The obligation (also refer RG 105)
If you are an AFS licensee, you must maintain the competence to provide the financial services covered by your AFS licence: see s912A(1)(e) of the Corporations Act. ASIC refers to this obligation as the ‘organisational competence obligation’. This is because this obligation requires you to be competent at the organisational level.
You need to nominate responsible managers who:
- are directly responsible for significant day-to-day decisions about the ongoing provision of your financial services;
- together, have appropriate knowledge and skills for all of your financial services and products; &
- individually, meet one of the five options for demonstrating appropriate knowledge and skills (Table 1 RG 105).
If you breach or are likely to breach the organisational competence obligation, you may need to notify ASIC of that breach: see s912DAA.
Nominating responsible managers
The people you nominate as responsible managers must have direct responsibility for significant day-to-day decisions about your financial services.
In context of general insurance; together, your responsible managers must have the skills & knowledge in:
- providing financial product advice or general advice only; and/or
- dealing in a general insurance product, including (a) issuing [typically insurers or underwriting agencies] or (b) on behalf of another person [typically insurance brokers]; and/or
- claims handling and settling services (a) by an insurer or acting on behalf of the insurer [typically underwriting agencies or insurance claim managers] or (b) on behalf of the insured [claimant intermediaries].
The number of people you need to nominate as responsible managers will depend on the nature, scale and complexity of your business. However, ASIC expects that you will nominate at least two responsible managers.
If you are heavily dependent on the competence of one or two responsible managers (e.g. in a small organisation with one or two principals), ASIC will generally impose a ‘key person’ condition on your AFS licence
Tips to assist in meeting your personal obligations
As a responsible manager you need to stay across the business operations.
I provide the following practical advice to my clients:
- all responsible managers should work together as a team, regularly meeting to exchange views and observations and share concerns
- receive regular risk & compliance dashboard reporting – complaints, incidents & breaches, QA & audit outcomes, control breakdowns, breach remediation & rectification updates, control testing outcomes, risk profiles & training completion
- keep across industry issues such as AFCA complaints & regulatory and Code reviews
- engage with the internal risk and compliance committee, CRO, directors , management & extrenal auditors
- be curious – ask questions
- look behind the data, what is it telling you? A lack of data is not healthy
- the effectiveness of your compliance arrangements and monitoring program to meet licence, regulatory and Code obligations
- the adequacy of your incident & breach reporting and dispute resolution systems.
Notifying ASIC of changes to your responsible managers
You must advise ASIC within 30 business days of adding or removing a responsible manager. You need to complete the relevant sections of Form FS20 and lodge it online via ASIC’s licensee’s portal.
ASIC case studies
The organisational competence obligation applies to the licensee, not to responsible managers. However, ASIC will hold responsible managers to a higher standard of care in ensuring that the licensee has adequate compliance arrangements and is complying with its licence authorisations, conditions and financial service laws.
Generally, ASIC will engage responsible managers as the first step in any surveillance or investigation activity.
Responsible managers may be subject to banning and disqualification orders and/or civil penalties.
Some recent cases provide guidance.
XTrade. AU Pty Ltd (ASIC Media Release 24-157MR)
ASIC banned former directors and responsible managers of XTrade.AU Pty Ltd (XTrade), Mr Shay Zakhaim and Mr Anthony Anderson from carrying on of a financial services business, either as a director or responsible manager, for three and five years respectively.
ASIC found that Mr Anderson and Mr Zakhaim were involved in XTrade’s failure to:
- have adequate arrangements to manage conflicts of interest, which encouraged aggressive sales tactics by XTrade’s representatives towards Australian clients; and
- take reasonable steps to ensure its representatives complied with financial services laws until at least February 2022, including XTrade’s representatives using unfair tactics to entice Australian clients to deposit and trade with more funds than they initially wanted to.
Sirius Financial Markets (22-301MR)
ASIC banned Mark Bringans, the former responsible manager of over-the-counter derivatives provider Sirius Financial Markets Pty Ltd (Sirius Financial), for eight years.
Mr Bringans’ banning follows an ASIC investigation into Sirius Financial (trading as ‘Trade360’), which found that Sirius Financial acted unconscionably and breached its Australian financial services licence obligations when it failed to address the conduct of Toyga Media Ltd (Toyga), an off-shore call centre it hired to source clients to trade in its high-risk contracts-for-difference and margin foreign exchange contracts.
ASIC’s investigation found that Toyga engaged in pressure selling tactics and provided personal advice on behalf of Sirius Financial when it was unlicensed to do so.
In banning Mr Bringans, ASIC found that he is not adequately trained and competent, that he is not a fit and proper person to provide financial services, and that he ignored one of his key duties as a responsible manager, which was to ensure that Sirius Financial complied with the financial services laws.
ASIC also determined that Mr Bringans was a disinterested, disengaged responsible manager who did little more than attend monthly compliance committee meetings.
Consolidated Mercantile Group Ltd (22-196MR)
ASIC banned Albert Christen Walters, known as Chris Walters, from performing the functions of an officer and a responsible manager of a financial services business for four years, after finding that he was not competent and was not a fit and proper person to perform those roles.
Mr Walters was a director and the sole responsible manager for Australian financial services licensee, Consolidated Mercantile Group Ltd (CMG). ASIC found from March 2019 to August 2021, Mr Walters failed to monitor and oversee CMG’s business, including its bank accounts and client accounts, and failed to ensure that CMG complied with financial services laws. It was also found that Mr Walters failed to address concerns raised by ASIC regarding CMG’s conduct.
Assistance with responsible managers for general insurance
Should you require assistance with:
- adding or removing responsible managers;
- the key persons requirement; or
- assessing your nominated responsible managers against the 5 RG 105 options
do not hesitate to reach out to me.