When it comes to the risks of acting as a responsible manager at an AFSL, compliance firm Holley Nethercote has shared a range of red flags that could see them facing disciplinary action.
In June, the responsible manager of Financial Services Group Australia (FSGA), Graham Holmes, was permanently banned by ASIC for his role in the Shield/First Guardian collapse. Elsewhere, responsible manager at Crown Wealth, Andrew Moore, was banned for three years after failing to recognise the seriousness of fee-for-no-service conduct by one of its representatives.
ASIC noted individuals who are nominated by AFS licensees as responsible managers must have direct responsibility for significant day-to-day decisions about the financial services the licensee provides, appropriate skills and knowledge for the service provided, and be a fit and proper person.
The compliance firm described the role as being an “active leader, not passive placeholder” when it comes to supervision at the AFSL.
With some RMs under the impression that they can only face trouble if they are a director, Holley Nethercote said this is far from the case, even if they do not have specific legal obligations.
It raised five red flags:
- Being disengaged and failing to understand the RM responsibilities
RMs need to be actively engaged with the services delivered by the AFSL in case any breaches occur and understand their breach reporting obligations.
- Lack of oversight and supervision by RMs
ASIC expects RMs to take on monitoring and supervision responsibilities for their representatives as well as outsourced or offshore service providers, conduct regular audits, and correct poor conduct.
- Failure to detect or remediate misconduct
As was the case with Moore, who failed to lodge a reportable situation or fully remediate clients, RMs are expected to have sufficient resources to detect problems and enough time to fix the issue when it is identified, with any breach reports or client remediation made in a timely manner.
- Misleading, dishonest, or unconscionable conduct
Individuals in the role are expected to uphold their clients’ best interests and maintain ethical conduct. Even if the RM was not an active participant, ASIC could hold them personally responsible if clients were subject to such conduct.
This was the error that occurred in the case of Holmes, as he failed to ensure representatives acted in client interest or gave appropriate advice.
- Inadequate systems, resources, or compliance infrastructure
Holley Nethercote described how the RM should ensure the licensee has enough resources and staff to ensure compliance with regulation and ensure the licensee invests in more if necessary.
