The obligation
One of the general obligations for AFS Licensees under Section 912A(1) Corporations Act is the ‘organisational competence obligation’. s912A(1)(e)
ASIC assesses your compliance with this obligation by looking at the knowledge and skills of the people who manage your financial services business. ASIC refer to these people as your ‘responsible managers’. (refer RG 105)
This is on ongoing obligation therefore it is important that your compliance measures, including how you comply with your obligations, are documented.
How many responsible management should we nominate?
At a minimum, you need to nominate responsible managers who:
(a) are directly responsible for significant day-to-day decisions about the ongoing provision of your financial services;
(b) together, have appropriate knowledge and skills for all of your financial services and products; and
(c) individually, meet one of the five options for demonstrating appropriate knowledge and skills (refer Table 1 of RG 105).
If you have a responsible manager with appropriate knowledge and skills for some, but not all, of your financial services or products, you need to ensure that your other responsible managers have appropriate knowledge and skills for the remaining services and products.
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.
Telling ASIC about your responsible managers
You must demonstrate your organisational competence when you apply for an AFS licence. You may also need to demonstrate your organisational competence if you later apply to vary your licence authorisations.
When you apply for an AFS licence, or to vary your licence authorisations, you must nominate your responsible managers in your application and answer questions about their role, training and experience, and which of the five options in they meet. You must also support your application with a ‘core proof’ demonstrating that your responsible managers:
(a) individually meet one of the five options for demonstrating appropriate knowledge and skills; and
(b) together have appropriate knowledge and skills to cover all of your financial services and products
You must advise ASIC within 10 Business Days when you remove or add a responsible manager, refer the following link
Changing your responsible managers
If the responsible manager you are changing is named on your AFS licence as a key person, you must also apply to vary the key person condition on your licence. (Form FS03)
If you need assistance with adding/removing responsible managers or varying your AFS Licence conditions, contact me.
Obligations of a responsible manager
The obligation for organisational competence applies to the licensee not the responsible manager with civil penalties applying for non-compliance however responsible managers may be subject to banning or disqualification orders for failing to fulifill their duties.
The following cases are relevant in demonstrating the requirements of responsible managers. This list is not exhaustive.
- ASIC banned ‘xx’ a responsible manager of a licensee, from providing financial services for 10 years. ASIC found xx’s lack of understanding or regard for compliance was so serious it justified the making of significant banning and disqualification orders. ASIC also found xx failed to implement and enforce compliance policies and procedures. Mr Martin failed to address misconduct by representatives when alerted to instances including providing personal advice when not authorised to do so and making misleading misrepresentations about the level of risk client’s funds were exposed to and expected profits. (see ASIC media release 21-119MR)
- ASIC has banned ‘xx’, from performing the functions of an officer and a responsible manager of a financial services business for four years, after finding that he is not competent and is not a fit and proper person to perform those roles. XX failed to monitor and oversee the licensee’s business, including its bank accounts and client accounts, and failed to ensure that the licensee complied with financial services laws. It was also found that xx failed to address concerns raised by ASIC regarding the licensee’s conduct. (see ASIC media release 22-196MR)
- xx, was charged with three offences under the Corporations Act after allegedly making false or misleading statements in documents submitted to ASIC. ASIC also alleges that in December 2013, xx made false or misleading statements in documents submitted in support of an Australian Financial Services (AFS) licence application. xx stated he had never been bankrupt. ASIC alleges that xx had been made bankrupt in 2008. Further documents submitted to ASIC in December 2014 and September 2015 also allegedly failed to disclose bankruptcy information. ASIC’s confidence in an applicant’s ability to provide licensed services efficiently, honestly and fairly, and in compliance with its financial services obligations, relies on responsible managers acting truthfully. (see ASIC media release 18-317MR)
What should a responsible manager do to meet their obligations?
Responsible Managers should:
- be part of a Risk & Compliance committee that meets regularly with a formal agenda
- receive risk & compliance data including sufficient data to enable the RM to form a view on the adequacy of the Licensees risk & compliance measures including & not limited to: incident & breaches, complaints, key controls & control testing outcomes, monitoring activity of representatives (attestations, file reviews etc)
- be curious and ask questions – what is the data telling me? not telling me?
- deep dive where indicators identify potential issues
- satisfy themselves that the compliance measures are adequate to enable the licensee to comply with its general obligations under section 912A(1)
- satisty themselves that the licensee has adequate compensation arrangements & client money arrangements
- ensure that the licensee’s procedures enable relevant disclosures and warnings (FSG, PDS, SOA, informed consent, general advice, CSFS etc) are providied to retail clients
- ensure that the licensee’s compliance measures are adequate in protecting customers experiencing vulnerability
- ensure that the compliance measures comply with an industry Code (such as GI Code of Practce or Insurance Brokers Code)
- address misconduct or areas of concern in a timely manner
- ensure all representatives are trained & competent and identify & raise incidents & complaints in a timely manner
- maintain their training and competence.
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