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20-105MR Pershing pleads guilty to mishandling of client monies
On 5 May 2020, Pershing Securities Australia Pty Ltd (PSAL) pleaded guilty at the Downing Centre Local Court in Sydney to mishandling client monies.
PSAL is the first company in Australia to face criminal prosecution for breaching client money provisions, which are designed to protect the interests of AFS licensee clients by ensuring that client money is kept separate from licensee money.
Specifically, PSAL pled guilty to:
- Breaching s993B(1) between 25 January 2016 and 31 December 2018 by receiving money in connection with financial services, and then failing to pay that money into an account that satisfied the client money requirements within s981B of the Corporations Act 2001.
- Breaching s993C(1) between 30 June 2016 and 16 December 2017 through making payments out of a client money account that were not permitted by reg 7.8.02 of the Corporations Regulations.
Each offence carries a maximum penalty of 250 penalty units (approximately $45,000).
PSAL also admitted guilt to a third s993B(1) breach that took place on 21 August 2017. As part of the plea, PSAL will not be sentenced on this breach but it will be taken into account during sentencing for the above charges.
Client money is money paid to a financial services licensee in connection with a financial service that has been provided, or will or may be provided, or in connection with a financial product. Client money must be paid into a client money account and AFS licence holders can only make payments out of a client money account as specified by the Corporations Regulations.
The matter has been listed for sentence on 27 July 2020.
In addition to PSAL guilty plea, as a result of ASIC’s investigation, PSAL has accepted additional licence conditions imposed by ASIC on the PSAL AFS licence.
In addition to keeping separate client money from money belonging to licensees, the client money provisions also protect the interests of clients of AFSL licensees by:
- limiting the uses of client money;
- limiting the circumstances in which client money may be withdrawn from client money accounts; and
- imposing sanctions on licensees who fail to comply with the client money provisions.