1. Executive Summary
In Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2) [2022] FCA 786, Abraham J found extensive contraventions arising from the telephone sale and retention of life insurance products marketed under the “Let’s Insure” and “FlexiSure” brands.
The defendants were:
- Select AFSL Pty Ltd, the Australian financial services licensee;
- BlueInc Services Pty Ltd;
- Insurance Marketing Services Pty Ltd; and
- Russell Hugh Howden, the sole director and managing director of the corporate defendants.
The Court found contraventions concerning four broad areas:
- Conflicted remuneration: sales incentives including a Gold Coast cruise, Vespa scooter and trips to Las Vegas and Hawaii were non-monetary benefits capable of influencing the financial product advice given by sales agents.
- Consumer protection: sales and retention agents engaged in misleading or deceptive conduct, false or misleading representations, unconscionable conduct, coercion and undue harassment in dealings with consumers, many of whom were vulnerable.
- AFSL obligations: Select failed to provide financial services efficiently, honestly and fairly and failed to comply with financial services laws.
- Director accountability: Mr Howden breached s 180(1) of the Corporations Act 2001 (Cth) by failing to take reasonable steps to prevent the conflicted remuneration contraventions and by exposing Select and BlueInc Services to a foreseeable risk of regulatory and commercial harm.
This was principally a liability judgment. The Court directed the parties to prepare orders giving effect to the reasons and a timetable for the later penalty phase. No pecuniary penalties were imposed in this judgment.
The case is operationally significant for AFSL holders using call centres, outsourced sales staff, retention teams or incentive programs. It confirms that contractual outsourcing and fragmented corporate structures do not prevent the licensee from being responsible for conduct undertaken in the course of its financial services business.
2. Citation and Context
Case: Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2)
Neutral citation: [2022] FCA 786
Court: Federal Court of Australia
Judge: Abraham J
Date: 8 July 2022
File: NSD 1447 of 2019
Relevant period: 1 February 2015 to 19 March 2018
Judgment length: 1,399 paragraphs
Procedural stage: Contested liability judgment; penalty phase deferred.
Select held the AFSL through which the insurance products were sold. It had no employees of its own. BlueInc Services and Insurance Marketing Services supplied or engaged the sales and retention personnel who conducted the telephone interactions. All sales and retention agents were representatives of Select for the purposes of Chapter 7 of the Corporations Act.
Mr Howden was the sole director, secretary and managing director of Select, BlueInc Services and Insurance Marketing Services. The companies formed part of a group ultimately controlled for the benefit of Mr Howden and his family.
3. Business and Operating Model
Select sold insurance products through call-centre sales agents. Retention agents dealt with customers seeking to cancel or cease payment of their policies.
The corporate defendants argued that retention personnel were performing administrative services for the insurer rather than acting for Select. The Court rejected that characterisation. Persuading a customer not to cancel was not a purely administrative task. Retention activity was an essential part of Select’s business because retaining policies preserved the associated commission stream.
The Court also relied on Select’s previous response to an ASIC statutory notice, in which Select described BlueInc Services as providing customer-retention services to Select. The retention agents’ conduct was therefore capable of attribution to Select.
Commercial significance
A licensee cannot avoid responsibility merely because:
- personnel are technically employed by another group company;
- staff are supplied by a labour-hire provider;
- functions are documented as outsourced services; or
- another entity pays remuneration and operating expenses.
Courts and regulators will examine the substantive role performed, whose business the activity advances and whether the personnel are representatives of the licensee.
4. Conflicted Remuneration
The sales incentives included:
- a Gold Coast cruise;
- a Vespa scooter;
- a Las Vegas trip; and
- a Hawaii trip.
The Court found that the agents provided financial product advice within s 766B(1). The incentives were non-monetary benefits that could reasonably be expected to influence the advice given, including by encouraging agents to increase insurance sales volumes.
The resulting findings included:
| Entity | Provision | Finding |
|---|---|---|
| Select | s 963E | Contravened when its agents accepted conflicted remuneration |
| Select | s 963F | Failed to take reasonable steps to ensure its representatives did not accept conflicted remuneration |
| BlueInc Services | s 963J | Gave conflicted remuneration to the sales agents |
| Mr Howden | s 79 | Knowingly involved in the corporate conflicted remuneration contraventions |
The Court rejected reliance on the mere existence of quality-assurance arrangements where those arrangements were not designed or operated effectively to identify whether the incentives were driving inappropriate sales behaviour.
Compliance significance
Sales incentives should be assessed before launch by legal, compliance and risk personnel. The assessment must consider practical behavioural effects, not only the formal terms of the incentive.
Controls should address:
- whether eligibility depends on sales volume;
- whether quality thresholds are genuine and measurable;
- whether the monitoring process is contemporaneous;
- whether poor conduct automatically disqualifies an employee;
- whether call sampling is sufficient to detect pressure-selling; and
- whether the compliance function has authority to stop the program.
5. Consumer Contraventions
ASIC’s case concerned 14 consumers. Twelve were alleged to be vulnerable, including 10 Indigenous consumers, while the other two were alleged to be in a materially weaker bargaining position.
The consumer claims involved:
- misleading or deceptive conduct under s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth);
- false or misleading representations under s 12DB(1);
- unconscionable conduct under s 12CB(1);
- coercion under s 12DJ(1); and
- undue harassment under s 12DJ(1).
The Court upheld most of ASIC’s pleaded consumer contraventions. The conduct included sales agents pressing ahead despite requests for time, information or consultation with family members, and retention agents repeatedly attempting to prevent cancellation or recover premiums.
The consumers’ individual circumstances were relevant. The Court considered factors including:
- Indigenous background and cultural context;
- English-language or communication difficulties;
- financial literacy;
- income and employment circumstances;
- comprehension of the insurance product;
- requests for documents or time to consider the product; and
- the relative strength of the parties’ bargaining positions.
The judgment demonstrates that a vulnerability framework cannot remain confined to a compliance manual. Select’s training materials themselves identified indigeneity as a potential vulnerability “red flag”, but the relevant sales and retention conduct nevertheless continued.
6. AFSL General Obligations
The Court found Select contravened:
| Provision | Obligation | Relevant failure |
|---|---|---|
| s 912A(1)(a) | Do all things necessary to ensure financial services are provided efficiently, honestly and fairly | Use and operation of sales, referral and retention practices that produced unfair consumer outcomes |
| s 912A(1)(c) | Comply with financial services laws | Underlying conflicted remuneration and ASIC Act contraventions |
These were not merely derivative findings based on isolated agent misconduct. They reflected deficiencies in Select’s business systems, management arrangements, incentives and supervision.
“Refer a Friend” arrangements
The Court also considered Select’s “Refer a Friend” program in determining whether its services were provided efficiently, honestly and fairly. Referral arrangements must be designed so that they do not encourage unlicensed selling, conceal commercial motives or expose consumers to sales approaches they did not reasonably anticipate.
7. Mr Howden’s Director Duties
ASIC alleged that Mr Howden breached s 180(1) by failing to prevent Select and BlueInc Services from engaging in conflicted remuneration contraventions.
The Court accepted that allegation.
Mr Howden had conceived of and promoted the incentives. There was no evidence that he:
- informed himself adequately about the conflicted remuneration provisions;
- obtained legal or compliance advice before implementation;
- asked the compliance managers whether the incentives were lawful;
- adapted the schemes to minimise sales-conduct risk; or
- established an effective contemporaneous quality-assurance process.
The Court rejected an attempted reliance on delegation. Position titles alone did not demonstrate that responsibility had been properly delegated. One compliance manager did not know of the Vespa incentive until the scooter appeared on the sales floor.
Mr Howden did not give evidence about delegation or reliance on compliance personnel. The Court drew a Jones v Dunkel inference that his evidence would not have assisted his position on that issue.
Abraham J found that the incentives exposed Select and BlueInc Services to a foreseeable risk of:
- statutory contraventions;
- public regulatory criticism;
- significant remediation costs; and
- associated corporate harm.
The Court therefore found that Mr Howden breached s 180(1).
8. Key Legal Principles
A. Outsourcing does not transfer the licensee’s statutory accountability
The legal analysis turns on substance rather than group-company documentation. Where agents perform sales or retention functions in the course of the licensee’s business, their conduct may be attributed to the licensee despite employment or service arrangements involving another entity.
B. Retention activity may involve financial product advice
A retention call is not necessarily administrative. Where personnel make evaluative statements intended to persuade a customer to retain a financial product, they may be providing financial product advice.
C. Non-cash prizes may be conflicted remuneration
Conflicted remuneration is not limited to salary, commission or direct cash payments. Travel, vehicles and other non-monetary benefits can fall within the prohibition where they could reasonably influence financial product advice.
D. Vulnerability controls must affect frontline conduct
Identifying vulnerability indicators in policies or training is insufficient. Systems must cause the salesperson to pause, modify or end the interaction and, where appropriate, provide documents, interpreters, support-person options or cooling-off time.
E. Delegation must be real and responsible
A director cannot establish delegation by pointing to the existence of compliance personnel after the event. Effective delegation requires clear responsibility, access to information, consultation before high-risk decisions and monitoring of performance.
9. Orders and Penalties
The Court ordered the parties to provide:
- draft orders giving effect to the liability findings; and
- a timetable progressing the proceeding to a penalty hearing.
Accordingly:
| Remedy | Status in [2022] FCA 786 |
|---|---|
| Liability findings | Determined |
| Declarations | Form to be settled through draft orders |
| Pecuniary penalties | Deferred |
| Director disqualification or injunctions | Not determined in this judgment |
| Costs | Not finally determined in the extracted orders |
Any monetary penalty or disqualification outcome should be sourced from the later penalty judgment, not attributed to [2022] FCA 786.
10. Risk Management and Compliance Recommendations
| Audience | Control type | Legal rationale | Risk indicator | Practical control |
|---|---|---|---|---|
| Board | Governance | Licensee remains responsible for outsourced conduct | Core sales functions performed by group entities | Board-approved outsourcing map and accountable executive |
| Remuneration committee | Preventative | Non-cash incentives can be conflicted remuneration | Trips, vehicles or prizes linked to sales | Pre-launch legal and conflicts assessment |
| Compliance | Detective | Formal QA may not identify incentive-driven harm | High pass rates despite complaints or cancellations | Risk-based call sampling and behavioural testing |
| Sales management | Preventative | Vulnerable consumers require adjusted processes | Language, cultural, literacy or comprehension indicators | Mandatory pause, document and support-person protocols |
| Retention team | Preventative | Retention calls may involve advice and consumer-law risk | Repeated cancellation resistance | Cancellation scripts, call limits and no-pressure controls |
| Responsible managers | Governance | Outsourcing does not remove AFSL accountability | Licensee has no direct employees | Representative register and end-to-end supervision |
| Legal | Preventative | Delegation must be informed and documented | Incentives launched without compliance review | Formal sign-off and written advice before launch |
| Internal audit | Detective | Group structures can obscure accountability | Multiple entities employ, pay or manage agents | Trace conduct, control and remuneration across entities |
| Remediation | Corrective | Widespread sales practices may cause cohort harm | Similar complaints or cancellation patterns | Data-led customer review and compensation assessment |
11. Recommended Next Steps
AFSL holders operating call-centre or outsourced distribution models should:
- review all monetary and non-monetary sales incentives against the conflicted remuneration provisions;
- map the legal and practical accountability for every sales and retention function;
- assess whether retention calls involve financial product advice;
- test call recordings for pressure, misleading statements and vulnerability indicators;
- prohibit repeated resistance to clear cancellation instructions;
- require legal and compliance approval before launching incentive programs;
- ensure compliance personnel receive advance notice and complete information;
- review Indigenous customer and language-support procedures with appropriate cultural expertise;
- analyse referral programs for consent, transparency and unlicensed conduct risk; and
- establish board reporting on cancellations, repeat calls, complaints, vulnerable consumers, incentive outcomes and remediation.
12. Broader impact
This case is particularly significant as it addresses key issues of conflicted remuneration and consumer protection in the financial services sector. It underscores the importance of aligning business practices with legal and ethical standards, particularly in regard to remuneration structures and consumer interactions.
This analysis is suitable for internal legal and compliance review, but final positions should be confirmed against the complete judgment, entered declarations, subsequent penalty decision and current law