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Hi David,
Thank you for your query.
With regards to your hypothetical, yes that would be a breach. Although their contact information is publicly accessible, that does not amount to an invitation to meet or call to sell a financial product. However, this only applies to ‘retail clients’.
The hawking provisions for financial products, including life and general insurance products, are set out in s 992A of the Corporations Act. As previously noted by ASIC, the application of the hawking provisions depends very much on the particular facts and circumstances of each case.
In general, a person must not offer financial products for issue or sale in the course of, or because of, an unsolicited meeting with another person, subject to the exceptions in the Act.
However, this does not apply where an offer is made to a ‘wholesale client’. More information about the definition of a wholesale client may be found in our fact sheet: The Legal Basis of the Wholesale/Retail Client Distinction.
If the recipient of your telephone call is a retail client, the hawking provisions may be breached if you offer financial products because of a call that is an ‘unsolicited meeting’. This could include a call to an advertised phone number or a number found the yellow pages where there was no positive, clear and informed request for the call.
You may find RG 38: The hawking prohibitions useful for further information. There are other exceptions which may also apply.
You can contact our Financial Services Team if you would like further assistance with the hawking provisions.
Author: Grant Holley (Partner)
Co-contributor: Nicolette Tan (Law Clerk)
Hi Andrew,
Thanks for your question.
The Corporations Act requires that financial services licensees ensure their representatives are adequately trained to provide the services under their license. As you noted, RG 146 sets out the minimum training standards required for some financial product advisers. Generally, RG 146 requires that natural persons who provide financial product advice to retail clients must meet the relevant training standards. However, those training standards do not apply to the provision of advice to wholesale clients.
RG 146 may nonetheless serve as a guide for licensees whose representatives provide wholesale financial product advice. The guidelines specifically note that it does not diminish any overriding duties prescribed by the Corporations Act or the common law – such as the duty to act as a reasonable professional adviser and to provide your services with due care and skill. The training guide is flexible, and the Corporations Act places responsibility on you to decide how you will comply with your obligations. You may also want to refer to RG 104 – Licensing: Meeting the general obligations.
If you have specific questions about how your organisation can comply with training obligations please feel free to contact our Financial Services Team.
Author: Grant Holley (Partner)
Co-contributors: Hannah MacPherson and Jared Mintz (Law Clerks)The Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth) (AML/CTF Act) regulates entities which provide one or more ‘designated services,’ as listed in s6 of the AML/CTF Act. One of the designated services in s6 refers to issuing or selling an interest in a managed investment scheme.
There are limited circumstances in which a Fund Manager is exempt from complying with customer due diligence requirements. For example 21.3(1)(a) of the Anti-Money Laundering and Counter Terrorism Financing Rules grants a general exemption by s247 of the AML/CTF Act if an entity is selling shares in a fund on the ASX.
However, more detail would be required to determine if a specific Managed Fund would be exempted from AML/CTF obligations, and we would be happy to provide tailored legal advice regarding your product.
Author: Grant Holley (Partner)
The licensee is the entity (e.g. the company) that holds the AFSL and is thus responsible for complying with the s912A requirements.
‘Responsible Manager’ (RM) is not defined in the relevant legislation, nor are there any statutory duties or obligations attached to the position. The RMs are the people nominated by the Licensee to demonstrate its compliance with the 912A requirement to be competent. The RM will be an employee or contractor to the Licence holder, and their obligations are set out in their employment or sub-contract. Like other employees, they play a practical or functional role in carrying on and supervising the business of the Licensee.
The 912A obligations are not placed on the directors personally, but on the Licensee company of which they are directors. Directors have duties to act with due care and diligence and in the best interests of the company. If they conduct the licenced business in a way that is clearly not in the company’s best interests, they could be breaching their director’s duties. A recent example involved directors operating a financial advice business employing a business model that, the court found, was conflicted and not in the best interests of clients. This lead to a loss of the AFSL. Since the AFSL was necessary to the conduct of the business, and this was an outcome the board should have considered, the Court held that the directors had not exercised their duties with due care and skill, nor was in the best interests of the company.
Author: Grant Holley (Partner)
Co-contributor: Hugo Sasse (Law Clerk)
Hi David,
Thank you for your post.
The terms of an engagement contract will depend greatly on the nature of the engagement.
Holley Nethercote and Compact have extensive experience in the financial services sector.
At Holley Nethercote, we provide a range of legal services including assistance with the development and review of Responsible Manager (RM) agreements, Authorised Representative agreements, and other engagement contracts. We can also provide advice regarding the appointment of an RM and their ongoing obligations.
Feel free to contact our financial services team if you would like to discuss our services further.
Compact provides training and compliance services to businesses, industry bodies and government regulators. When you have engaged an RM, you may be interested in our half-day training course for RMs which covers topics such as their role and obligations. More information can be found here.
Author: Grant Holley (Partner)
Co-contributor: Nicolette Tan (Law Clerk)
Hi Sophie,
Thank you for your post.
The first tip is to read ASIC’s guidance. Go to http://asic.gov.au/for-finance-professionals/afs-licensees/applying-for-and-managing-an-afs-licence/.
If you require further assistance after that, Compact Compliance & Training can help you apply for an AFSL. We are familiar with the application process, as well as the requirements for a successful application, as we regularly assist our clients when they apply for (or vary) an AFSL.
We often first recommend that you obtain legal advice in relation to (a) whether you need an AFSL, and (b) what type of licence you require. Our related law firm, Holley Nethercote Commercial & Financial Services Lawyers is able to assist you with legal advice if required. (The principals of Compact are also the partners of the law firm Holley Nethercote Commercial & Financial Services Lawyers.)
Please feel free to contact us if you would like further information about our services.
Author: Grant Holley (Partner)
Co-contributor: Nicolette Tan (Law Clerk)
Hi,
Thank you for your question.
Related Body Corporate
Based on our understanding of the information given, if XYZ Pty Ltd (who holds an AFSL) is wholly owned by Corporate Trustee Pty Ltd, this would likely meet the definition of a subsidiary/holding company relationship under s 46 of the Corporations Act. These two entities would therefore be related body corporates under the s 50 definition.
This means that Corporate Trustee’s employees and directors will be ‘representatives’ of XYZ under s 910A by default, so they will not be required to hold their own AFSLs of be authorised representatives in order toe provide financial product advice.
Financial Adviser Register
You are correct that a representative who is a ‘relevant provider’ under s 910A (which includes an authorised individual providing personal advice to retail clients) will need to be recorded on the Financial Adviser Register. This is done through notifying ASIC as required by s 922D. ASIC then enters the details into the Register.
Related Obligations
In the scenario above, the ability of the Corporate Trustee’s staff (as representatives of XYZ) to give financial product advice will be limited to what XYZ’s licence covers. For example, if XYZ’s licence is limited to financial product advice on superannuation products, their representatives can only provide advice on that matter.
Internal processes may be put in place to ensure that advice is only given by individuals who are qualified to do so, and those that do give advice are aware of the limits of what they can advise on. For example, training may be provided to ensure that all staff are aware of what constitutes ‘financial product advice’, and do not give advice inadvertently.
We note that under s 912A of the Corporations Act, XYZ, as the licensee, will be under the obligation to ensure that representatives comply with the law (see sub-section (ca)), and are adequately trained and competent to provide financial product advice (see sub-section (f)). Steps taken to meet these obligations may include maintaining a register of appointed representatives, verifying their education/qualifications and providing them with ongoing training.
Please feel free to contact our financial services team if you require further assistance.
Author: Grant Holley (Partner)
Co-contributor: Nicolette Tan (Law Clerk)
Holley Nethercote and Compact have extensive experience in the financial services sector.
At Holley Nethercote, we provide expert and practical legal services and would be happy to assist with the development or review of a Responsible Management Agreement.
We also offer expert advice regarding the appointment of a Responsible Manager, as well as providing advice on their ongoing obligations.
Please feel free to contact our financial services team if you require further assistance.
Compact provides training and compliance services to businesses, industry bodies and government regulators. As part of this training, Compact offers a half-day course for Responsible Managers. Please click here for further information.
Author: Grant Holley (Partner)
Co-contributor: Diana Lawrence (Clerk)
Thank you for your question.
We have assisted a number of companies to obtain an AFSL for FX advisory to wholesale business.
The process for applying for an AFSL, and the requirements on licensees, are the same, whether you are a one man company or a larger firm with multiple employees. Maintaining your own AFSL costs a significant amount of time and money, as knowledge, resources and training are required to keep up-to-date with products, regulatory changes and compliance requirements.
ASIC’s Licensing Kit has information about the application process. For information regarding obligations that apply to licensees, we recommend that you have a look at Regulatory Guides 104, 105, 126 and 166.
ASIC is currently taking a cautious approach to applications for FX advisory licenses.
For further information about applying for an AFSL, please contact our licensing team.
Thanks for your question.
An Authorised Representative carries on business as a representative of an AFSL holder. Although many financial services can be provided in a representative capacity, this is not the case if you are issuing a financial product, such as your own Managed Investment Scheme. In that case you will be acting as a principal and not as a representative. There are some limited exceptions to this and you should seek legal advice. Also, because the Scheme is to be marketed to retail clients, it will need to be a registered scheme, with a responsible entity that is a public company.
Please feel free to contact our Financial Services Team for further information.
Hi Genevieve,
Thanks for your post.
Your question relates to organisational competence which ASIC has given guidance about.
We would need more information about your structure and provide you with legal advice to respond to your specific question.Feel free to contact one of our consumer credit lawyers should you wish to discuss this further.
Thanks,
GrantHi Genevieve,
Thank you for clarifying that your question does in fact concern a consumer credit contract. The requirements relating to a defaulting consumer, under a consumer credit contract are located in Part 5 of the National Credit Code. Generally speaking, these requirements apply to the credit provider but third parties such as brokers can agree to do this on the lender’s behalf.
However, if you have any specific question about how these provisions operate please contact our Financial Services team who would be pleased to provide advice based on your specific circumstances.
Author: Grant Holley
Co-contributor: Nicola StevensonHi Genevieve,
Thank you for your question!
We just need to clarify the following before we can answer your question:
•Does it concern a consumer credit contract?
•If not, what type of consumer arrangement does your question concern?
Thanks,
GrantHello licencefx,
Thank you for your question.
A responsible manager (‘RM’) cannot be held personally liable under the Corporations Act 2001 (Cth) purely by virtue of being an RM. Directors, on the other hand, may be liable in certain circumstances. We invite you to read our blog post on this topic if you would like more information about an RM’s liability.
Best interests duty and ban on conflicted remuneration
The best interests duty, imposed on providers of financial advice, obliges them to act in the best interests of their client. The ban on conflicted remuneration restricts the manner in which a financial adviser can be paid by a product issuer.
These are not directors’ duties per se, and instead apply to the particular individual who provides the personal advice. Directors are not held personally liable purely due to being the director of the company.
More information can be found in ASIC’s RG 175 – Licensing: Financial product advisers – Conduct and disclosure and RG 246 – Conflicted Remuneration.
General directors’ duties and other instances of personal liability
You are correct that in some circumstances directors may be held personally liable for breaches of their duties. These general duties include obligations relating to acting with care and diligence, and in good faith, as well as proper use of their position and information they have obtained through their position (see Part 2D.1 of the Corporations Act – Duties and Powers).
In a recent case, directors were found liable for a breach of their duty to act with care and diligence by promoting a business model that required advisers to breach the best interests duty.
It is important to note that a director’s obligations may continue even after the company has ceased trading and has been deregistered.
Broadly, the key areas where a director may be held personally liable are:
- Debts incurred when the company becomes insolvent;
- Company losses caused by a breach of directors’ duties;
- When acting as guarantor or providing security over personal assets;
- Debts incurred by the company acting as trustee;
- Illegal phoenix activity (intentionally transferring assets from an indebted company to a new one to avoid paying creditors, tax or employee entitlements); and
- Other regulatory action that might be taken. For example, relating to tax obligations under the ATO’s Director Penalty Regime or Superannuation Guarantee Charge obligations.
More information on these main circumstances can be found in on ASIC’s website – ‘Directors’ liabilities when things go wrong’. Unfortunately, it is difficult to list every possible circumstance in a comprehensive manner as a range of different laws may apply, depending on the particular industry and activities of the business.
Apart from civil liability, it is worth noting that criminal liability may apply in some cases. ASIC also has the ability to issue banning orders under s920A of the Corporations Act. These prohibit specific persons from providing certain financial services. Banning orders may be effective for a specific amount of time, or be permanent.
Please feel free to contact our financial services team if you require further assistance.
Authors: Grant Holley (Partner), Matthew Twomey (Lawyer) and Nicolette Tan (Law Clerk)
Hello licencefx,
Thank you for your question.
Under s 1317G a person or body corporate may be liable to pay a pecuniary penalty up to the maximum amount per each individual declaration of contravention. For example, in ASIC v Vizard, the defendant was fined for three separate breaches, each with a penalty of $130k.
Please feel free to contact our financial services team if you require further assistance.
Authors: Grant Holley (Partner) and Hannah MacPherson (Law Clerk)
