Do you have sufficient oversight of your authorised representatives?

We often see a lack of adequate oversight from licensees over their appointed authorised representatives, who act on behalf of the licensee. As a financial services licensee, you have general obligations that include:

1. Taking reasonable steps to ensure that your representatives comply with the financial services laws.
2. Ensuring that representatives are adequately trained and competent to provide financial services.

We’ll walk you through these obligations, drawing on key learnings from the recent ASIC enforcement action against Lanterne Fund Services Pty Ltd (Lanterne), and share practical tips to help you stay compliant.

What are some of my general obligations as a licensee?

1. Compliance with Financial Services Laws

Section 912A(1)(ca) of the Corporations Act 2001 (Act) mandates that licensees must take reasonable steps to ensure their representatives comply with the financial services laws.

Monitoring and supervising your representatives is crucial, and the extent of this oversight should reflect the nature, scale, and complexity of your business.

While it’s not necessary to scrutinise every activity, ASIC expects you to have measures in place to determine whether your representatives comply with financial services laws (including your licence conditions) and a robust mechanism for addressing any breaches.

Practical tips to comply:

• Provide your authorised representative with copy of your licence.
• Establish a formal written agreement outlining the obligations of your authorised representative.
• Obtain regular attestations (e.g. quarterly) from the authorised representative confirming compliance with your agreement and detailing any exceptions.
• Ensure the authorised representative has processes for identifying and reporting conflicts of interest, incidents, breaches, training and complaints to you.;
• Verify the authorised representative maintains appropriate compliance registers (e.g. conflicts of interest, incidents, breaches, training, complaints), addresses any issues, and reports the, to you as expected.
• Periodically review the authorised representative’s website, social media, and promotional material to verify they disclose that they are providing financial services as an authorised representative of your licence, are not making any misleading or deceptive statements, are responding to complaints made on social media and are not using any restricted terms (e.g. financial adviser, independent, stockbroker) unless permitted by law.
• Check that the authorised representative has a process to differentiate between retail and wholesale clients.
• If applicable, sight the authorised representative’s privacy policy.
• Where applicable, review the authorised representative’s Financial Services Guide, statement of advice template, fee disclosure statement template, and ensure these are compliant and provided as required.
• If applicable, ensure the authorised representative understands and meets Design and Distribution Obligations.
• If applicable, ensure there is an approved product list and a sign-off process for providing personal advice.
• Review the adequacy of the authorised representative’s risk management practices, cyber security, and privacy measures.

2. Training and Competence

Section 912A(1)(f) of the Act requires that authorised representatives providing financial services are adequately trained and competent to provide the financial services covered under your licence.

This obligation extends beyond initial training and includes ongoing professional development to keep representatives up to date with regulatory changes and industry best practices.

ASIC Regulatory Guide 146 (RG 146) outlines the minimum training standards for authorised representatives providing personal financial product advice to retail clients.

Other financial services provided by authorised representatives may not  specific training standards, but the representative must still be trained and competent to perform their role and functions.

Practical tips:

• Ensure a training register with appropriate training entries.
• Where applicable, ensure RG146 training standards are met.
• Provide training to ensure your authorised representative understand what is allowed under their licence authorisation, reporting obligations (e.g. breaches, complaints etc), and the financial services laws they need to comply with.
• Set or evidence training plans.

Case study: Lanterne

Lanterne authorised over 60 corporate authorised representatives and, under them, 205 sub-appointed individual authorised representatives, collectively managing up to $1.685 billion in funds under management. However, Lanterne had only one full-time employee – the CEO and sole director.

Lanterne’s reliance on self-reporting by corporate authorised representatives, without any formal review or audit process, led to serious lapses in compliance, resulting in a substantial penalty.

Specifically, Lanterne admitted to:

1. Relying solely on self-reporting by corporate authorised representatives regarding compliance exceptions.
2. Lacking any formal review or audit process to assess whether an authorised representative complied with financial services laws.
3. Conducting limited due diligence and background checks on corporate authorised representative and associated individuals,
4. Failing to provide or require training to its authorised representatives and not maintaining any training records.
5. Lacking sufficient human resources to monitor and supervise representatives.

ASIC’s action resulted in a $1.25 million penalty for Lanterne due to non-compliance with six general obligations.

The Lanterne case illustrates the severe consequences of failing to meet obligations under Section 912A. As a licensee, it is crucial to proactively ensure your authorised representatives are compliant, competent, and adequately supported. Doing so will not only help you avoid regulatory penalties but also enhance your reputation for trustworthiness and reliability in the financial services industry.

By implementing thorough compliance measures, ongoing training, and regular reviews, you can mitigate risks and ensure that your representatives uphold the highest standards of professionalism.

In an increasingly regulated environment, taking proactive steps today will help you avoid costly penalties and reinforce your reputation as a trusted and reliable financial services provider.

Need assistance with compliance? Reach out to our compliance team today to ensure your business is meeting all regulatory requirements and maintaining best practices. We’re here to help you navigate these obligations with confidence.