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  • In the wake of the Banking Royal Commission, it is important to revisit the history and meaning of the obligation on holders of Australian Financial Services Licences to provide their services in an efficient, honest and fair manner.
  • The relevant provision under the Corporations Act has recently been made a civil penalty provision.
  • ASIC has stated it will seek to use the new penalties in exercising its powers as regulator so as to ensure both corporate and individual accountability.

Section 912A of the Corporations Act 2001 (Cth) (the ‘Act’) provides the general obligations that apply to holders of an Australian Financial Services Licence (‘AFSL’). The overarching obligation contained in subsection (1)(a) states that an AFSL holder must ‘do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly’. In the wake of the Hayne Royal Commission, it is worth revisiting the history and meaning of the obligation and its importance for AFSL holders.

Recent developments

While the provision has been around for some time (it was introduced in its current form by the Financial Services Reform Act 2001 (Cth)), it is only since the introduction of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) (‘Amending Act’) that it has gained real teeth. The Amending Act made the section a civil penalty provision, and the civil penalty regime was amended to increase the penalties available.

In another small but noteworthy change, the word ‘dishonest’ in section 9, is now defined as ‘dishonest according to the standard of ordinary people’  (the test adopted from Peters v R [1998] HCA 7; 192 CLR 493 (‘Peters’)). The Revised Explanatory Memorandum to the Amending Act notes that this definition provides an objective test, meaning it will not be necessary to prove a defendant knew that the relevant conduct was dishonest, only that the conduct was dishonest according to the standards of ordinary people.

The changes described above were recommendations of the ASIC Enforcement Review Taskforce in its December 2017 report. The authors of the report recommended that the Peters test should apply to all dishonesty offences under the Act. While intended to provide a consistent definition of dishonesty across the Act, the possible significance of this amendment for section 912A(1)(a) becomes apparent upon a closer examination of the jurisprudence relating to this section. The Australian Securities and Investments Commission (‘ASIC’) has described the provision as a ‘cornerstone obligation’ and has promised to hold AFSL holders to account with renewed vigor. Its Corporate Plan for 2019-23, says:

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