Trading Without AFSL.

Author:
Patrick Pagin, Karly Muller
Trading Without AFSL.

ASIC v Scholz (No 2) [2022] FCA 1542

Summary

  • Making share recommendations to members of the public for a fee or reward will constitute the carrying on of a financial services business and thereby require an Australian Financial Services Licence (AFSL).
  • Overt recommendations to buy, hold or sell are not required to be in breach of the law and a more nuanced approach may still fall foul.
  • Financial services need not be the only service the ‘business’ provides – it can be just one part.

Background

Between 2020 and 2021, a Queensland resident named Tyson Scholz took to his social media platform to share his success story about share trading with other online users. The content posted contained information on the companies in which he had acquired shares in addition to making recommendations about other potentially good investments. Mr Scholz traded as “ASX Wolf” which was made into an Instagram handle that went viral online. His online business consisted of:

  • An ‘invitation only’ discord group for mentoring. This group contained information relating to when shares would be bought and sold and the pricing – this service was $1,000 per person per year.
  • Selling private tips on shares for a fee of $500
  • Running trading seminars for $500 per person

The issue

ASIC alleged that, in contravention of s 911A of the Corporations Act 2001 (Cth) (the Act), Mr Scholz engagement in the above activities meant he provided financial services without an Australian Financial Services Licence.

The primary issue to be determined by the Judge was whether the conduct of Mr Scholz amounted to ‘carrying on a financial services business’ as prescribed by s 911A of the Act.

Carrying on a ‘financial services business’

A ‘financial services business’ means a business providing financial services. What constitutes financial services is broad, however, in essence, it can include things like the provision of financial product advice or dealing in a financial product.

Financial products are, generally speaking, a facility through which, or through the acquisition of which, a person makes a financial investment, manages financial risk or makes non-cash payments.

The Court found in favour of ASIC’s submissions that Mr Scholz’s conduct did in fact constitute providing ‘financial product advice’. Her honour stated that Mr Scholz advice was enough to compromise an opinion or influence a person’s decision in recommending a particular product and this formed an integral part of his business.

Mr Scholz’s conduct was found to be in breach of the Act, as he carried on a financial services business between 2021 and 2021 without having the appropriate AFSL.

Key message

  • Great caution must be had by any person or entity that may be, whether inadvertently or not, providing financial product advice or dealing in a financial product.
  • The area of the law related to financial advice and products is complex and advice from a lawyer should be sought prior to engaging in any conduct which may fall foul of the law.

Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.

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Key contacts
Patrick Pagin, Karly Muller
Senior Associate

Contact

0466 594 539
Level 11, 97/99 Bathurst St, Sydney NSW 2000

Areas of Expertise

Commercial Litigation

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