Grand Final escapee engaged in 'very serious dishonest' conduct

A recent decision of the Administrative Appeals Tribunal (AAT)[1] sounds a warning for financial advisors about ASIC's ability and willingness to impose lengthy banning orders for seemingly private conduct. This article summarise the regulatory framework used to assess conduct involving fraud and dishonesty, and considers how private conduct can be taken into account in banning determinations for financial advisers.

Background 

Mark Babbage worked as a financial planner, mortgage broker and long-suffering supporter of the AFL’s Melbourne Demons. As the AAT acknowledged, 2021 was a bittersweet year for many Demons supporters: The Demons had finally reached the AFL Grand Final after decades since their last premiership win in 1964, but due to COVID-19 lockdowns, many fans were unable to attend the final which took place in Perth instead of Melbourne. 

However, Mr Babbage was not prepared to accept this fate and settle for watching the game live on television. Instead, he involved himself in a plan to circumvent COVID-19 border restrictions to enable him to attend the game in Perth. The plan involved deceiving officials in the Northern Territory and Western Australia about Mr Babbage’s place of residence, and the timing of his movements through the Northern Territory. Mr Babbage’s deceit was ultimately discovered by police, and he was charged with and plead guilty to numerous criminal offences for serious fraud associated with him deceiving authorities to attend the match. 

Mr Babbage's problems only grew worse when in December 2021 the Australian Securities & Investments Commission (ASIC) banned Mr Babbage from providing any financial services and engaging in any credit activities for a period of 10 years.[2]  The effect of the banning orders has been that Mr Babbage cannot continue to work as a financial planner and mortgage broker which was, prior to the banning orders, his principal occupation.

What was the AAT asked to consider? 

Mr Babbage asked the AAT to review ASIC’s banning orders, contending that his conduct was of a private nature rather than in the performance of his duties as a financial planner and mortgage broker, and further that he has a long record of legal compliance in the context of his profession. On the other side, ASIC contended that the high level of dishonesty involved in Mr Babbage’s conduct, which included falsifying details on bank statements and presenting them to public officials for the purpose of deceiving them, justifies the terms and the length of the banning orders. 

In weighing the arguments , the AAT had regard to the following legal framework which empowers ASIC to make banning orders against a person if the person has been convicted of fraud:

1. Legislation – The Corporations Act 2001 (Cth) (Corporations Act) provides for ASIC’s power to impose banning orders on persons regarding the provision of financial services such as providing financial advice and dealing in financial products,[3]  whilst the National Consumer Credit Protection Act 2009 (Cth) (Credit Act) provides similar powers but relates to credit activities such as providing credit or credit assistance to a consumer, including acting as a credit intermediary.[4]  The effect of banning orders under these powers prevents a person working as a financial advisor, planner and mortgage broker. 
    
2. Criminal conviction – The AAT was constrained in the factual findings that it can make because Mr Babbage’s criminal conviction of serious fraud was the basis on which ASIC imposed the banning order and the AAT must also have regard to its seriousness and prior findings of fact. 
    
3. Discretion – Despite Mr Babbage’s criminal conviction, ASIC has discretion on whether to impose banning orders, and the duration of the ban. The extent of this discretion is governed by ASIC’s policy documents: Regulatory Guides 98, relating to the Corporations Act and financial services and 218, relating to the Credit Act and credit activities (Regulatory Guides). 
    
4. Relevant factors – The Regulatory Guides make it clear that conduct involving fraud and dishonesty is severely frowned upon and would generally attract a banning order of more than 10 years. However, the AAT also notes that any decision must take into account the particular circumstances of the case. This is consistent with the Regulatory Guides which provide that ASIC may take the following factors into consideration when exercising its discretion:

(a)    whether taking the action will promote the objects of the financial services regime;
(b)    whether taking the action will deter misconduct;
(c)    the strategic significance of taking action;
(d)    the need to protect investors and consumers; and
(e)    whether taking the proposed action is preferable to taking another type of administrative action, in terms of cost and timeliness.[5] 

What did the AAT decide? 

While the AAT was not in a position to overturn the banning orders in light of Mr Babbage’s conviction for serious fraud, it exercised its discretion as to the length of Mr Babbage’s banning orders and determined to reduce the length from 10 years to 6 years. Central to this decision was the AAT accepting of the following significant factors (which were supported by character references) that outweighed the Regulatory Guides’ 10 year minimum ban policy for fraud and dishonesty:

1.    Mr Babbage had generally behaved honestly towards his clients in the past, and he has retained their confidence into the future;

2.    on a personal level, Mr Babbage has been punished already by the criminal justice system and a banning order of any significant length will have very adverse consequences for him personally; and

3.    the conduct in question was out of character, which provides hope that it will not be repeated. 

Despite its decision to reduce the duration of the banning orders, the AAT left Mr Babbage and other financial advisors a final cutting remark, reminding them that ''given the nature of the dishonesty which included forging bank statements and misleading public officials, [Mr Babbage's] lack of insight and the need to emphasise to participants in the financial and credit industries the fundamental importance of honesty in the work that they do, a significant ban which excludes the applicant from participation in the industry is appropriate''.

Conclusion

Financial advisors should take seriously ASIC’s and the AAT’s willingness to impose and uphold banning orders where fraudulent behaviour and conduct in a personal capacity has resulted in a criminal conviction. Whilst a glowing professional reputation may be relevant to determining the length of an appropriate ban, financial advisors will still feel significant consequences for dishonest conduct which can, in effect, result in the loss of employment and/or business.

More Cleardocs information on related topics

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2. Tax Agent Disclosure Obligations: What To Do When You Suspect Fraudulent Behaviour?
3. EToro And The Picador - ASIC Sues Online Investment Platform For Sale Of CFDs 

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[1] Babbage and Australian Securities and Investments Commission [2023] AATA 3487.

[2] Corporations Act 2001 (Cth) s 920A; National Consumer Credit Protection Act 2009 (Cth) s 80.

[3] Corporations Act 2001 (Cth) s 920A(1)(c); Corporations Act 2001 (Cth) s 766A.

[4] National Consumer Credit Protection Act 2009 (Cth) s 80(1)(c); National Consumer Credit Protection Act 2009 (Cth) ss 7 and 9.

[5] Regulatory Guide 98.21.