January 14, 2019, | AtoZ Markets – Australian Securities and Investments Commission (ASIC) announced on Monday on its website, that it suspended Australian financial services (AFS) license of Halifax Investment Services Pty Ltd until January 10, 2020. What kind of future awaits an Australian investment management company after ASIC decision?
How Halifax Will Cope With Their Clients?
Halifax a Sydney-based retail FX brokerage with a partly-owned subsidiary in Auckland, New Zealand. The firm was a licensee of the Australian financial services and was authorized, in accordance with its license, to issue and produce a market for derivatives and currency instruments. Following the ASIC announcement about brokerage AFS license suspension, the firm moved to the voluntary administration. On November 23, 2018, Morgan Kelly, Stuart McCallum and Phil Quinlan from Ferrier Hodgson company which specializes in corporate rebuilding and consulting, were appointed as voluntary administrators of Halifax.
Despite the license suspension from ASIC, the firm is still allowed to continue certain operations for the following purposes:
- to provide their clients with access to an external dispute resolution scheme;
- to ensure that Halifax continues to be required to have arrangements for compensating retail clients, including the holding of professional indemnity insurance cover;
- to allow for the termination of existing arrangements with clients of Halifax;
ASIC’s Role in Halifax License Suspension
ASIC an independent Australian government authority acts as the country’s corporate regulator. The investment commission’s established on 1 July 1998 role is to enforce and regulate companies and financial services laws to protect local consumers, investors, and creditors. At the moment ASIC works in close contact with Ferrier Hodgson the voluntary administrator of Halifax.
The Australian financial watchdog will further consider the circumstances surrounding voluntary administration, especially those related to compliance with financial services laws.
According to the law, including the Corporate Law, Halifax must keep customers’ money separate from their own. “This is an important guarantee to protect the interests of retail investors,” the ASIC announcement states.
What is AFS Licence?
The company must purchase an Australian financial services (AFS) license to conduct a financial services business. AFS license is required if, as part of their business, the company:
- provides financial product advice to clients
- deals in a financial product
- makes a market for a financial product
- operates a registered scheme
- provides a custodial or depository service, or
- provides traditional trustee company services.
AFS license is mandatory from the day the company starts its financial services business. ASIC assesses applications for AFS licenses as part of its role as regulator of the financial services industry.
The licensing process is a point-in-time assessment of the licensee and not of its owners or employees. Holding an AFS license does not guarantee the probity or quality of the licensee’s services.
What is Voluntary Administration?
Voluntary administration is a procedure when a director of a financially troubled company or a secured creditor who charges for most of the company’s assets is appointed by an external administrator, called a “voluntary administrator”.
The role of the voluntary administrator is to investigate the business, property and financial circumstances of the company, report about them to creditors and recommend whether companies should enter into an agreement on an agreement with the company, go to liquidation or return to the company ’s director.
Another duty of a voluntary administrator is to report to ASIC about possible violations by people associated with the company. If violations are reported, ASIC will evaluate the reports to review its own investigations and actions, if any.
At the end of December, the administration demanded a 90-day extension due to the complicated process and delays due to the Christmas break period.
Does Halifax Have Any Future?
As the local press reported, at a meeting of creditors in Sydney, the firm administrator Stuart McCallum said that Halifax had $ 211 million ($ 151.5 million) of client funds at a time when administrators were appointed but only cash from $ 190 to $ 200 million of these investments. In particular, according to the administrators, investors in a bankrupt derivatives trader can expect a loss of 10-20 million Australian dollars. In addition, it may take years before they decide their claims.
McCallum gave no reason for the shortage. Commenting on the extension, McCallum said: “We do not think that during the current period we will be able to give lenders a good picture of what happened or know what investors are entitled to or where they may be between Australia and New Zealand. There are many difficulties. “
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