Australian Financial Services Licensees (AFS Licensees) have a fundamental obligation to ensure that they operate efficiently, honestly and fairly. All Licensees also must maintain the competence to provide those financial services - these obligations are referred to as the organisational competency obligations.
The individuals within the organisation who are responsible for running the business must have relevant and sufficient experience and competency – these persons are referred to as Responsible Managers (RM).
Who Should be Nominated as a Responsible Manager?
An AFS Licensee will need to nominate as RMs those people whose expertise they will rely on to meet the organisational competency obligations. Persons, such as directors and key managers of the Licensee, who are directly responsible for significant day-to-day business decisions regarding the ongoing provision of financial services by the licensee, need only be nominated as RMs. Their role/s could include:
- Managing the overall compliance obligations or financial management of the AFS Licensee;
- Provision of financial advice to clients;
- Supervision and compilation of financial recommendations;
- Appointment, supervision and training of representatives of the AFS Licensee;
- Management of client complaints;
- Management of AFS Licensee resources e.g. information technology; and/or
- Implementation and review of research and approved financial products.
There will need to be a RM with the appropriate knowledge and skills for each of the financial services provided and for each of the authorisation of the AFSL. Note:
- A financial controller may not make direct decisions about the way the financial services are to be monitored and provided by the AFS Licensee;
- A compliance manager should only be nominated if they are directly responsible for significant day-to-day decisions about the monitoring and provision of financial services.
Nominated persons also must have the capacity in order to exercise the appropriate care and diligence required as part of the RM role, therefore consideration must be made as to whether they are already acting as a RM for another AFS Licensee or any other professional commitments the person may have.
How Many Responsible Managers are Required?
The appropriate number of RMs will depend on the nature, scale and complexity of your business e.g. for a large business it is expected that there will be several RMs, whereas in the case of a small business there may only be one or preferably two. The number required will also largely depend on the specific areas of expertise of the nominated individuals.
Note that if an AFS Licensee is heavily dependent on the expertise of a single or small number of individuals then ASIC may designate these individuals as a Key Person. In practice, this means that a specific condition on the AFSL will be imposed by ASIC, requiring the AFS Licensee to notify ASIC in writing within 5 business days if a key person ceases to perform duties on behalf of the AFS Licensee and nominate another suitable person who can satisfy the organisational competence requirements in order to continue to hold the AFS Licence.
What are the Eligibility Requirements?
ASIC have five options available to which prospective RMs need to satisfy one of in order to be able to demonstrate the required level of knowledge, skill and experience in order to be considered eligible as an RM for an AFS Licensee. The most common options are set out below:
Option 3:
- Hold a university degree in a relevant discipline and complete a relevant short industry course
- Have at least 3 years relevant experience over the past 5 years
Option 4:
- Hold a relevant industry- or product-specific qualification equivalent to a diploma or higher
- 3 years relevant experience over past 5 years
Note: In line with the Professional Standards Reform which came into effect 1 January 2019, ASIC are currently consulting for an amendment to require at least 1 RM within a 'personal advice' AFSL (an licence that includes the authority to provide personal advice to retail clients on relevant financial products) to meet the degree or degree-equivalent education standards as set out by the Financial Advisers Standards and Ethics Authority (FASEA).
The following due diligence checks should be undertaken on all prospective RMs:
- An Australian Federal Police Clearance (not more than 12 months old)
- A Bankruptcy Check (not more than 12 months old)
- A check of ASIC public registers for any disciplinary matters (e.g. ASIC Banned and Disqualified Register)
- Review and verification (as appropriate) of all relevant qualifications and training
- Review and verification (as appropriate) of all relevant professional memberships
- Two business references in the required ASIC format
- Signed Statement of Personal Information / Declaration for each nominated RM
QNA Consulting Pty Ltd can assist in Responsible Manager appointments and due diligence checks, drafting ASIC submissions and notifications, developing compliant organisational competence policies and processes and other Responsible Manager matters.