Describes any breaches of financial services

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Reference no: EM133215794

Question 1:

 

ABZ Bank (ABZ), an ADI and AFS Licensee, operates through 700 branches across Australia. "Z Super" is a superannuation product issued and promoted by Zpac Super, a wholly-owned subsidiary of ABZ. ABZ runs an aggressive marketing campaign to distribute "Z Super" through its retail branch network. Any branch staff who sells "Z Super" is paid a substantial commission. "Z super" is sold to customers by ABZ's branch staff who are authorized to provide general advice to retail customers and to assist retail customers to apply for superannuation products. The distribution process developed and implemented by ABZ involved the following steps:

Firstly, the branch staff member asks the retail customer to fill in a questionnaire of 25 questions (called '1-25 review') on the financial situation, needs and circumstances of the retail customer.

Secondly, the branch staff member asks whether the retail customer would like to be provided with information about "Z Super".

Thirdly, if the retail customer agrees, the retail customer is provided with a detailed Product Disclosure Statement and brochure. The branch staff also provides a quick appraisal of benefits to invest in "Z Super" and provides them with a general advice warning.

Fourthly, the branch staff obtains (1) signatures on blank forms for 'Z Super' and (2) a letter of authorization for cancelling the existing superannuation account.

The application will only be proceeded upon confirmation from the retail customer through an email or telecall.

ASIC's surveillance on branch sales of "Z Super" has revealed that 45-50% of customers opted for "Z Super" soon after the '1-25 review' on the same day. ASIC is concerned about the promotion of "Z Super" through branches and initiates an investigation. You are employed in the legal division of ABZ and are asked to review if the sale and distribution of "Z Super" breach any provisions of Chapter 7 of the Corporations Act, 2001 (Cth). You are specifically asked to include a detailed analysis of whether ABZ's staff comply with the best interests duty and related obligations under C7.7A of the Corporations Act, 2001 (Cth).

Question 2:

Jordan, an existing customer of ABZ Bank (ABZ) visits the Caulfield branch and discusses a number of basic bank deposit products that he could use to invest $100000 that he has recently inherited. He works at Alpha University as a research assistant (History) earning $80000 annually. He wants to keep $10000 for emergencies and the balance of the money for buying a new car next year. He wants to earn a higher interest rate on the money while he decides on the car. Zachary, an employee of ABZ provides a pamphlet that details different features of a number of deposit options, which are an online savings account, an incentives account and a term deposit. The pamphlet also provides ratings for each of the above-mentioned deposit options. The incentives account is given five-star rating while the online savings account and term deposit are given four-star ratings. The interest rates for an online savings account, incentives account and term deposit are 3.5%, 5% and 3% respectively as described in the pamphlet. At the end of the pamphlet, the following statement is given in fine print:

"The Incentives Account currently offers account holders a basic variable interest rate of 1.5% and also pays a bonus of 3.5% if the customer deposits at least $2500 per month and makes no more than four withdrawals in a given month. If the customer satisfies those criteria in a given month, according to current interest rates, they will receive 5%, which is higher than the current interest rate for the Online Savings Account."

Jordan approaches Zachary to open an incentives account and explains that he would not need the money for another 12 months. Zachary specifically makes inquiries to identify if Jordan would be able to deposit at least $2500 per month and makes no more than four withdrawals in a given month. Jordan informed paying essential bills, groceries and rent would not be limited to four transactions a month. Zachary recommends opening an online savings account linked to his transactions account for $10000 and a term deposit for $90000.

Later in the day, Zachary telephones Jordan in his registered mobile with the bank and says "Congratulations, your term deposit for $90000 is now opened". However, the call was attended by Jordan's partner Emily which Jordan realises later. Emily left Jordan for not disclosing his inheritance fortune and Jordan sued the ABZ.

Identify if the given scenario describes any breaches of financial services laws.

Reference no: EM133215794

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