Culture, Conduct and Responsible Managers

As a Responsible Manager, what does it mean to maintain your competency as required by s912A(1)(e) of the Corporations Act 2001 (Cth) (the Corporations Act?

ASIC takes a far less rigorous approach than other regulatory bodies allowing licensees to self-regulate how they maintain the ongoing competence of their RMs rather than prescribing specific requirements such as mandatory training. However, in Regulatory Guide 105 ASIC provides that:

• AFS Licensees should have measures in place to ensure they maintain their organisational competence at all times, including:
  • reviewing their organisational competence on a regular basis and whenever their RMs or business activities change;
  • maintaining and updating the knowledge and skills of their RMs; and
  • keeping records to show the Licensee has reviewed its organisational competence and what steps have been taken to maintain its organisational competence; and
• AFS Licensees should document their measures in some form, as in ASIC’s view, it is more difficult to show compliance where documentation is not in place.

Spotlight on Culture and Conduct

With 2016 being ASIC’s year of “Culture and Conduct” it is fair to assume that this obligation will attract increasing attention along with the rest of the general obligations set out in s912 of the Act.

Historically, ASIC has made a number of observations regarding the link between compliance culture and leadership stemming from both directors and RM’s. It’s a message that ASIC has been repeating over the past 12 months with increasing volume. In addition, Greg Medcraft, Chairman of ASIC has publicly called for increased regulatory enforcement tools in which to improve culture in the Financial Services Industry such as increased financial penalties, broader conduct liability provisions and increased resources. He has recently received the increased resources sought after.

At present, if the acts or omissions of a RM result in the AFS Licensee breaching its obligations under the Corporations Act (e.g. by providing inappropriate advice) administrative, pecuniary and criminal penalties may result. If the RM is a director or officer, they may be personally liable for breaches of the Act.

Furthermore, if those breaches cause loss to clients, litigation may be threatened and if the class of affected clients is large enough, a class action could result.

As an AFS Licensee what action should I take?

Most RMs regularly read industry publications and attend industry meetings and seminars in order to keep abreast of developments with competitors, their industry and regulation.

So it’s not a big step, with the end of the financial year fast approaching, to:

• ask each RM to update their records of what they’ve done this last year to maintain and update their knowledge and skills; and
• at your next Board Meeting, review and minute any changes in your business activities and what steps you’ve taken to maintain the organisational competence of your RMs.