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Yes you should include it.From an Insurers perspective, they are interested in revenue because they use it as a proxy for risk. The logic is that the more revenue you have the more business/clients/work you do, therefore the more chances of making a mistake and therefore more risk – more premium. You have revenue from 2 sources: advice revenue and promoter revenue, therefore you need to include all the revenue to ensure that all parts of your business are factored in. I expect the risk associated with ‘advice’ revenue is greater than the risk associated with ‘promoter’ revenue. Depending on your Insurer, they may or may not make this distinction. My advice:
- Include all the revenue;
- Specify the split of advice revenue and promoter revenue; and
- Explain why the risk associated with promoter revenue is low.
The Insurer may or may not take this into consideration when calculating your premium by applying a lower risk rate to the lower risk revenue.Your obligation to disclose revenue will come down to what your Professional Indemnity (PI) Insurer requires.
Your broker is best placed to advise you on this.As PI policies vary between providers, we are unable to give you specific advice without seeing a copy of the policy you are referring to.We do note that you have a duty of disclosure under insurance law and the insurer may be able to disclaim liability in cases of material non-disclosure.Please don’t hesitate to contact our team if you require further information.Author: Paul DerhamCo-contributor: Sarah HolleyThere is no ASIC policy which sets out how many AFSLs a Responsible Manager (“RM”) can act for. We know from experience that ASIC is reluctant to allow an RM to be on more than 3 AFSLs. However, depending on how many other RMs there are on each licence, and the nature of your role in each licence, ASIC may only allow you to be on 1 or 2 AFSLs. As you may know, it is through its RMs that a licensee maintains its competency (competency requirements are summarised in ASIC’s RG 105). ASIC considers that an RM should:
- be directly responsible for significant day-to-day decisions about financial services;
- decide how financial services are provided and supervise the provision of those services;
- play an active role in fostering compliance culture; and
- oversee the financial services being provided.
Before agreeing to join more than one AFSL, you should also also consider: your availability, potential conflicts of interest, confidentiality and how your experience matches up with each AFSL’s licence conditions.
Author: Paul DerhamCo-contributor: Sarah HolleyMaking sure the PAMM provider has an AFSL helps you manage one risk – but your AFSL needs to cover the right activities, too.In order for you to authorise your contact to advice on PAMMs you would first need to have managed investment scheme and/or managed discretionary account authorisations (see our initial response) under your license.Further, as an authorising licensee, you would be legally responsible for the conduct of the authorised representative. There are lots of other risks you would want to manage (eg. via a well drafted authorised representative agreement and by conducting legal/compliance due diligence on the authorised representative).Author: Chris LimChris
Thank you for your time.
I really should have mentioned in my first post that the FX platform, and therefore PAMM provider is the holder of an AFSL!
Is this all I need to be concerned about? Not specifically the traders themselves?
And hopefully, using my logic above, I can assume as the PAMM provider is licensed, that I have the ability to allow him to advise clients into a structure such as this?
Thanks again for your time with my confusion
Our understanding is as follows: a trader (“the Trader”) creates a PAMM account (Percentage Allocation Management Module). The PAMM account may provide information such as the Trader’s historical trading record. People (“the Client”) can access that information and can then deposit funds into the trader’s PAMM account. The Trader will trade the funds in the PAMM account. The Trader will generally take a percentage of any profits made with Client funds.The provider of a PAMM account is likely to require an AFSL with authorisations in relation to operating a managed investment scheme or a managed discretionary account service (MDA). Without an AFSL with these (or similar) authorisations, the provider of the PAMM account (and possibly the traders) would not be able to induce people from Australia to use/invest in these accounts. Any provider who provides this financial service/product in Australia without an AFSL is in breach of Australian financial services laws. Offshore providers of financial services are required to hold an AFSL if the provider carries on a financial services business in Australia or intends to induce Australians to use its financial services.Turning to your question, as a AFS licensee you are required to monitor and supervise the activities of your Authorised Representatives. If your Authorised Representatives deal in an unlicensed financial product, by arranging for client to use an unlicensed PAMM account, it may expose your organisation to various types of liability.Feel free to contact our team if you wish to discuss further.Author: Chris LimHi Darren,Thanks for your comment.What you are describing is a “managed investment scheme” (MIS), as defined by s 9 of the Corporations Act 2001.Broadly speaking, an MIS is a financial product. If this is the case you will probably need an Australian Financial Services Licence (AFSL) to manage and operate the MIS in the manner you describe.Some regulatory relief may be available for you, but the relief is highly conditional in nature. You should obtain legal advice in relation to what these conditions are and whether they apply to you.Whether or not the regulatory relief applies, there are some important legal considerations. For example, you will want to have a suitable trust deed/constitution/Syndicate Agreement. You will also want to make suitable disclosure to potential investors in the syndicate.It appears that you have given some thought in relation to this proposal. The next step is to speak to a lawyer that can help you canvas these issues, and any others that may flow from your proposal. You are welcome to call Holley Nethercote on +613 9670 2800 to discuss, or contact us at law@hnlaw.com.au.Author: Sonnie BaileyHi John. You make a very good point. Seven years is a common rule of thumb for document retention.There are risks involved with destroying documents. A firm that destroys documents after seven years, for example, may subsequently find that they are subject to a claim for negligence or a dispute with an EDR scheme, and that they do not have any information relating to the advice in question.There are some factors which mitigate this risk.Poor quality advice is generally not very robust. Bad advice will tend to reveal itself sooner than later. For example, it is uncommon to see a FOS dispute arise over advice given 7 or more years ago.Furthermore, if a client is going to take action, they will need to provide evidence in support of their complaint. This is likely to involve disclosure documents, letters, or emails which they have retained. Assuming the advice is sound, this should be clear in all correspondence with the client.Ultimately, the decision relating to how long to retain documents is a business decision that involves a balance of this sort of risk versus the costs of retaining them.With respect to the 7 year rule of thumb, it should be treated as a rule of thumb and not a firm rule.Most AFSLs have a condition that specifies that documents such as FSGs and SOAs must be held for at least 7 years, implying that they can be destroyed beyond this period.However, there are other considerations:- Some information is trivial and doesn’t need to be retained in the first place.
- Some documents should never be destroyed. Imagine destroying a client’s will, just because 7 years have elapsed since it was signed! Other documents that should never be destroyed include company constitutions, long term leases with options to renew, etc.
- Some documents must be destroyed prior to 7 years. For example, where the National Privacy Principles apply and no other obligations intervene, personal information which is no longer required for the purpose for which it was collected should be destroyed.
- In quite a few areas, there is a legislative obligation to retain records for a longer period. For example, some superannuation records must be kept for 10 years. Some of these obligations are generic (e.g. tax, corporate records) but many will be specific to your business.
- There might be files or elements of files that involve an element of increased risk. It might be prudent to keep some files where the clients’ affairs are particularly complicated, or the advice could be construed as inappropriate, or where a client has expressed dissatisfaction and the adviser thinks they may complain in the future.
A 7-10 year retention period will, in the vast majority of cases, be a sufficient safeguard. However, a quick review of files to be destroyed should still be undertaken. A document retention policy should be developed with an appreciation of the risks involved. We take a more conservative approach with recommending, in general, that documents be retained for 10 years. For one large business which we know of, they decided it was easier to rent storage space for old files than to sift through each file!!Author: Sonnie BaileyThanks Sonnie. How does this impact on document retntion periods? The gneral rule of thumb is to destroy documents after seven years.
The standard answer to your question is that your systems need to be scalable to the nature of your business. That said, ASIC has a bunch of expectations that effectively set a minimum benchmark. There are plenty of off the shelf compliance procedures kits that include a monitoring program and a compliance diary or equivalent (we have one, for example). However, when implementing the supervision and monitoring, that comes down to actual practice and can be difficult to do in a way that doesn’t stifle business – as you rightly point out. For example, call centres may require a script to be used and then compliance staff will monitor a percentage of calls and check them off against a compliance checklist. We have a client that only offers one product and gives some general advice but primarily gives no advice. We provide no-advice training to their staff approximately annually. There are also various “do’s and don’ts” checklist using traffic-light systems that are used in their office. Monitoring and supervision in their instance is fairly “light touch”, but is scaleable and appropriate to the amount of financial services provided. I would be interested to know how the two ARs (I assume you mean Authorised Representatives) are issuers. Is this via an Intermediary Authorisation? Using ARs as issuers throws up a few complex and interesting legal issues.
If you require further information, please feel free to contact our office.
Author: Paul Derham
Performing a risk assessment without meeting a client requires the capture of relevant Know Your Customer (KYC) information and other information (e.g. Investment Options) in order to categorise the risk of the account (low/med/high) and then perform the relevant risk weighted identity verification. Risk assessment can be based on a number of factors such as the client’s product selection, occupation, country of residence etc. – it is ultimately up to the organisation to define the rules based on their service offering. To perform a risk assessment and subsequent required identity verification it is most efficient to capture client application data for new accounts electronically.Off the back of electronic capture of application information, Electronic Identity Verification is a method that can be utilised in order to verify identity without meeting the client face-to-face. It is an acceptable method of identity verification under the AML/CTF Rules (and used by industry) however requires a more stringent check to be performed in order to meet the Safe Harbour standard.Failing a successful electronic identity verification (or the risk assessment concludes that an electronic identity verification will not be a sufficient check), alternate ‘paper’ methods can be used, e.g. requesting the client sends in (via fax/email/post) certified copies of Passport, Drivers Licence etc.Regards,Nick BoudrieThe 20 hours of CPD for a credit representative will only form part of the 30 hours of CPD for an AR if:
- the subject matter of the course was relevant to both regimes (e.g. it was about risk management or other licensee obligations that are the same under both licences); and
- the imposer of that 30-hour requirement (the AFS licensee or a professional body) was willing to accept those credit “hours” as relevant. As you know, professional associations like the FPA usually only recognise CPD if an assessor “accredited” by the association is willing to sign off on the training. Otherwise, the 30-hour CPD requirement is just a figure that the AFS licensee has decided upon, so the requirements of them approving the training will be less stringent.
The two regulatory regimes impose similar obligations, but the products are obviously different. This means that, in practice, most advisers who are authorised under both the AFSL and ACL regimes will need to have separate training undertaken.
Feel free to contact us if you require further information.
Author: Kathryn WardrobeCo-contributor: Sarah Holley
