Introduction
Misleading and deceptive conduct remains a significant legal risk for financial services providers, with potential consequences under the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth). Financial services providers must ensure that all representations, particularly in marketing and advertising, are truthful, substantiated, and compliant with these laws to avoid enforcement action, litigation, and regulatory penalties. Addressing misleading conduct is therefore increasingly requiring a proactive approach to compliance from financial services providers.
What are the challenges facing financial services providers?
The financial services sector operates under stringent regulatory scrutiny. As providers compete through innovative products, digital assets, and ESG-focused solutions, the pressure to attract consumers through creative marketing and compelling disclosures can lead to misrepresentations, especially in areas like projected financial outcomes, product growth, and sustainability commitments.
How can I determine if conduct is misleading and/or deceptive?
Misleading and deceptive conduct is assessed through an objective test, focusing on whether a reasonable person, in the circumstances, would likely be misled or deceived by a particular statement. This test does not require proof of actual deception, only the likelihood of it occurring. For financial services providers, this objective approach means that statements, especially those involving future projections, regulatory compliance claims, or unique product features, must be carefully assessed through the lens of an informed, reasonable consumer. This reduces the leeway for puffery or exaggerated marketing claims.
What are key lessons from recent misleading and deceptive conduct cases
Recent cases highlight the legal consequences of making unsubstantiated, overly optimistic claims and projections. In ASIC v BPS Financial Pty Ltd,1 BPS Financial promoted the liquidity of its cryptocurrency platform, Qoin, and its merchant network's anticipated growth without sufficient grounds. The court found these claims misleading as they suggested a present reality that didn’t exist. Similarly, in ASIC v LGSS Pty Ltd,2LGSS presented its Active Super Fund as strictly adhering to ESG principles, despite indirect investments inconsistent with these principles (e.g. through pooled funds). This misalignment between its claims and practices led the court to find its statements misleading. These cases emphasise that promotional claims must be verifiable; relying on hopeful projections or loosely defined principles risks misleading consumers.
The issue of materiality, being whether an omission or misstatement is significant enough to mislead a reasonable person, was discussed in Zonia Holdings Pty Ltd v CBA.3 The court ruled that the omission to disclose certain compliance failures related to anti-money laundering regulations was not material. These issues were deemed isolated and administrative in nature, with little likelihood of influencing an investor’s perception of CBA’s performance or share value. The case demonstrates that the significance of omitted information must be carefully evaluated in the context of whether it would likely affect a reasonable person’s decision-making.
For a deeper look into the specific legal principles and outcomes of key cases explored in this article, please see our insights on:
Takeaways
Recent court decisions and regulatory actions demonstrate the expansive reach of misleading and deceptive conduct laws. For financial services providers, it is increasingly important to recognise that avoiding misleading and deceptive conduct requires more than reactive compliance, it requires active oversight and review of all representations being made to consumers, investors and the public.
Just rephrased the question as the answer is to view conduct objectively.
If you have any questions in relation to the above, please contact the authors Andrew Mutton or Sandra Bejo.
1 Australian Securities and Investments Commission v BPS Financial Pty Ltd [2024] FCA 457.
2 Australian Securities and Investments Commission v LGSS Pty Ltd [2024] FCA 587.
3 Zonia Holdings Pty Ltd v Commonwealth Bank of Australia Ltd (No 5) [2024] FCA 477.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.