ASIC’s investigation into Sanlam Private Wealth Pty Ltd (Sanlam) uncovered concerns that the AFS licensee had breached its general obligations, including by failing to adequately supervise its many authorised representatives and corporate authorised representatives. (ASIC Media Release MR 24-290)
ASIC Deputy Chair Sarah Court said, ‘At one point, Sanlam had 42 CARs and 71 authorised representatives operating under its licence. Despite this, it had plainly inadequate resources and processes to ensure its diverse cohort of authorised entities complied with the law and to oversee those who used its licence to offer risky financial products to retail clients.
‘Licensees like Sanlam must have robust compliance processes that are fit-for-purpose to ensure that those who operate under their licence comply with the law and don’t place Australian investors at risk.’
Sanlam admitted to breaching its licensee obligations and provided a court enforceable undertaking to ASIC.
Under section 93AA of the ASIC Act, Sanlam has offered, and ASIC has agreed to accept as an alternative to pursuing civil penalty proceedings, the undertakings.
Insurance brokers
Insurance brokers often use a network of authorised representatives as a viable business model.
An insurance broker, as an AFS licensee, must monitor its authorised representatives and ensure they comply with financial service laws & are trained & competent. Additionally, under the NIBA Code of Practice, brokers must ensure authorised representatives comply with the Code.
The undertakings to ASIC in the Sanlam case provide some useful insights for insurance brokers:
- Due diligence must be undertaken and continue on an ongoing basis to review the ARs’ suitability to operate under the brokers AFSL;
- A formalised & systematic review process must be implemented to assess whether employees and AR’s are complying with financial service laws;
- Informal processes and self-reporting by AR’s, of itself, is not adequate as a supervisory mechanism;
- Brokers must have adequate human resources directed to risk management or overseeing an effective review programme to monitor ARs (my observation – the ‘adequacy of human resources’ should be included as a standing agenda item for the brokers Risk & Compliance Committee);
- Brokers should develop a human resourcing plan consistent with its current and future needs;
- Brokers should have an adequate, documented succession plan when heavily dependent on 1 or 2 people and especially when a ‘key person’ requirement’ condition is included on their licence;
- Brokers must have an adequate number of Responsible Managers for the number and breadth of ARs and must devote sufficient time to effectively discharge their duties as a responsible manager;
- Brokers must also adequately document and implement processes to ensure they have the appropriate number of suitably qualified RMs having regard to the financial services provided, the complexity of those services, as well as the number and breadth of ARs authorised. There also needs to be an adequate and structured process to assess the ongoing suitability of its RMs. (my observation – the ‘suitability of responsible managers’ should be included as a standing agenda item for the brokers Risk & Compliance Committee)
- Brokers must implement a training and compentency programme to assess and develop its AR’s skills and maintain comprehensive and consistent training records;
- The brokers compliance framework must be directed to the specific risks associated with products offered by, or accessed through, the ARs especially when those products and services are provided to Retail Clients;
Adequate Risk and Compliance measures
It is clear from the Sanlam undertakings that a brokers risk and compliance arrangements must be adequate with respect to its ‘unique’ business model and the nature, scale and complexity of its business including the number of ARs. An ‘off-the-shelf’ manual is unlkely to fulfil this purpose.
As part of my compliance services to insurance brokers, I provide a tailored Risk & Compliance Manual together with registers and personal 1:1 guidance and training to assist in the implementation of adequate compliance measures. I can also include, as relevant, the NIBA Code, Steadfast Code of Conduct and CCX 360 as part of your tailored Manual. Subject to scope, I usually conduct a compliance review of your business prior to developing your manual.
Contact me for further information on the compliance services that I provide to insurance brokers including:
- Compliance review;
- Risk & Compliance Manual and registers
- AFSL licensing (new licences and variations)
- Adding responsible managers to your licence
- Compliance training and education (for employees and ARs)
- Monitoring programs (of your employees and ARs)
- Compliance advice.