Due to the Covid-19 pandemic, the employees who have taken accommodation on rent are facing problems to pay their rent on time as they are facing unemployment and salary cut. To overcome this problem the Australian Government has announced that such tenant can withdraw their amount of superannuation to the extent of $10,000. On the basis of such news, real estate agents have started advising to the tenants without possessing any licence to give financial services. When the regulatory authority i.e. ASIC (Australian Securities and Investment Commission) has come to know this fact, they've given warning that such real estate agents will face the fine up to the extent of $ 1.26 million and imprisonment up to five years, if they indulge in such financial advice to the tenant. The report has aimed to find out the legal implications of The Corporation Act, 2001, related to the news article on necessity of license for real estate agents for advising tenants on withdrawal of partial superannuation during Covid-19 pandemic. It has been found that appropriate license is required to real estate agents before advising the tenants for financial services.
Undue advantage taken by real estate agents to financially advise the tenants.
Legal consequences to real estate agents operating as financial advisors.
The Corporations Act, which was enacted in 2001, is a Commonwealth of Australia Act that sets out the federal and territorial regulations that deal with corporate organizations in Australia. It deals mainly with corporations but also with other bodies, such as alliances and investment schemes which are managed. The Act is the principal cornerstone of Australian corporate law.The Corporations Act is Australia's primary statute governing businesses. This governs matters such as company creation and operation (in accordance with a constitution which a company can adopt), officer duties, takeovers, and fundraising.The Corporations Act, 2001, continues to expand in length and scope (Chia & Ramsay, 2015).
The aim of the report is to find out the legal implications of The Corporation Act, 2001, related to the news article on necessity of license for real estate agents for advising tenants on withdrawal of partial superannuation during Covid-19 pandemic.
In the news article presented by REB (attached as appendix), it has been highlighted that due to the coronavirus pandemic, employment issues have popped up resulting in unemployment and salary cut to the Australian employees and that has created a situation whereby the employee who has taken the accommodation on rent is finding it difficult to pay out the rent and meet their other expenses. This has resulted in difficulty in payment of rent by the tenants to the landlords. In such an unprecedented situation, the real estate agents have taken undue advantage of the situation and have started advising the tenants to apply for early release of their superannuation.Financial advice is simply a strong credence, the importance of which is difficult to determine (Bruhn & Miller, 2014).As per the news article presented by REB (attached as appendix), it is to be noted that the government of Australia in the Covid-19 economic response package has already announced that the individuals who are affected by the Covid-19 pandemic can access their superannuation early up to the amount of $10,000 in the financial year 2019-20 and up to the amount of $10,000 in the financial year 2020-21.
The real estate agents are in direct contact with the tenants, they have grabbed the situation and have started advising tenants about withdrawing the superannuation amount and started acting as mediators between the tenants and landlord for settling pending arrears of rents payable by tenant to landlord without taking any licence for financial services as statutory required under the provisions of the Corporation Act, 2001. Such financial advise given by the unlicensed agents havecontravened the provisions of section 911A of the Corporation Act, 2001, which states about the need for an Australian financial services licence. The unlicensed real estate agents who have given financial advise to the tenants have also infringed the provisions of section 961B of the Corporation Act, 2001, which states that the advisory provided shall be in the best interest of the client.The best interest obligation reinforces the advice provider's future integrity as it provides a catchall that allows the advisor to take 'some other action that can fairly be considered in the best interests of the client(Latimer, 2014).Financial advice must only be given by trained and licensed financial advisors and not by real estate agents as they are neither licensed nor approved as Australian financial services licensee members.
Such an act of real estate agents of advising without appropriate licence have attracted the penalty under the provisions of the Corporation Act, 2001, which can be up to 5 years of imprisonment and/or fine up to 600 penalty units whichtantamount to $ 1,26,000. The said penalty is for the individuals, but in case of Corporations indulging in such a breach, then the corporation will attract fine up to 6000 penalty units amounting to $1,260 million.
In a sensitive situation like this, tenants should not get trapped into the wrong advices given by the unauthorised licensees but shall be guided by sound financial advisors which will result in proper and effective advice. While such incident reported that real estate agents started operating as financial advisors, ASIC (Australian Securities and Investment Commission), the regulatory authority has come out with a warning for such real estate agent asking them to desist from such activities as the penal provisions shall be imposed by taking necessary action under the Corporation Act, 2001.The Australian Securities and Investments Commission (ASIC) sees the duty of the stockbroker or investment advisor to behave efficiently, honestly and reasonably (Latimer, 2009).The letter is issued by the ASIC (Australian Securities and Investment Commission) to Australia’s real estate body, in which , ASIC (Australian Securities and Investment Commission) plans to closely track the situation and would not hesitate to crack down on agents if they find them giving unlicensed financial advice.ASIC is responsible for implementing the Australian regulations on corporations and financial services (Bird, Chow, Ramsay &Lenne, 2005). The ASIC (Australian Securities and Investment Commission) plans to follow this situation closely and if it finds contraventions of the Corporations Act licensing provisions, ASIC (Australian Securities and Investment Commission) will not hesitate to act immediately to protect vulnerable tenants.When the real estate agent started advising tenants as to how they can withdraw their superannuation fund as announced by the Government of Australia, the ASIC (Australian Securities and Investment Commission), the regulatory authority after noticing such incident have come out strongly giving warning to real estate agent that in case they do such kind of financial services without having license for financial advising then the penalty which includes fine up to$ 1,26,000 and imprisonment up to 5 years duly attracted in order to stop real estate agent in operating unlawfully in the sector of financial advisor.
The sum and substance of this news article is that for taking up any type of financial advisory services even for withdrawing superannuation fund during the Covid-19 pandemic any agent like real estate agent has to obtain necessary license before starting the activity of adviser to tenants. Because helping tenant to get the accommodation is falling within the purview of real estate agent but guiding them in present situation of Covid-19 as to how to withdraw their superannuation fund and other services related to finance will amount to work of financial advisor and they are prevented from operating such services without having proper and valid license as the penal provisions under the Corporation Act, 2001 is attracted.
Bird, H. Chow, D. Lenne, J. and Ramsay, I. 2005. Strategic regulation and ASIC enforcement patterns: Results of an empirical study. Journal of Corporate Law Studies. 5. DOI: 10.1080/14735970.2005.11419934.
Bruhn, A. and Miller, M. 2014. Lessons about best interests duty. Australasian Accounting, Business and Finance Journal, 8. pp. 23-44. DOI: 10.14453/aabfj.v8i4.3.
Chia, H. and Ramsay, I. 2015. Section 1322 as a response to the complexity of the Corporations Act 2001 (cth). Company and Securities Law Journal, 33(6), pp. 389-403. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2658914
Latimer, P. 2009. Providing financial services 'efficiently, honestly and fairly'. SSRN Electronic Journal, DOI: 10.2139/ssrn.1326181.
Latimer, P. 2014. Protecting the best interests of the client. Australian Journal of Corporate Law. Retrieved form https://papers.ssrn.com/sol3/Data_Integrity_Notice.cfm?abid=2460187
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