After recently being investigated by ASIC for its misleading ads, Fincorp has now reached an agreement with ASIC over not disclosing investments it was making with the funds being raised in 2004.

The 2004 prospectus said that Fincorp’s funds were
invested in a range of residential and commercial mortgages. In fact,
the vast majority of the money was invested in property development
activities carried on by parties related to Fincorp.

ASIC put a
‘stop order’ on the 2004 prospectus in September 2004, which prevented
it from proceeding.

Fincorp Investments Ltd (Fincorp) has been required
to offer certain investors who invested with Fincorp in 2004 all of
their money back, including accrued interest, following legal
proceedings initiated by the Australian Securities and Investments
Commission (ASIC).

Fincorp raised approximately $75 million in funds
under its 2004 prospectus and could be faced with having to refund many
millions of dollars to investors who still hold their investments.

The Supreme Court of New South Wales has made orders by consent requiring Fincorp to make corrective
disclosure and offer a full refund to investors who invested under
Fincorp’s prospectus between 17 February and 9 September 2004. ASIC
estimates that more than 1,000 investors could be affected.  Fincorp says some investors are happy with the investments while others have already matured.

ASIC has announced that it will impose a special condition on the Australian financial services licence of stockbroking firm BBY Ltd (BBY) after finding
that BBY did not have in place adequate arrangements for the management
of conflicts of interest.

BBY gave advice to a corporate client fighting a takeover bid. At the same time, BBY published positive research about that client.

ASIC found that:

• BBY did not follow its own procedures for the
  approval of research reports, nor was it able to demonstrate that it
  had monitored compliance with those procedures.
• BBY did not maintain a robust Chinese wall
  arrangement, nor was it able to demonstrate that it had monitored the
  effectiveness of the Chinese wall arrangement.

The licence condition to be imposed by ASIC requires
BBY to engage a consultant to review its compliance arrangements and to
ensure that any necessary corrective steps are taken to improve those
arrangements.

BBY must report to ASIC for the next 18 months on
the consultant’s findings and what corrective steps, if any, it is
taking to improve its management of its conflicts of interest.

Since 1 January 2005, all Australian financial
services licence holders must have adequate arrangements in place to
manage any conflicts of interest that arise during the provision of
financial services. Read PS 181 and ASIC Guide on research reports.

Investment funds have a history of problems with unit pricing. ING is the latest to admit its unit pricing practices have been deficient. A matter involving unit pricing errors by National Australia Bank in 2001 resulted in compensation payments to investors of approximately $68 million.

ASIC has accepted an enforceable undertaking from ING
Australia Limited, a joint venture between ING Australia Holdings
Limited (INGA Holdings) and ANZ Orchard Investments Pty Ltd, and six of
ING Australia’s subsidiaries.

The enforceable undertaking follows ING Australia
advising ASIC that it had identified unit pricing errors affecting
superannuation, life insurance and managed investment products provided
by its subsidiaries.

Under the enforceable undertaking, ING Australia
will compensate investors an estimated $14 million for unit pricing
errors in accordance with a compensation policy and project plan to be
agreed with ASIC. Investors will receive the compensation through unit
adjustments or cash payments. In addition, an estimated $10.5 million
will be paid to investment options within financial products where a
unit pricing error has been identified. These compensation figures are
estimated as at 31 August 2005.

The enforceable undertaking ensures that:

• investors are appropriately compensated
• appropriate disclosure of the unit pricing errors is made
• deficiencies in ING Australia’s unit pricing practices and processes have been remedied, and
• an external expert reviews the process of compensating investors and provides a report to ASIC.

ASIC has released a progress report on the eight
projects it is undertaking as part of the Australian Government’s Refinements to Financial Services Regulation issued on 2 May 2005. 

 ASIC has completed three of its eight FSR refinement
projects. The other five projects have all passed their first stages
and are on schedule to be completed by end November 2005.

In the coming months ASIC will release:

• a policy statement on non-cash payment facilities and any accompanying relief (scheduled for September);
• its final position on authorisation requirements for distributors of general insurance products (scheduled for October);
• relief and/or guidance to reduce
  unnecessary repetition of the general advice warning in an ongoing
  relationship (scheduled for November); and
• relief and/or guidance for providers of on-line calculators other than superannuation calculators (scheduled for November).

ASIC has stopped Fincorp Investments Limited (Fincorp) from issuing
potentially misleading advertising promoting the sale of debentures to
retail investors.

ASIC was concerned that the
use of words like ‘certainty’ and ‘secure’ materially overstated the
safety of investing in debentures to vulnerable investors.

ASIC has accepted an Enforceable Undertaking from
Fincorp in relation to advertisements that appeared in major
metropolitan newspapers and played on radio stations across the
country. The advertisements invited consumers to invest with Fincorp
and used taglines such as:

• ‘Invest with certainty!’;
• ‘Prudent investors require certainty’;
• ‘They also want a strong measure of security so they can sleep soundly at night’;
• ‘The rate you choose is secured for the term of your Fincorp Investment’; and
• ‘First ranking investors can enjoy peace of mind through a First Ranking Charge’.

ASIC was particularly concerned with these
statements, and the overall message of the advertisements, in the
absence of any qualifications or disclaimer. ASIC was concerned that
the advertisements were misleading given the degree to which they
promoted the security of the investment and certainty of return.

 ‘A debenture is simply not a bank deposit and any
suggestion in that direction is seriously misleading. There is nothing
magic in a debenture and nothing that ensures that a debenture is a
secure investment, it depends on a number of factors such as how the
investors’ money is used and the quality of the assets over which
security is given’, ASIC deputy chair Mr Cooper said.

ASIC has released a report on
disclosure of transaction fees by banks, building societies and credit
unions.

The report, Good transaction fee disclosure – An ASIC report, follows the release of ASIC’s Guide
to Good Transaction Fee Disclosure for Bank, Building Society and
Credit Union Deposit and Payments Products (Transaction Accounts) issued in June 2002. 

The ASIC guide sets out principles of good
disclosure for the five key areas where ASIC believes transaction fee
disclosure is particularly important. These are:

• when a consumer is selecting a product or product provider;
• when changes are made to the level of fees or to the details around when, why or how they are charged;
• when a statement is received;
• when a consumer is actively seeking information; and
• immediately prior to making a transaction.

 The ASIC report reveals that improvements have been made to the information on fees in statements to consumers.

It also notes that the circumstances when dishonour fees are payable need better disclosure.