Australian Financial Services Licensing (AFSL) Forum

This topic contains 1 reply, has 2 voices, and was last updated by  Andrew Ham 4 years, 4 months ago.

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  • #4936 Reply

    Ted

    One of our representatives is bankrupt due to unforseen legal events, can they provide financial services on a AFSL holders behalf?

    #4944 Reply

    Andrew Ham
    Member

    Hello Ted,

    Thank you for your question.

    An individual is not, by virtue of being a declared bankrupt, prohibited from providing financial services as a representative of an AFS Licensee under the financial services legislation or standard AFSL conditions.

    However, the reasons and consequences of the bankruptcy may be relevant.  It is no coincidence that HB 322 – 2007 Reference Checking in the Financial Services Industry, which is endorsed by ASIC, recommends conducting bankruptcy searches on prospective applicants.

    As an AFS Licensee, you have an obligation to “do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly”.

    Accordingly, whether they can continue as a representative is a decision for the AFSL holder, based on the circumstances of the bankruptcy.  You should enquire about the reason(s) for the bankruptcy, so that you are able to assess the extent it may impact their (and consequently, your) ability to provide financial services efficiently, honestly and fairly.  One way of looking at this assessment might be to consider the question of ‘fault’ and who (if anyone) suffered losses as a result, as well as the impact on the representative going forward.

    You are also required to ensure that the representative is competent to provide the financial services.  You may decide that special or additional monitoring and supervision procedures should be in place to ensure this requirement is satisfied.

    We recommend that in extraordinary cases such as this, that you document your enquiries, including the steps (or lack of steps) you will take and your reasons for your approach, to demonstrate you have turned your mind to these matters.  There may be other factors that are unique to you.  For example, you should consider whether any conditions on your AFSL are applicable.  You should also consider whether any of the terms in the employment agreement or authorised representative agreement between you and your representative are effected by bankruptcy.

    (We have previously answered this question on the AFSL Forum in 2011.  As you can see, not much has changed in the past 5 years!)

    Please feel free to contact our Financial Services Team if you require any further assistance.

    Author: Andrew Ham (Senior Lawyer) and Greta Walters (Legal Clerk)

     

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