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BFCSA: FOS report ASIC permitting PHOENIX COMPANIES 2011

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 Our Gladys is busy digging into FOS Reports - wonder what happened to those complaints and outcomes and what happened to the Directors?  We know what ASIC do - bleedin nothing and hence why ASIC is subject to 2014 Inquiry.  We should have mandatory Inquiry into ASIC every year until they start understanding corrupt behaviour is not acceptable.

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 Phoenix Activity


In the course of our dispute resolution work, we see Phoenix activity.  Where this occurs, consumers can be left with unrecoverable losses while the financial advisors responsible for the losses can continue to provide advice.  Over the past two years, we have identified four cases of Phoenix activity that affected about 125 disputes.

 There are many forms of Phoenix activity.  One example is outlined below and a case study is also provided:


 Example of Phoenix activity


  • A large number of disputes against one licensee are lodged with FOS
  • The licensee's directors incorporate a new company with a name virtually identical to the licensee''s name
  • The new company applies to ASIC for a licence
  • ASIC grants the licence
  • The new licensee grants authority to the oold licensee's authorised representatives
  • The new licensee (and its authorised representatives) continue to advise clients of the old licensee, commence "new" client/adviser relationships with those clients and receive payments such as trailing cmmissions that follow the clients
  • The old licensee goes into voluntary administration or liquidation
  • There are no assets in the administration or liquidation to pay unsecured creditors (including applicants in the disputes lodged with FOS) and the old licensee's professional indemnity insurer had denied liability
  • The new business continues to carry n a financial services business

Case study............


In disputes relating to insurances of Phoenix activity, we see that the Applicants are frustrated and angry.  They are left with losses that may not be compensated while the financial advisers considered responsible for the losses continue to operate under new licences.


We support reforms to prevent Phoenix activity.  We consider that the proposed enhancements to ASIC's powers through items 2 to 9 of Schedule 1 to the First Bill should enable ASIC to deal with various forms of Phoenix activity.


Second Bill


3.  Best interests obligations


FOS operates with Terms of Reference, which are on our website (under "About us").  The Terms of Reference require us, when deciding disputes, to do what is fair in all the circumstances, having regard to:

  • legal principles;
  • applicable industry codes or guidance as to practice
  • good industry practice; and
  • previous relevant decisions of FOS or its predecessors






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  • doyla66
    doyla66 Monday, 09 June 2014

    ASIC may be enabled to deal with Phoenix Companies but what do they do in reality?
    Well it probably depends on how many people are affected and have reported the problem - usually in the naive hope the ASIC does handle these complaints. Yes they handle these complaints but they don't do anything more than record the information, it seems.
    We know of people who have handed ASIC all the information on suspected and rather obvious phoenix activity and nothing was done to get their money back or a real answer to the impact on their victims. If this was investigated properly ASIC might find that there are even chains of phoenix companies who get around the rules and reinvent themselves or set up off shore trusts to keep their money safe.
    This problem with the ease with which these companies liquidate and then the same players turn up again .... and again ... has frustrated investors and consumers by the thousands. It requires changes to the Corporations Act and vigilance over "repeat offenders" if it happens in Australia, which it often doesn't.
    With reduced supervision of the financial services industry it's going to be up to consumers to keep complaining to FOS, apparently, until there are enough to get the attention of ASIC or government, if they have the energy to do so. This creates free supervision (and many more victims of financial misconduct) and saves the government money. So it's "catch me if you can" and lots of creative crooks working around the rules and regulations to make money, evade detection and falling outside FOS guidelines to avoid investigation. What a stupid system!

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