ASIC’s expectations-AFSL application
As anyone who’s applied for, or varied, an Australian Financial Services Licence (AFSL) will know, ASIC requires detailed documentation to be provided during the application process to demonstrate the competency of each person appointed as the licensee’s Responsible Manager (RM). This is to ensure that the licensee is able to satisfy s912A(1)(e) of the Corporations Act 2001 (Cth) (Corporations Act),namely, that the licensee maintains its competency to provide the financial services covered by its AFSL.
ASIC sets out in Regulatory Guide 105 (RG 105) the required qualifications and minimum number of years of relevant work experience for each RM required to be demonstrated at the application stage.
However, when it comes to the ongoing maintenance of the competency requirements in the Corporations Act, ASIC takes a far less rigorous approach. Essentially, ASIC allows AFS licensees to self-regulate how they maintain the ongoing competency of their RMs. ASIC’s expectations in relation to this self-regulatory approach are broadly described in RG 105 as follows:
- that AFS licensees should have measures in place to ensure they maintain their organisational competence at all times, including:
- reviewing their organisational competence on a regular basis and whenever their RMs or business activities change
- maintaining and updating the knowledge and skills of their RMs, and
- keeping records to show the licensee has reviewed its organisational competence and what steps have been taken to maintain its organisational competence; and
- that AFS licensees should document their measures in some form, as in ASIC’s view, it is more difficult to show compliance where documentation is not in place.
RMs are not however required by ASIC to complete a minimum number of hours of professional training and development each year.
Why should we bother with ongoing professional training?
- Ongoing professional training undertaken by RMs is the clearest way for an organisation to ensure their RMs continue to meet the required competency standards to provide the financial services covered by the AFSL.
- Independent auditors are requesting organisation’s training programs and training registers for RMs as part of preparing the annual Auditor’s Report for AFS Licensee (FS71).
- If ASIC does come calling, it will expect AFS licensees to be able to demonstrate what steps the organisation has taken to maintain and update the knowledge and skills of their RMs.
- ASIC isn’t the only entity that may show interest in whether an AFS licensee is ensuring that its RMs are maintaining their expertise through professional training; lawyers and litigation funders could be very interested where there are allegations of client loss resulting from an organisation breaching its obligations under the Corporations Act.
- If the acts or omissions of a RM result in the AFS licensee breaching its obligations under the Corporations Act (e.g. by providing inappropriate advice), pecuniary and criminal penalties may result. If the RM is a director or officer, they may be personally liable for breaches of the Corporations Act.
- In light of the misconduct uncovered during the Banking Royal Commission inquiry, it is expected that ASIC will increase its surveillance of the industry. AFS licensees should be prepared to answer:
- How do you promote a culture of compliance within your organisation?
- How do you ensure that staff understand and comply with risk management measures?
- How do your conflicts management arrangements ensure that your clients are not treated unfairly?
How can CompliSpace help?
Staying up to date with your AFSL requirements and understanding ASIC’s key areas of focus for this financial year are crucial in our current financial services climate. Our Responsible Manager Workshop will assist you to ensure that your Responsible Managers and Representatives meet their ongoing training requirements and will provide an interactive forum to develop skills and share the latest industry practice.
Further details of our next sessions can be found here:
If you are interested in looking at the details of demonstrating competency to ASIC or are keen to see the latest developments in the financial services industry, give us a call.
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