features and risks of ETFs before investing. We want investors to be informed and confident if investing in ETFs so therefore ASIC has published clear and straight forward information at www.moneysmart.gov.au to help investors understand these products. While conventional ETFs are often relatively straight forward, there are complexities and risks to be aware of. Furthermore, the use of derivatives by synthetic ETFs creates separate additional issues for investors to consider. Either way, people should not invest in products they don’t understand.

‘ASIC is monitoring this area closely and will review thoroughly the introduction of any new types of ETFs in Australia, as some of these can be complex investments that may not be suitable for many retail investors,’ he said.

ASIC’s consumer information update follows its work in November 2010, where new measures were introduced to help address the risks of the two synthetic ETFs currently available, including:

·          the products must use the word synthetic in their title, so investors can identify them;

·          the swap counterparty must be an entity of substance such as an ADI or its foreign equivalent, or an entity with an irrevocable guarantee from an ADI or ADI equivalent;

·          the ETF provider must hold substantial security (collateral) for its swap agreements; this collateral must be liquid and be consistent with the investment objective for the ETF;

·          counterparty exposure should not normally exceed 10% of the ETF value, and if temporarily exceeded, the counterparty should immediately pay up to reduce this exposure;

·          investments in these types of products should be non-recourse.

In recognition of the growing popularity of ETFs in Australia and the need to help investors understand the risks and other considerations associated with them, ASIC has started a review to identify and assess the risks associated with both standard and synthetic EFTs. The review will seek to clarify the impact of these risks to Australian investors. It is envisaged that the review will involve discussions with participants of the ETF industry in Australia.


Exchange traded funds (ETFs) are a type of managed investment that can be bought and sold like shares. They usually aim to replicate changes in the value of a share index, but are now also available for a wide range of assets including natural resources and foreign currencies.

The popularity of ETFs in Australia has grown dramatically, with over 700% growth in value over five years, and the availability of over 50 different products through the ASX. The majority of ETFs in Australia are standard ‘physical’ ETFs, while a few synthetic ETFs are also available. By 30 April 2011, ETFs in Australia were worth approximately $4.7 billion, an increase of 39% in one year and representing 700% growth in five years (at 30 April 2006, the market was worth less than $600 million).

For more information see www.moneysmart.gov.au




LexisNexis, and the authors and endorsers of this blog each exclude liability for loss suffered by any person resulting in any way from the use of, or reliance on, the content of the blog. Views expressed in blog content are the opinion of the individual writer and do not represent the views of LexisNexis.

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