Greg Kilminster
Head of Product - Content
SEC takes disciplinary action against Morgan Stanley for fraudulent activities
The investment banking firm, Morgan Stanley & Co. LLC, and its former head of equity syndicate desk, Pawan Passi, have been charged by the Securities and Exchange Commission (SEC) for a multi-year fraud scheme. The fraudulent activities involved:
- disclosure of confidential information about block trades sales; and,
- failure to enforce information barriers
The SEC has taken disciplinary action against Morgan Stanley & Co. LLC, imposing a censure and ordering the company to pay approximately $138 million in disgorgement, roughly $28 million in prejudgment interests and a $83 million civil penalty. Passi has been ordered by the SEC to pay a $250,000 civil penalty, as well as being subjected to associational, penny stock, and supervisory bars.
Furthermore, the U.S. Attorney’s Office for the Southern District of New York has announced parallel criminal resolutions with both Morgan Stanley and Passi.
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Australian Federal Court imposes combined $390,000 fines on four directors of Endeavour Securities
The Australian Federal Court has imposed fines on four current and former directors of Endeavour Securities (Australia) Ltd (Endeavour)and Linchpin Capital Group Ltd for breaching their duties as officers of a responsible entity of a registered managed investment scheme. The Australian Securities and Investments Commission (ASIC) brought the case against the directors for various violations that occurred between 2015 and 2018.
The directors, namely Nielsen, Raftery, Williams, and Daly:
- Failed to ensure that Endeavour complied with the compliance plan, obtain approval for related party loans, issue product disclosure statements that complied with the law, and obtain approval for related party loans.
- Failed to act in the best interests of members of the Investor Income Opportunity Fund, a registered investment scheme managed by Endeavour.
In addition, Daly and Raftery were found to have improperly used their positions by receiving unsecured loans from the unregistered Investport Income Opportunity Fund for their personal use, which is a direct violation of their duties as officers of a responsible entity.
The directors have been fined as follows:
- Nielsen and Williams will each pay a $100,000 penalty, $175,000 towards ASIC’s costs and be banned from managing corporations for four years.
- Raftery will pay a $40,000 penalty, $175,000 towards ASIC’s costs and be banned from managing a corporation for three years.
- Daly, who contested ASIC’s case, will pay a $150,000 penalty and be banned from managing corporations for five years. He has also been directed to pay $175,000 in addition to a further proportion of ASIC’s costs associated with the contested hearings.
According to ASIC Deputy Chair Sarah Court, the outcome of the case should serve as a reminder to the directors of responsible entities that operate managed investment schemes that they must act in the best interests of members.
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Australian Treasury proposes new climate-related financial disclosure requirements
The Australian Treasury has released an exposure draft for consultation proposing amendments to the Australian Securities and Investment Commission Act 2001 and the Corporations Act 2001 (Cth). The proposed changes aim to mandate climate-related financial disclosure requirements for large businesses and financial institutions. This follows previous discovery and design consultations held in December 2022 and June 2023.
The exposure draft provides the final policy design for corporate climate-related financial disclosures, outlining the following:
- the scope of the reform;
- which entities it covers;
- the content required in reports;
- the location of reporting;
- assurance requirements for disclosures; and,
- and the application of liability for disclosures.
The deadline for feedback on these proposals is 9 February 2024.
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Australian Treasury seeks feedback on proposed definition of cash equities
The Australian Treasury has issued a consultation regarding the proposed definition of ‘cash equities’ included in the Corporations and Competition (CS Services) Instrument 2024. The consultation also seeks feedback on whether there is competition in any of the CS services that are proposed to be covered by the draft instrument – specifically, those covered by the proposed cash equity definition.
The deadline for feedback is 1 March 2024.
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APRA removes obsolete guidance on the risk management framework for life and general insurers
The Australian Prudential Regulation Authority (APRA) has announced the retirement of two outdated Prudential Practice Guides for life and general insurers.
This decision is part of APRA’s initiative to modernise the prudential architecture, which entails removing obsolete guidance that no longer adds meaningful value.
The two retired guides are Prudential Practice Guide GPG 250 Balance Sheet and Market Risk (GPG 250) and Prudential Practice Guide LPG 250 Asset and Liability Management Risk (LPG 250).
The relevant requirements that were in the now-retired guides are included in Prudential Standard CPS 220 Risk Management, which is supported by Prudential Practice Guide CPG 220 Risk Management.
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AFCA issues approach for handling small business lending complaints
The Australian Financial Complaints Authority (AFCA) has published its Lending to Small Business Approach, which provides guidance for financial firms and small businesses about how it considers these complaints.
The Approach outlines how AFCA applies legal principles, industry codes, and regulatory guidance and considers good industry practice and principles of fairness when investigating complaints about lending to small businesses. It covers:
- The types of small business complaints it can consider under AFCA’s Rules
- How it assesses if a financial firm’s credit assessment was appropriate
- How it considers industry codes, regulatory guidance and good industry practice in its decision-making
- How it determines fair outcomes where a firm has provided an inappropriate loan and
- How it calculates loss and determines how much compensation should be paid.
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