What does it mean to provide financial services efficiently, honestly and fairly?

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In case you think the section 912A general licensee obligations are “aspirational”, you may wish to consider the recent Federal Court decision of ASIC v Camelot Derivatives.

ASIC issued proceedings against Camelot Derivatives and its director on the basis of misleading and deceptive conduct. ASIC was concerned about statements made to clients by Camelot Derivatives’ representatives to the effect that “by using its time-tested risk management method, superior returns could be earned in a high risk market”.

In addition, ASIC sought orders that Camelot Derivatives was not satisfying its section 912A(1)(a) obligation to “do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly” (emphasis added).

On this point, ASIC made a variety of submissions, all of which were accepted by the court. Some of ASIC’s submissions are set out below:

• The words efficiently, honestly, and fairly “connote an element… of even handedness in dealing with clients [as well as] sound ethical values and judgment in matters relevant to a client’s affairs”.

• “Inefficiency may be established by demonstrating that the performance of a licensee’s functions falls short of the reasonable standard of performance by a dealer that the public is entitled to expect”.

• “It is not necessary to establish dishonesty in the criminal sense… The word ‘honestly’ may [include] conduct which is not criminal but which is morally wrong in the commercial sense.”

• “The word ’honestly’ when used in conjunction with the word ‘fairly’ tends to give the flavour of a person who not only is not dishonest, but also a person who is ethically sound.”

In failing to meet these standards, the director of Camelot Derivatives was banned from providing financial services for six years.

ASIC has also stated that in its view, the “efficiently, honestly and fairly” obligation is “a standalone obligation that operates separately from the other general obligations” (see RG 104.55 and RG 205.62).

If this is not enough, you can also read FOS’s comments on “efficiently, honestly and fairly” in Determination 18959 at paragraphs 83-87.

Author: Sonnie Bailey

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