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A S I C 
Au
A stralian
st
 Secur
ralian
ities 
t
& Invest
&
m
 Invest e
m nt
n s Commissio
mm
n 
[PS 164] 
Licensing: Organisational 
capacities 
Chapter 7 — Financial services and markets 
Issued 28/11/2001 
Updated 8/11/2002 
What this policy statement is about  
[PS 164.1] 
This policy statement outlines: 
A  ASIC’s overall approach to the obligations of an Australian financial 
services licensee (licensee)  
see [PS 164.4]–[PS 164.10] 
B  what ASIC generally expects of licensees and Australian financial 
services (AFS) licence applicants to meet those obligations 
see [PS 164.11]–[PS 164.42] 
C  guidance on a licensee’s compliance measures in relation to all of the 
licensee obligations 
see [PS 164.43]–[PS 164.56] 
D  guidance on a licensee’s procedures for monitoring, supervision and 
training of representatives (s912A(1)(c) and (f)) 
see [PS 164.57]–[PS 164.71] 
E  what organisational expertise we expect of a licensee (s912A(1)(e)) 
see [PS 164.72]–[PS 164.104C] 
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LICENSING: ORGANISATIONAL CAPACITIES 
F  guidance on a licensee’s systems for managing risk (s912A(1)(h)) 
see [PS 164.105]–[PS 164.119] 
G   what non-financial resources a licensee should have (s912A(1)(d)) 
see [PS 164.120]–[PS 164.138] 
Note: Sections F and G do not apply to a licensee that is a body regulated by APRA. 
[PS 164.2] 
To provide further guidance, we also include a Schedule 
showing some typical issues a licensee should think about when 
designing its measures, arrangements, procedures and processes to 
comply with its obligations. 
Important related publications 
[PS 164.3] 
This policy statement should be read together with ASIC’s 
other publications released as part of the framework to implement the 
FSR Act. These publications include guidance about the scope of the 
licensing regime, more details about our policy on specific licensing 
obligations (eg dispute resolution procedures), and how to apply for an 
AFS licence. The most relevant publications are: 
(a) Licensing: The scope of the licensing regime: Financial product
advice and dealing — An ASIC guide (November 2001, updated
November 2002);
(b) Policy Statement 146 Licensing: Training of financial product
advisers [PS 146];
(c) Policy Statement 165 Licensing: Internal and external dispute
resolution [PS 165];
(d) Policy Statement 166 Licensing: Financial requirements [PS 166]
(December 2001, updated November 2002);
(e) Policy Statement 167 Licensing: Discretionary powers and
transition [PS 167] (November 2001, updated November 2002);
(f) Licensing and disclosure: Making the transition to the FSR regime -
An ASIC guide (October 2001, updated November 2002);
(g) Australian Financial Services (AFS) Licensing Kit (Version 2,
October 2002);
(h) Making the transition to an AFS licence: pre-FSR licences and
insurance broker registrations – An ASIC Guide (April 2002); and
(i) Pro Forma 209 Australian Financial Services Licence conditions
[PF 209].
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Important note:  
This policy statement was first published on 28 November 2001. It has been 
amended to reflect regulations made before 1 November 2002, and to provide 
some clarifications.  
Contents 
What this policy statement is about…[PS 164.1] 
A 
Our overall approach in this policy 
statement…[PS 164.4] 
B 
Our general approach to licensees’ 
obligations…[PS 164.11] 
Licensees’ responsibility for compliance…[PS 164.13] 
Industry standards, practices and codes…[PS 164.22] 
Outsourcing…[PS 164.25] 
Licensees also regulated by APRA…[PS 164.30] 
The licence application process…[PS 164.32] 
C 
Compliance measures, processes and procedures 
Appropriate compliance measures, processes and 
procedures — general requirement…[PS 164.43] 
What we expect…[PS 164.47] 
D 
Monitoring, supervision and training of 
representatives 
Licensees’ obligations…[PS 164.57] 
What activities must a licensee monitor?…[PS 164.61] 
Training of representatives…[PS 164.64] 
Use of para-planners…[PS 164.67] 
E 
Organisational expertise 
The organisational expertise obligations…[PS 164.72] 
Whose organisational competency does the licensee rely 
on?…[PS 164.75] 
Demonstrating competency …[PS 164.80] 
Other issues…[PS 164.99] 
F 
Risk management 
Risk management generally…[PS 164.105] 
What we expect…[PS 164.108] 
Review…[PS 164.117] 
Governing body commitment…[PS 164.118] 
G 
Non-financial resources 
The obligation to have adequate non-financial 
resources…[PS 164.120] 
What we expect…[PS 164.123] 
Review…[PS 164.137] 
Schedule: Other issues to consider…[PS 164.138A] 
Key terms…[PS 164.139] 
Related information…[PS 164.140] 
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A 
Our overall approach in this policy 
statement 
[PS 164.4] 
We have issued this policy statement to help licensees and 
AFS licence applicants:  
(a)  develop appropriate arrangements (ie measures, processes and 
procedures) to meet their ongoing requirement to comply with the 
licensee obligations;  
Note: See [PS 164.16A] and [PS 164.16B] for a description of what we mean by 
“measures, processes and procedures”.  
(b)  understand what we look for when we assess an application for an 
AFS licence; and 
(c)  understand what we look for when we assess whether licensees are 
complying with their licensee obligations. 
[PS 164.5] 
In our view, the primary goals of all the licensee 
obligations are to promote: 
(a)  consumer confidence in using financial services; and 
(b)  the provision of efficient, honest and fair financial services by all 
licensees and their representatives. 
[PS 164.6] 
We are responsible for implementing the Corporations Act 
2001 (Corporations Act) (as amended by the Financial Services Reform 
Act 2001 (FSR Act)) so as to promote these important consumer 
protection and other regulatory outcomes. In administering the law, we 
will have them continually in mind. 
[PS 164.7] 
At the same time, we recognise that the licensing regime 
introduced by the FSR Act is designed to work in a flexible way. It 
makes licensees responsible for complying with the obligations that the 
legislation places on them as licensees. This means it is up to the licensee 
to decide on the way it will meet its obligations under the Corporations 
Act. This also means it will be up to an AFS licence applicant to 
demonstrate at the time of applying for a licence that it has the capacity 
to meet and comply with the licensee obligations. 
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[PS 164.8] 
What an individual licensee needs to do to comply with 
the law will generally vary according to the nature, scale, and complexity 
of the business the licensee carries on or will carry on. In many cases, 
there may be a number of possible ways for licensees to comply with 
what the law requires. In the way we administer the legislation, we will 
seek as far as possible to retain this flexible character. 
Note: See [PS 164.17] and [PS 164.18] for a general description of what we mean by 
“nature, scale and complexity”. 
[PS 164.9] 
We do not think we can or should give comprehensive 
guidance on what a licensee must put in place to satisfy its obligations. 
The licensee is best placed to determine what will work for them. We 
aim to assist licensees and applicants by providing guidance on what we 
consider are the processes they should go through to determine what is 
appropriate for them. We also aim to provide certainty by indicating how 
we would expect them to demonstrate to us that they have put in place 
appropriate measures and gone through the processes to achieve 
compliance. This includes providing guidance about how we will satisfy 
ourselves that an applicant for an AFS licence can and will comply, if we 
grant a licence. This guidance: 
(a)  in some cases — describes our broad expectations on what a licensee 
needs to put in place to comply with the licensee obligations; and 
(b)  in most cases — outlines issues we consider a licensee should 
normally take into account when it determines what to put in place to 
comply with the licensee obligations. 
[PS 164.10]  In formulating the guidance contained in this policy 
statement, we have drawn on our considerable experience as a regulator 
of financial service providers and our knowledge of regulatory regimes in 
other countries. This experience is especially reflected in the questions 
we suggest licensees might consider when they are thinking about how to 
ensure they comply with their obligations. 
  
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B 
Our general approach to licensees’ 
obligations 
[PS 164.11]   In Sections C to G of this policy statement, we deal with 
some specific licensee obligations and how we think they can be met. We 
consider that the law places particular emphasis on these obligations and 
that they are particularly important in making sure a licensee complies 
with all its obligations. In addition, if applicants for AFS licences (as 
well as existing licensees) understand our thinking on these obligations, it 
will help us to deal with licence applications efficiently and cost-
effectively for applicants and for us. 
[PS 164.12]  In this section, we cover some more general issues that are 
likely to be important in licensees’ thinking about their obligations under 
the law. These are: 
(a) licensees’ responsibility for compliance; 
(b)  industry standards and codes; 
(c) outsourcing; 
(d)  licensees also regulated by the Australian Prudential Regulation 
Authority (APRA); and 
(e)  the licence application process. 
Licensees’ responsibility for compliance 
[PS 164.13]  Under the law, a licensee is responsible for ensuring that it 
complies on an ongoing basis with its obligations as a licensee, and for 
ensuring its representatives comply. A licensee therefore has to 
determine on an ongoing basis what measures, processes and procedures 
it needs to have in place to ensure it satisfies the licensee obligations, 
taking into account the nature, scale and complexity of its business.  
[PS 164.14]  The guidance set out in this policy statement is intended to 
provide a useful starting point for a broad range of licensees in designing 
their own measures, processes and procedures, so they can make sure 
they comply with their obligations. 
[PS 164.15]  At a minimum, we expect that licensees will establish and 
maintain compliance measures, processes and procedures that ensure, as 
far as reasonably practicable, that the licensee complies with the financial 
services laws (Pro Forma 209 Australian Financial Services Licence 
conditions [PF 209], Condition 4. See also reg 7.6.03(g)). Measures, 
processes and procedures need to be documented in some form. Because 
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the nature, scale and complexity of licensees’ businesses will vary, the 
compliance measures, processes and procedures they need to adopt will 
vary according to their business. For example, a licensee who deals in a 
narrow range of simple products as an incidental part of its main business 
or are a very small business may satisfactorily meet its compliance 
obligations by having a checklist focusing on those compliance risks that 
would adversely affect consumers and the provision of efficient, honest 
and fair financial services. On the other hand, a licensee who deals in a 
broader range of financial products, has numerous staff that are spread 
out geographically and whose main business is to provide financial 
services and products is more likely to satisfactorily meet its compliance 
obligations by having measures, processes and procedures that involve 
the use of manuals, programs and dedicated compliance staff. 
[PS 165.15A]  We also expect, as a minimum, that licensees will have in 
place monitoring and reporting processes and procedures, so that their 
measures can be monitored and any compliance breaches can be reported 
and acted upon. (Pro Forma 209 Australian Financial Services Licence 
conditions [PF 209], Condition 4. See also reg 7.6.03(g)). We expect that 
the licensee will document in some way the monitoring process and 
procedures, as well as keep records of reports on compliance and breach 
notifications. In our view, it is more difficult to show compliance where 
documentation is not in place. Documentation allows the licensee to 
demonstrate, either to ASIC or itself, that it knows whether or not it is 
complying with the financial services laws.  
Note: Depending on the nature, scale and complexity of the licensee's business and the 
different monitoring processes and procedures that are in place, we recognise 
appropriate documentation may consist of a single page or something longer.  
[PS 164.16]  We want to ensure the licensee or applicant understands 
what it needs to do, has put in place measures to help it know what to do, 
and has also put in place procedures to check their work. 
Measures, processes and procedures 
[PS 164.16A]  In this policy statement, we refer to “measures, processes 
and procedures”, “measures” and “processes and procedures” (together). 
These terms are not intended to be used as terms of art or scientifically. 
When we use these terms in this policy we are referring to the ways a 
licensee (or an AFS licence applicant) ensures it complies with its 
obligations (including the financial services laws). These might include 
one or a number of different documents and any of a variety of stand-
alone or integrated IT systems. As a general rule, the smaller and simpler 
the business, the smaller and simpler we expect its measures, processes 
and procedures to be. 
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[PS 164.16B]  To assist you to determine what you need to do to comply 
with your obligations, consider the following questions: 
(a)  do you know what you need to do to comply with your obligations 
(including the financial services laws)? 
Note: For example, you might have in place traditional compliance checklists of 
obligations or a compliance manual that show you what your obligations are and what 
you need to do to comply with your obligations. 
(b)  how do you know whether or not you are complying with your 
obligations? and 
Note: For example, you might have systems in place for monitoring compliance with a 
checklist of obligations. 
(c)  if you do not comply with your obligations, do you know what to do 
to rectify this non-compliance and notify those who need to know 
about the breach? 
Note: For example, you might have systems in place to ensure reporting and breach 
notifications. 
Nature, scale and complexity 
[PS 164.17]  In this policy statement, we refer to the nature, scale and 
complexity of a licensee’s financial services business. This expression is 
intended to reflect the reality that there will be many different kinds of 
licensees providing diverse financial services. What a licensee needs to 
do to comply with its obligations will vary according to a number of 
factors, including: 
(a)  the products and services the licensee offers;  
(b)  the diversity and structure of its operations (including the 
geographical spread of its operations and the extent to which it 
outsources any of its functions);  
(c)  the volume and size of the transactions the licensee is responsible 
for;  
(d)  how many of the licensee’s clients are retail, and how many 
wholesale;  
(e)  whether the licensee gives personal advice or general advice;  
(f)  whether the licensee’s main business is the provision of financial 
services; and 
(g)  the number of people in the organisation. 
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[PS 164.18]  We do not take a “one-size-fits-all” approach and to do so 
would, in our view, undermine the focus of the legislation on regulatory 
outcomes. 
Acting efficiently, honestly and fairly 
[PS 164.19]  The law imposes some quite specific obligations on 
licensees. It also imposes a general obligation that licensees must do all 
things necessary to ensure that the financial services covered by the AFS 
licence are provided efficiently, honestly and fairly: see s912A(1)(a). 
[PS 164.20]  We see the obligation in s912A(1)(a) as both: 
(a)  a stand-alone obligation that a licensee must satisfy; and  
(b)  an obligation that encompasses other obligations under an AFS 
licence. 
[PS 164.21]  So, a licensee may be in breach of its obligation to provide 
services efficiently, honestly and fairly even though it is complying with 
all of its other specified obligations. When we are assessing an AFS 
licence application, we will also need to be satisfied about the applicant’s 
ability to meet this overall requirement as well as other, more specific, 
obligations. 
Industry standards, practices and codes 
[PS 164.22]  In the way we administer the law, we often take into 
account whether a licensee complies with established industry practices 
or standards, as well as what the law explicitly requires. Reference to 
industry standards and practices is often a useful way for an applicant or 
a licensee to show us that they meet a certain expected standard. For 
some licensees it may also be a requirement of the law, or a licence 
condition. 
[PS 164.23]  We aim to work with industry and consumer groups to 
develop industry standards as a means of setting good practice for 
compliance with the licensee obligations. We will also approve codes of 
conduct where we have a regulatory responsibility to do so. 
[PS 164.24]  ASIC has released interim policy on how we propose to 
approach our discretion to approve codes of conduct under the 
Corporations Act: see our FSRB Policy Proposal Paper No 9 Approval of 
codes (June 2001).  
Note: As stated in the Supplement (September 2001) to our paper Building the FSRB 
Administrative Framework — Policy to implement the Financial Services Reform Bill 
2001 (April 2001), the policy proposals in PPP No 9 have the status of interim policy. 
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Outsourcing 
[PS 164.25]  We recognise that many licensees outsource some or most 
parts of their operations or functions to third party providers (including 
within a corporate group). Some licensees may also outsource a 
significant proportion of the services they provide under the AFS licence.  
[PS 164.26]  Even if functions are outsourced, licensees remain 
responsible under the Corporations Act for complying with the licensee 
obligations: see s769B. We also note that under the Superannuation 
(Industry) Supervision Act 1993, superannuation trustees retain ultimate 
responsibility for operation of the superannuation fund; and under 
s601FB(1), responsible entities retain ultimate responsibility for 
operation of a registered managed investment scheme. 
[PS 164.27]  If a licensee uses external providers to provide functions 
that relate to the AFS licence, we recognise that a licensee will need to 
put in place compliance measures different to those it would need if it 
provided the functions itself.  
Note: In corporate groups, it is common for a service company within the group to be 
responsible for administrative or operational functions including the employment of 
most or all of the group's staff. If a licensee (or an AFS licence applicant) is a member 
of such a corporate group and its staff are employed by the service company rather 
than the licensee itself, for these purposes we consider such functions would not 
generally be functions that relate to the AFS licence. 
[PS 164.28]  If a licensee uses, or plans to use, third party providers 
(whether or not within a corporate group) to assist it to provide a service 
that is part of the financial services business covered by its AFS licence 
and which relates to its AFS licence, we expect that the licensee will be 
able to show us that it: 
(a)  has measures, processes and procedures in place to ensure that due 
skill and care has been taken in choosing suitable providers;  
(b)  can and will monitor their ongoing performance; and 
(c)  will deal effectively with any breaches of the service agreement or 
actions that lead, or might lead, to a breach of the licensee 
obligations, including reporting where appropriate. 
Note: If the third party provider is providing services on behalf of the licensee to 
clients of the licensee, it will generally need to be authorised as a representative of the 
licensee or provide the services under its own AFS licence: see s911B(1)(d). 
[PS 164.29]  We acknowledge that what a licensee needs to do in terms 
of supervising those to whom it outsources will vary according to 
circumstances.  
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Licensees also regulated by APRA 
[PS 164.30]  In some cases, licensees will also be regulated by other 
bodies (eg APRA) for some aspects of the financial services they 
provide. This overlap is reflected in the Corporations Act by: 
(a)  making allowances to minimise duplicative regulation of the same 
matters (eg the obligation in s912A(1)(h) to have adequate risk 
management systems does not apply to bodies regulated by APRA);  
(b)  providing for consultation between ASIC and APRA in relation to 
the variation or cancellation of certain AFS licences (see s915I(1)); 
and 
(c)  designating the Minister as the decision maker in some cases in 
relation to the variation or cancellation of certain AFS licences (see 
s915I(2)).  
[PS 164.31]  Against this background, ASIC will seek to avoid 
regulatory overlap where possible in assessing organisational capacities 
(including on an ongoing basis). We will accept, in support of the licence 
application, copies of relevant documentation the applicant has 
previously given to APRA. ASIC may also obtain information from 
APRA about APRA regulated licensees. 
The licence application process 
[PS 164.32]  When we assess an application, we need to form a view 
about whether the AFS licence applicant has the skills, expertise and 
capacity to meet its obligations under the AFS licence on an ongoing 
basis. The applicant will need to be able to show us that it will continue 
to meet each of the licensee obligations. 
[PS 164.33]  When a person applies for an AFS licence, the applicant 
must provide ASIC with a range of information: refer to Australian 
Financial Services (AFS) Licensing Kit (Version 2, October 2002).  
[PS 164.34]  Normally, when a person applies for an AFS licence, the 
applicant will be asked to: 
(a)  answer questions about its compliance measures, processes and 
procedures; 
(b)  provide details about business activities, key personnel and any 
outsourcing arrangements; 
(c)  provide information about how it will ensure compliance with the 
licensee obligations including its measures, processes, procedures 
and resources. As reflected in [PS 164.17], we expect that these 
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compliance measures, processes and procedures will vary, depending 
on the nature, scale and complexity of the applicant’s business;  
(d)  provide details about how it identifies risk, the risks it has identified, 
and how it will address those risks, ie its risk management systems 
and resources (except APRA-regulated applicants); 
Note: We discuss risk management systems in Section F of this policy statement. 
(e)  provide information to satisfy us that the measures, processes, 
procedures and resources are regularly monitored and evaluated to 
ensure continuing compliance with the licensee obligations; and 
(f)  declare that the information supplied in and accompanying the 
application is complete and accurate to the best of its knowledge. 
Full and complete application 
[PS 164.35]  Applicants for an AFS licence must provide us with an 
application that:  
(a)  responds to all questions;  
(b)  makes all the relevant declarations and certifications;  
(c)  is accompanied by all requested supporting documentation 
(including where relevant a copy of any pre-existing licence under 
the old Corporations Act or insurance broker registration); and 
Note: Those applicants entitled to apply for an AFS licence under s1433 (ie legislative 
streamlining) will be required to submit limited accompanying supporting 
documentation. 
(d)  is accompanied by the prescribed fee (electronic payment facilities 
are available). 
[PS 164.36]  If an application has not been duly completed (ie not all 
relevant questions have been answered; not all relevant declarations have 
been made; not all relevant accompanying documentation has been 
provided), it may not be accepted for lodgement: see s1274(8). This 
means we will return the application and intended application fee 
payment to the applicant. If a person still wishes to apply for an AFS 
licence, they will need to make another application and submit it with the 
prescribed application fee. 
Note: We may refuse to process any application which is otherwise duly completed, 
but which is lodged without the prescribed fee, until that fee is paid: see s1355. 
[PS 164.37]  In assessing a completed application, we need to decide 
whether we have no reason to believe that the applicant will not comply 
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with the licensee obligations: see s913B(1)(b). To make this decision, we 
may seek more information or supporting documentation from the 
applicant: see s913B(1)(ca). This is likely to occur where the application 
is complete for the purposes of lodgement under the Corporations Act, 
but does not contain all the information we need to assess it. We will not 
continue to assess an application until this further information is 
provided. If this information is not provided in a reasonable time, we 
may assess the application on the basis of the information already 
provided to us. If that information is insufficient to enable us to decide to 
grant the applicant an AFS licence under s913B, we will refuse to grant 
the licence. 
[PS 164.38]   We need to be confident that an AFS licence applicant will 
comply with all the licensee obligations from the time we issue its 
licence (even if its business is not yet operating at the time of its AFS 
licence application). This means that the applicant will need to certify 
and declare, as well as satisfactorily outline, its ability to comply at the 
time it applies for an AFS licence. 
[PS 164.39]   To assist applicants in applying for an AFS licence: 
(a)  they can apply through the Internet via an electronic application; 
(b)  the electronic application has been prepared with in-built prompts to 
assist applicants in making sure their application meets the minimum 
content and any supporting documentation requirements; 
(c)  we have designed the electronic application so that it contains mostly 
“yes” or “no” answers or answers via drop-down boxes (a “no” 
answer does not mean you will not receive a licence); and 
(d)  most of the supporting documentation that applicants will be 
required to provide is of a kind that is likely to already exist. 
[PS 164.40]   If an AFS licence applicant supplies us with information 
that is false or misleading about a material matter, or leaves out 
something that is material to our decision to issue an AFS licence, we: 
(a)  can suspend or cancel any AFS licence we issue (see s915C(2)); and 
(b)  will have grounds for prosecution (see s1307). 
If your business is not yet operating 
[PS 164.41]  Even if an AFS licence applicant’s business is not yet 
operating, enough information must be provided in its application to 
show that it will be able to meet and continue to meet the licensee 
obligations. For instance, the applicant must prove that it has measures, 
processes, procedures and resources in place to ensure compliance at the 
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time of application and on an ongoing basis. We do not expect the 
applicant to be fully operational at the time it applies for a licence, but it 
must have significant infrastructure already in place. 
If you already have a licence 
[PS 164.42]  If an AFS licence applicant is a licensee under the old 
Corporations Act, it will need to review what measures, processes and 
procedures it currently has in place, in light of the licensee obligations 
and this policy statement before it applies for a new AFS licence. 
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C 
Compliance measures, processes 
and procedures 
Appropriate compliance measures, processes and 
procedures — general requirement 
[PS 164.43]  A person who holds an AFS licence must comply at all 
times with their obligations as a licensee: see s912A(1)(c). These 
obligations include the obligations listed in s912A(1), and the conditions 
of their AFS licence.  
[PS 164.44]  Before we issue an AFS licence, we must decide whether 
or not we believe the applicant will not comply with its obligations if the 
licence is granted: see s913B(1)(b). This means we must ask ourselves 
about an applicant’s likely compliance with all obligations in s912A(1). 
[PS 164.45]  Similarly, if we have reason to believe that a licensee has 
not complied with its obligations, we can give notice of our intention to 
suspend or cancel an AFS licence. 
[PS 164.46]  The following guidance on compliance is designed to help 
applicants think systematically through what compliance measures, 
processes and procedures they may need. It also gives guidance on how 
licensees can show us that the arrangements they have are adequate to 
ensure they comply with the legislation. By providing this guidance, we 
aim to make our interactions with licensees effective and cost efficient. 
We will also use this guidance to help us make efficient decisions when 
we assess licence applications, or when we consider whether to take 
action against an existing licensee.  
[PS 164.46A] In general, we expect that the appropriate compliance 
measures, processes and procedures will vary depending on the nature, 
scale and complexity of the business. For example, for licensees whose 
main business is not the provision of financial services or the business is 
very small, it may be appropriate to use simple checklists focusing on 
those compliance risks that would materially adversely affect consumers 
and the provision of efficient, honest and fair financial services. 
What we expect 
[PS 164.47]  The main focus of the licensee obligations is on protecting 
consumers’ interests and making sure that financial services are provided 
efficiently, honestly and fairly. At a minimum, we require licensees to 
establish and maintain compliance measures, processes and procedures 
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that ensure, as far as reasonably practicable, that the licensee complies 
with the financial services laws (Pro Forma 209 Australian Financial 
Services Licence conditions [PF 209], Condition 4. See also reg 
7.6.03(g)).  
[PS 164.47A]  We acknowledge that compliance measures, processes and 
procedures will vary from one licensee to another. However, at least we 
expect to see compliance measures, processes and procedures that: 
(a)  are directed towards ensuring compliance with the licensee 
obligations (including licence conditions) and any other 
requirements of the financial services laws that apply to the licensee;  
(b)  take into account the specific compliance risks of the business, 
especially those that may materially affect consumers and the 
provision of efficient, honest and fair financial services; and 
(c)  enable the licensee to determine how: 
(i)  its representatives know what they need to comply with; 
(ii)  it monitors compliance with its obligations as a licensee 
(including its licence conditions and any other requirements of 
the financial services laws that apply to the licensee); and 
(iii)  any compliance breaches are addressed and/or reported. 
[PS 164.48]  As with other measures, processes and procedures (see 
[PS 164.15 and PS 164.15A]), compliance measures, processes and 
procedures are usually documented in some form and used as the basis 
for monitoring, and reporting on, the licensee’s compliance with its 
obligations. We understand that in some instances, the monitoring and 
reporting measures, processes and procedures are built into business 
processes and procedures that have been put in place. We also 
acknowledge that a licensee’s compliance measures, processes and 
procedures may reflect its corporate group’s overall approach to 
compliance. Whatever the case, licensees will need to be able to show us 
how they are able to monitor their compliance and appropriately address 
any compliance breaches. 
Note: For more information on the type of documentation we accept, please see 
Australian Financial Services (AFS) Licensing Kit (Version 2, October 2002). 
[PS 164.49]  We anticipate that a licensee will ensure that its measures, 
processes and procedures are reviewed when its obligations, business, or 
the environment in which it operates changes. We also anticipate that 
licensees will ensure that they have monitoring procedures in place to 
identify changes that may result in non-compliance because of the impact 
of the changes on their measures, processes and procedures. 
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[PS 164.50]  In some cases, it may be sensible for licensees to consider 
external review of their compliance measures, processes and procedures 
to evaluate their appropriateness and effectiveness. Where compliance 
issues have arisen (such as major breaches or repeated compliance 
failures), external compliance review is particularly appropriate. 
Internal compliance structures and responsibilities 
[PS 164.51]   It may be appropriate for licensees to have a separate 
compliance function (which may be outsourced to a third party). This is 
likely to be the case for larger, more complex businesses (including a 
corporate group), but not for licensees whose business is smaller or 
whose main business is not the provision of financial services.  
[PS 164.52]  Even where there is not a structurally separate compliance 
function, we anticipate that a licensee will allocate to a director or senior 
manager responsibility for: 
(a) overseeing compliance measures, processes and procedures; and 
(b)  reporting to the governing body (including having ready access to 
the governing body). 
[PS 164.53]  A licensee is responsible for ensuring that the area 
responsible for compliance: 
(a)  is independent enough to do its job properly; 
(b)  is adequately staffed and resourced; and 
(c)  has access to relevant records. 
Australian Standard on Compliance Programs 
[PS 164.54]  In deciding whether a specific licensee’s compliance 
measures, processes and procedures are adequate, the licensee may wish 
to refer to the Australian Standard on Compliance Programs (AS 3806–
1998). The standard is a useful benchmark that we expect licensees to use 
as a guide in planning and implementing compliance measures, processes 
and procedures. 
[PS 164.55]  We accept that there may be compliance arrangements that 
are not consistent with every element of AS 3806–1998 but which 
nevertheless may ensure compliance with the licensee obligations (eg 
local subsidiaries of global companies which adopt the compliance 
measures, processes and procedures of their parent globally across the 
organisation, or systems specifically developed for an entity). 
Nonetheless, AS 3806–1998 can play a role in helping a licensee decide 
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whether such compliance measures, processes and procedures are 
adequate to ensure the licensee complies with Australian law. 
Small business 
[PS 164.56]  Appendix A to AS 3806–1998 recognises that the standard 
requires some adaptation for use by small businesses. This is consistent 
with our policy that appropriate compliance measures may vary 
depending on the nature, scale and complexity of the licensee’s business. 
Issues to consider: compliance measures 
See [PS 164.138A] for issues we encourage licensees to 
consider when addressing compliance.  
 
Table 1 is moved to [PS 164.138A]. 
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D 
Monitoring, supervision and 
training of representatives 
Licensees’ obligations 
[PS 164.57]  A licensee must monitor and supervise the activities of 
representatives to ensure they are complying with the financial services 
laws: see s912A(1)(ca). Licensees must also ensure that their 
representatives are adequately trained and are competent to provide 
financial services: see s912A(1)(f). 
Note: The obligation to monitor and supervise applies in relation to all representatives 
of a licensee (whether or not the representative provides financial services). The 
obligation to ensure its representatives are competent and trained applies only to a 
licensee’s representatives that provide financial services. 
[PS 164.58]  These obligations are part of licensees’ overall obligations, 
intended to result in: 
(a)  consumer confidence in using financial services; and 
(b)  licensees providing financial services in an efficient, honest and fair 
way. 
[PS 164.59]  We expect licensees to have adequate measures, processes 
and procedures in place to monitor, supervise and train representatives as 
part of their overall compliance measures, processes and procedures. We 
expect most licensees to have documented procedures in some form for 
meeting these obligations: see also [PS 164.15], [PS 164.15A] and 
[PS 164.48]. We recognise the appropriate measures, processes and 
procedures will vary depending on the nature, scale and complexity of 
the business. 
[PS 164.60]  Measures, processes and procedures to ensure a licensee 
complies with its obligations to monitor, supervise and train its 
representatives will normally show how the licensee: 
(a)  ensures all its representatives are appropriately authorised (if 
required); 
(b)  takes reasonable steps to ensure that its representatives are 
complying with all of their obligations under the financial services 
laws; 
(c)  analyses potential risks arising from representatives’ conduct (eg 
recommending inappropriate products, not undertaking satisfactory 
needs analysis); 
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(d)  responds to compliance failures (or breaches); 
(e)  ensures its representatives who provide financial services are and 
remain appropriately trained and competent to provide the financial 
services they have authority to provide; 
(f)  ensures the financial service activities of its representatives 
(including its authorised representatives) are within the scope of its 
authority; 
(g)  monitors and supervises its representatives to prevent them from 
providing financial services outside the licensee’s authority (unless 
the conduct is within the authority of another licensee) — and thus 
protects consumers from loss and the licensee from potential 
liability; 
(h)  ensures appropriate assessments and background checks are carried 
out for the appointment of new representatives, including the 
person’s identity and whether the person has already been allocated a 
number by ASIC as an authorised representative (see reg 
7.6.04(1)(e)); 
(i)  ensures compliance with its notification obligations to us in relation 
to its authorised representatives (see s916F); and 
(j)  maintains a record of the training that each of its representatives who 
provides financial services has undertaken (see reg 7.6.04(d)). 
What activities must a licensee monitor? 
[PS 164.61]  Given the diversity of industries and industry participants 
that are subject to the licensing regime, no single set of measures, 
processes and procedures for monitoring, supervision and training will be 
suitable for all licensees. So each licensee must ensure that the particular 
measures, processes and procedures it adopts are appropriate to the 
individual characteristics of its business.  
[PS 164.62]  We do not anticipate that this will involve the licensee 
scrutinising every activity of all its representatives. But a licensee’s 
monitoring and supervision measures, processes and procedures will 
generally be adequate only if they: 
(a)  allow the licensee to determine whether its representatives are 
complying with the legislation (including licence conditions); and 
(b)  establish a robust mechanism for remedying any breaches.  
[PS 164.63]  In the Schedule at [PS 164.138B], we provide guidance on 
what licensees may wish to consider as they design or review the 
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monitoring and supervision aspects of their measures, processes and 
procedures. 
Training of representatives 
[PS 164.64]  The need for appropriate training applies in relation to all 
representatives who provide financial services. We do not specify 
detailed training obligations for representatives who provide financial 
services other than financial product advice to retail clients. It is a 
licensee’s responsibility to determine the appropriate knowledge and 
skills that its representatives who provide financial services need to have 
in order to competently perform their tasks and functions. It is also a 
licensee’s responsibility to ensure that its representatives undertake 
continuing training programs to maintain and update the knowledge and 
skills needed for their role and functions. 
[PS 164.65]  We have outlined specific and detailed training standards 
applying to representatives who provide financial product advice to retail 
clients: see Policy Statement 146 Licensing: Training of financial 
product advisers [PS 146] and Pro Forma 209 Australian Financial 
Services Licence conditions [PF 209], Conditions 6 and 7.  
[PS 164.66]  Deleted 
Use of para-planners  
[PS 164.67]  A specific issue is how a licensee’s obligations operate 
where it (including its employee representatives and authorised 
representatives) use the services of a para-planner — who does not meet 
the training standards set out in [PS 146] (training standards) — to assist 
in the provision of financial product advice to clients. The para-planner 
may assist the licensee by, for example: 
(a)  collecting information directly from clients about their objectives, 
financial situation and needs; 
(b)  preparing draft Statements of Advice (which identify the authorised 
representative as the providing entity, but do not include any 
reference to the para-planner); 
(c)  assisting the authorised representative to explain these Statements of 
Advice in discussion with the clients. 
Note: For our policy on who must meet the training standards when a licensee uses 
para-planners in the provision of financial product advice see [PS 146.17]–
[PS 146.18]. 
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[PS 164.68]  The licensee remains ultimately responsible for all the 
financial services provided under its licence, regardless of how those 
services are provided. Accordingly, if a licensee uses the services of a 
para-planner, who does not meet the training standards, to assist in the 
provision of financial product advice, the licensee remains responsible 
for that advice and the conduct of its employee representatives, 
authorised representatives and the para-planner in relation to the 
provision of that advice.  
[PS 164.69]  We also consider that the licensee is likely to be breaching 
its duties if it does not have measures, processes and procedures in place 
designed to ensure that a person, such as an employee representative or 
authorised representative, who meets the training standards (person A) 
plays a material role in, and remains responsible for (together with the 
licensee), the provision of advice to clients.  
[PS 164.70]  The requirement for person A to play a material role in the 
provision of the advice does not mean that person A must personally 
perform all the functions associated with the provision of the advice. 
Rather, person A must: 
(a)  review any draft Statements of Advice prepared by the para-planner 
with a view to assessing whether all legal obligations have been 
complied with, and take any necessary action to ensure such 
compliance (this may mean that person A needs to obtain further 
information from the client or may need to alter the draft Statement 
of Advice); and 
(b)  manage and lead any verbal explanation of the financial product 
advice to the client. 
[PS 164.71]  As a general rule, if a licensee uses a disproportionately 
high number of para-planners who do not meet the training standards 
compared to the number of the licensee’s employee representatives and 
authorised representatives that do meet the training standards, we believe 
that there is an increased risk that the licensee will not be satisfying its 
obligations. 
Issues to consider: monitoring, supervision and training 
See the Schedule at [PS 164.138B] for issues licensees may 
wish to consider when addressing monitoring, supervision and 
training.  
 
Table 2 is moved to [PS 164.138B].
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E Organisational 
competency 
The organisational competency obligations 
[PS 164.72]  All licensees (other than APRA-regulated applicants) must 
have available adequate human resources to provide the services the AFS 
licence allows them to provide (see s912A(1)(d)) and all licensees 
(whether regulated by APRA or not) must maintain the competence to 
provide those financial services: see s912A(1)(e). We refer to these 
obligations as the “organisational competency obligations”. 
Note: In Section G of this policy statement, we consider more generally the obligation 
of a licensee to have adequate human resources as part of the obligation of a non 
APRA-regulated licensee to have adequate resources. 
[PS 164.73]  This section of the policy statement provides guidance on 
how licensees can comply with the organisational competency 
obligations. Fundamentally it is up to the licensee to decide on ways it 
can demonstrate how it meets these obligations. 
[PS 164.73A]  This section also: 
(a)  focuses on the knowledge and skills of the people whose training 
and experience results in the licensee complying with its 
organisational competency obligations. These are the people who 
manage the licensee’s business and ensure that the quality of 
services the licensee provides is adequate and that the licensee 
complies with the licensee obligations; and 
 (b)  outlines some of the alternatives open to a licensee under which the 
licensee can most easily demonstrate to ASIC it meets the 
organisational competency obligations. However, even if these 
alternatives are not adopted, a licensee can still demonstrate to us 
that it meets the organisational competency obligations. 
[PS 164.73B]  This section does not deal with the operation of our 
training and experience requirements applying to natural persons who 
provide financial product advice as set out in Policy Statement 146 
Licensing: Training of financial product advisers [PS 146]. Therefore, 
the requirements in that policy statement should not be read as implying 
how our approach in this section of this policy statement is to be 
understood or applied. 
[PS 164.74]  As with the other sections in this policy statement, what is 
needed to demonstrate compliance with the organisational competency 
obligations depends on the nature, scale and complexity of a licensee’s 
business. It also depends on the role that individuals play in the licensee’s 
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business. In analysing how best to comply with these obligations, a 
licensee will generally need to identify: 
(a)  the people whose expertise the licensee relies on to meet its 
organisational competency obligations; and 
(b)  what kind of training and experience these people need to have to 
ensure they have the knowledge and skills to carry out their 
functions and demonstrate that the licensee meets its organisational 
competency obligations.  
Whose organisational competency does the licensee 
rely on? 
[PS 164.75]  We consider that the people on whom a licensee depends 
for its organisational competency are the licensee’s responsible officers 
(as defined in s9 of the Corporations Act) who are directly responsible 
for significant day-to-day business decisions about the ongoing provision 
of financial services by the licensee. 
Note: The definition of “responsible officer” at s9 of the Corporations Act means in 
relation to a body corporate that applies for a licence, “an officer of the body who 
would perform duties in connection with the holding of the licence”. 
[PS 164.76]  We acknowledge the definition of a responsible officer 
under the Corporations Act is broad. We use this term for convenience as 
it is a generally understood term. For the purposes of the organisational 
competency obligations, this means that the relevant responsible officers 
will not be all a licensee’s responsible officers as defined in the 
Corporations Act. Nor will they be those responsible officers who do not 
have direct responsibility for the provision of the financial services (eg 
the compliance manager). For the purposes of demonstrating 
organisational competency the relevant responsible officers are likely to 
be directors employed full time in the business, key managers or agents 
of a licensee who have the requisite direct responsibility as described in 
[PS 164.75]. A person is not a responsible officer merely because they 
have competency qualifications. 
[PS 164.76A]  When applying for an AFS licence the applicant should 
nominate those of its responsible officers that: 
(a)  have the requisite direct responsibilty as described in [PS 164.75]; 
and 
(b)  the licensee considers demonstrate and meet the needs of the 
organisational competency obligations (the nominated responsible 
officers). 
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Note: The definition of responsible officer is only applicable to a licensee that is a 
body corporate. However, we consider that the concept of a nominated responsible 
officer should be applied with any necessary adaptation for a licensee that is not a body 
corporate (eg partnerships and trustees). 
[PS 164.77]  In larger organisations, we expect an AFS licence 
applicant to nominate only those of its responsible officers in key 
positions of direct responsibility as described in [PS 164.75] rather than 
all those involved in the management of the provision of financial 
services. We would generally expect an AFS licence applicant to 
nominate two or more responsible officers. However, in some cases a 
single responsible officer may be adequate. An example is where the 
applicant’s main business is not the provision of financial services, but 
this will depend on the nature, scale and complexity of the business. 
Note: See [PS 164.104A] and [PS 164.104B] for a discussion of when we will apply 
“key person” license conditions. 
[PS 164.77A]  The remainder of this section discusses how a licensee 
(and an AFS licence applicant) can demonstrate to us it meets the 
organisational competency obligations. 
[PS 164.78]  Moved to [PS 164.104A] 
[PS 164.79]  Moved to [PS 164.104B]  
Demonstrating competency 
[PS 164.80]  In articulating our expectations about the types and levels 
of training and experience that will enable a licensee (and an AFS licence 
applicant) to demonstrate it meets the organisational competency 
obligations, we have focused on the: 
(a)  benefits for consumers if they can rely on the expertise and 
professionalism of licensees that provide financial services; and 
(b)  advantages for licensees if we strike the right balance between 
flexibility, efficiency and certainty in the way we administer the 
licensing regime.  
[PS 164.81]  As discussed at [PS 164.73], a licensee is responsible for 
ensuring that it satisfies the organisational competency obligations, and 
that appropriately trained and experienced nominated responsible officers 
(including any relevant key staff of its agents) undertake the relevant 
roles within the entity. 
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Note: As discussed at paragraph (b) of [PS 164.74] nominated responsible officers 
need to have appropriate training and experience to ensure they have the knowledge 
and skills to carry out their functions. 
[PS 164.81A]  However, to assist licensees (and AFS licence applicants) 
to demonstrate to us that they meet the organisational competency 
obligations, our approach will generally be to look to a nominated 
responsible officer’s training and experience. We will seek evidence that 
the nominated responsible officer has the knowledge and the skills they 
need to carry out their functions as a nominated responsible officer. 
[PS 164.81B] Often a licensee (or an AFS licence applicant) and its 
responsible officers will rely on the technical expertise of specialists to 
carry out functions covered by the licence. This technical expertise may 
be in the law or other technical specialities. While we take this into 
account in our own assessment of the licensee (or the AFS licence 
applicant), the nominated responsible officers will still need to have 
enough knowledge and skill to understand and manage the application of 
that technical expertise to the licensee’s (or the applicant’s) business. 
[PS 164.82]  It is up to the licensee to ensure that it has officers with the 
appropriate knowledge and skills. We expect a licensee (or applicant) 
will: 
(a)  identify the knowledge and skills its responsible officers need to 
have to ensure the licensee meets its obligations; 
(b)  review its responsible officers to determine whether they have the 
knowledge and skills needed; 
(c)  ensure its responsible officers do have the necessary knowledge and 
skills; and 
(d)  monitor the maintenance of the necessary knowledge and skills. 
[PS 164.83]  We understand that the level of knowledge and skills 
required by responsible officers will depend on the size and complexity 
and type of business of the licensee. It will also depend on the type of 
products and the markets, if any, on which the products are issued or 
traded. 
[PS 164.83A]  Some types of licences will require a higher standard than 
others. Our focus is to ensure that the licensee has the appropriate 
knowledge and skills to the necessary standard. We aim to be flexible, 
but ultimately it is up to the licensee to ensure it knows what standard of 
knowledge and skills are necessary and that it meets the organisational 
competency obligations including by its nominated responsible officers 
having the necessary standard of knowledge and skills.  
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Knowledge and skills 
[PS 164.83B]  For a licensee (or AFS licence applicant) to determine 
whether its nominated responsible officers have the necessary knowledge 
and skills needed for their roles we expect the licensee (or applicant) 
would consider: 
(a)  what the responsible officer is responsible for; 
(b)  the responsible officer’s education background; 
(c)  the responsible officer’s relevant experience; 
Note: Refer to [PS 164.93] – [PS 164.94] for our views concerning a nominated 
responsible officer's relevant experience. 
(d)  any other credentials of the responsible officer including association 
membership or affiliation, or skills or knowledge recognised by an 
industry association, a regulatory body such as APRA, or some 
relevant overseas body; and 
(e)  any other reasons why the responsible officer can perform in the 
role, including client feedback, complaints and performance 
measures. 
Knowledge 
[PS 164.84]  A licensee can ensure and show us that its nominated 
responsible officers have the knowledge needed for their roles in a 
number of ways. The most common are: 
(a)  Alternative 1: meet widely adopted and relevant industry standards, 
or relevant standards set by APRA; or 
(b)  Alternative 2: successfully complete an individual assessment at a 
level relevant to the particular industry; or 
(c)  Alternative 3: hold a university degree in a relevant discipline and 
complete a relevant short industry course; or 
Note: We understand a person as satisfying the requirements of this alternative if this 
person’s university degree covers those services for sectors not covered by his or her 
approved relevant short industry course.  
(d)  Alternative 4: hold a relevant industry qualification at a minimum of 
a full diploma recognised under the Australian Qualifications 
Framework or by a university, or the Financial Planning 
Association’s Diploma of Financial Planning; or 
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(e)  Alternative 5: provide a detailed submission to ASIC that satisfies us 
that the responsible officers nominated have the necessary skills and 
knowledge. 
Note 1: These alternatives are set out in more detail in a table at [PS 164.104C]. 
Note 2: In order for a licensee or AFS licence applicant to convince us that its 
nominated responsible officer has the necessary skills and knowledge, the licensee (or 
licence applicant) would need to address each of the factors referred to at paragraphs 
(a) to (e) of [PS 164.83B]. 
Note 3: See paragraphs [PS 164.102A]-[PS 164.102F] for a discussion of what we 
generally understand in Alternatives 1 to 4 by way of qualifications, short industry 
courses and industry and APRA standards. 
[PS 164.85]  In the case of a licensee that provides financial product 
advice, we think it might typically adopt Alternatives 2 to 4 for its 
nominated responsible officers. We consider this will generally be 
needed to ensure the licensee is able to consistently provide quality 
financial product advice to retail clients. 
[PS 164.86]  Moved to [PS164.102A] 
[PS 164.87]  Moved to [PS164.102B] 
[PS 164.88]  Moved to [PS164.102C] 
[PS 164.89]  Deleted 
[PS 164.90]  Moved to [PS164.102D] 
[PS 164.91]  Moved to [PS164.102E] 
[PS 164.92]  Moved to [PS164.102G] 
Skills 
[PS 164.93]  In our view, a nominated responsible officer will be 
unlikely to be able to carry out their functions as a nominated responsible 
officer unless they have at least 3 years relevant experience over the 
immediate past 5 years. Relevant experience is experience in a role that 
enables the person to understand the responsibilities and requirements of 
the current role. 
[PS 164.94]  Formal qualifications may assist the licensee to 
demonstrate that a nominated responsible officer has the requisite skills. 
If a person has no formal qualifications, it may be prudent for the 
licensee to look for a longer period of relevant experience (eg 5 years 
experience over the immediate past 8 years). 
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Continuing knowledge and skills development 
[PS 164.95]  A licensee must continuously ensure that it is meeting its 
organisational competency obligations. This will usually mean having 
measures, processes and procedures in place to ensure that it and its 
nominated responsible officers maintain and update their expertise. 
[PS 164.96]  Deleted 
[PS 164.97]  Deleted 
Licensees that conduct multiple financial services 
[PS 164.98]  A licensee that is authorised to conduct a range of 
financial services (eg advising and dealing) in relation to different kinds 
of financial product (eg general and life insurance products) will need to 
have nominated responsible officers with appropriate competency (ie 
knowledge and skills) relevant to each service kind of product. The same 
applies for an AFS licence applicant for a licence proposing to conduct 
more than one financial service.  
[PS 164.98A]   To illustrate the principle in [PS 164.98] a person can be 
put forward as a responsible nominated officer if he or she satisfies the 
competency requirements for some kinds of services or products, but not 
for all. If a nominated responsible officer (A) does not satisfy all the 
competency requirements for the services and kinds of product relevant 
to the licensee’s business, the licensee must nominate at least one other 
responsible officer who satisfies those requirements for the remaining 
services and kinds of products. Alternatively, A could undertake further 
training so as to satisfy the competency requirements for all services or 
kinds of product provided by the licensee, (eg by completing an approved 
relevant short industry course or by completing relevant additional 
modules relating to those other services before they apply for a licence). 
Note: For example, a licensee authorised to advise and deal in life and general 
insurance products could have nominated responsible officer A with knowledge and 
skills in advising on and dealing in life insurance products and nominated responsible 
officer B with knowledge and skills in advising on and dealing in general insurance 
products. 
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Other issues 
Status of Policy Statement 138 Personal competencies 
for licensees 
[PS 164.99]  Our policy in [PS 164] supersedes the education and 
experience requirements in Policy Statement 138 Personal competencies 
for licensees at [PS 138.15]–[PS 138.28]. 
[PS 164.100]  We will continue to accept the educational and industry 
qualifications approved by ASIC as listed in [LIC 15] of the ASIC Digest. 
The lists in [LIC 15] should be read in conjunction with the Australian 
Financial Services (AFS) Licensing Kit (Version 2, October 2002). 
Note: The lists in [LIC 15] were prepared for the purposes of [PS 138] (now 
superseded). See [SPS 138] in the ASIC Digest for historical background on the 
development of these lists. 
[PS 164.101]  We will continue to accept satisfaction of the standards 
outlined in [PS 138] as evidence of expertise. However, various industry 
sectors have established industry and professional expertise standards. To 
acknowledge this fact, we will also accept appropriate satisfaction of 
certain industry standards as evidence of expertise for some AFS licence 
types. 
Responsible entities 
[PS 164.102]  Policy Statement 130 Managed investments: Licensing 
[PS 130] outlines the organisational expertise standard for an operator of 
a managed investment scheme (including any dealing activities incidental 
to the operation of the scheme): see [PS 130.34] and [PS 130.43]–[PS 
130.52]. Our policy on organisational expertise obligations in Section E 
of this policy statement does not apply to operators of managed 
investment schemes unless they provide: 
(a)   advice on interests in the schemes (see [PS 130.12]); or 
(b) financial services unconnected with the operation of the scheme.  
Qualifications, short industry courses, and industry and 
APRA standards 
What qualifications and industry standards are used? 
[PS 164.102A]  ASIC is not a training provider or assessor and therefore 
will not be directly involved in the assessment of qualifications and 
courses. However, because we have considerable experience in issuing 
licences and assessing licensees’ compliance with their organisational 
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competency obligations, we have developed useful benchmarks that are 
reflected in this policy statement. Our approach has been strongly 
influenced by the Australian Qualifications Framework, and the role 
played by short industry courses and industry standards. 
Australian Qualifications Framework 
[PS 164.102B]  The Australian Qualifications Framework, which 
incorporates qualification levels and titles, is a government initiative that 
provides a nationally consistent framework for all qualifications in post 
compulsory education.  
[PS 164.102C]  For a qualification to be accepted under the Australian 
Qualification Framework, it must be assessed by a registered training 
organisation or university as meeting certain standards. 
Note: For more information about qualifications that are recognised under the 
Australian Qualifications Framework, see the National Training Information Service 
database (www.ntis.gov.au) and the Australian Qualifications Framework Advisory 
Board database (www.aqf.edu.au). 
Short industry courses 
[PS 164.102D]  A licensee may also use as evidence of appropriate 
knowledge, completion of an approved relevant short industry course. 
Formal assessment by a university or approved professional or industry 
body will normally be a reliable guide to a course’s quality and 
relevance.  
Note: For a list of recognised courses, see the ASIC Training Register at 
www.asic.gov.au. 
Industry and APRA standards 
[PS 164.102E]  Various industry sectors have already developed 
standards that are recognised by participants in that sector as 
prerequisites for certain activities or as preferred entry standards. A 
number of standards are already recognised within industry (eg AFMA 
dealer accreditation, and various insurance and financial planning 
industry accreditations). We are prepared to accept a wide range of 
recognised standards where they are relevant to the nominated 
responsible officer’s role ie where meeting the recognised standard will 
indicate that the responsible officer has the required knowledge for his or 
her role.  
[PS 164.102F]  We will also accept standards set by APRA where they 
are relevant to the nominated responsible officer’s role. The onus is on 
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the AFS licence applicant to demonstrate the relevance of the standard, 
which also includes how current the particular standard is.  
[PS 164.102G]  To be a reliable way of demonstrating that nominated 
responsible officers have the appropriate knowledge, industry standards 
generally need to: 
(a)  be endorsed by the appropriate industry body or bodies;  
(b)  have been developed with industry; 
(c)  address the competencies required in that sector/financial 
service/product; and 
(d)   represent the views of a significant number of industry participants.  
Foreign qualifications 
[PS 164.103]  Some recognised foreign qualifications can be used in the 
Australian context. If you are applying for an AFS licence, you can refer 
in your licence application to evidence that training completed by your 
nominated responsible officers has been recognised by a relevant 
overseas regulatory body (eg Financial Services Authority (UK), 
National Association of Securities Dealers (US), Canadian Dealers 
Association, Securities and Futures Commission (Hong Kong), and the 
Monetary Authority of Singapore). Relevant foreign university 
qualifications should be verified by the National Office of Overseas 
Skills Recognition in Canberra.  
[PS 164.104]  Foreign qualifications will almost certainly not have 
addressed Australian regulatory requirements, or features of the financial 
services industry peculiar to Australia (such as taxation, superannuation 
and other retirement savings vehicles). To remedy this, we will generally 
expect nominated responsible officers of AFS licence applicants that 
wish to provide financial product advice to undertake an approved short 
industry course to become familiar with Australian requirements. 
“Key person” licence conditions 
[PS 164.104A]  If the licensee is heavily dependent on the expertise of 
one or two responsible officers in positions of direct responsibility as 
described in [PS 164.75] (eg in a small organisation with one or two 
principals), we will generally decide that those people are “key persons”. 
Accordingly, where a licence applicant nominates only one or two 
responsible officers, we will generally treat them as “key persons”. We 
will name them on the licence as such, and will require the licensee to:  
(a)  notify us if any key person leaves or is about to leave the business; 
and  
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(b)  nominate another suitably qualified person in such an event. 
Note: Refer to Pro Forma 209 Australian Financial Services Licence conditions 
[PF 209], Condition 3. 
[PS 164.104B] Having a key person condition ensures that a licensee will 
only continue to operate with the involvement of responsible officers 
who satisfy the organisational expertise obligations. 
Some alternatives for meeting organisational comptencies 
obligations 
See [PS 164.104C] on the next page.  
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Some alternatives for meeting the organisational competency obligations 
[PS 164.104C]  There are a number of ways you can meet your organisational competency 
obligations. As a guide, we have set out in summary form at [PS 164.84] and in more detail in 
the following table, alternatives we think a licensee might adopt in making sure its nominated 
responsible officers meet appropriate standards for knowledge and skills: see [PS 164.73] and 
[PS 164.81]. Our aim is to ensure that the licensee has the required knowledge and skills to 
provide the services in accordance with the Corporations Act. 
 
Alternative 1 
Meet widely adopted and relevant industry standards (see [PS 164.102]–
[PS 164.102G] or relevant standards set by APRA 
AND 
The equivalent of at least 3 years relevant experience over the immediate 
past 5 years in a role that enables the person to understand the 
responsibilities and requirements of the current role 
Alternative 2 
Successfully complete an individual assessment (or recognition of 
current competency) by an authorised assessor at the equivalent of full 
diploma level, relevant to the particular industry and/or product. 
AND 
The equivalent of at least 5 years relevant experience over the immediate 
past 8 years in a role that enables the person to understand the 
responsibilities and requirements of the current role 
Note: As a guide to an authorised assessor process readily acknowledged by us, see 
Policy Statement 146: Licensing: Training of financial product advisers [PS 146] at 
[PS 146.52] – [PS 146.53]. 
Alternative 3 
A university degree in a discipline relevant to the activities being carried 
out (eg economics, commerce, business, accounting, information 
technology, geology or other technical qualification)  
AND  
An approved relevant short industry course listed in the ASIC Training 
Register. The course must cover generic and relevant specialist 
knowledge (this includes existing approved qualifications) 
AND 
The equivalent of at least 3 years relevant experience over the immediate 
past 5 years in a role that enables the person to understand the 
responsibilities and requirements of the current role 
Note: For Alternative 3, an approved relevant short industry is only necessary if your 
university degree does not cover all requisite areas of knowledge. 
 
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Alternative 4 
A qualification which is: 
(a)  specifically relevant to the particular industry and/or product;  
(b)  at least the equivalent of a minimum of a full diploma; and 
(c)  recognised under the Australian Qualifications Framework, or 
by a university or another institution of higher education (this 
includes, but is not limited to, existing approved qualifications, 
such as the diploma courses, listed in the ASIC Training 
Register) 
AND 
The equivalent of at least 3 years relevant industry experience over the 
immediate past 5 years in a role that enables the person to understand the 
responsibilities and requirements of the current role 
Alternative 5 
Where a licensee chooses to adopt some other possibility to demonstrate 
a nominated responsible officer has the necessary knowledge, the 
licensee (or AFS licence applicant) will need to provide us with the 
following details: 
(a)  the nature of the role performed by the officer;  
(b)  any relevant qualifications or courses completed by the officer;  
(c)  the experience history of the officer over the last 10 years (or 
thereabouts);  
(d)  any relevant credentials of the officer including association 
membership or affiliation, or skills or knowledge recognised by 
an industry association, a regulatory body such as APRA, or 
some relevant overseas body; and 
(e)  why the licensee or applicant is of the view the officer has the 
necessary knowledge and skills to carry out the officer’s 
function. 
 
Note 1: We would typically expect a licensee that provides financial product advice to adopt Alternatives 2 to 
4 for those nominated responsible officers whose role relates to the provision of advice. However, 
depending on the nature, scale and complexity of the licensee’s business, evidence that Alternative 1 
or some other alternative has been met may be appropriate: see [PS 164.85]. 
Note 2: For licence applicants wishing to operate a registered scheme, see the requirements in Policy 
Statement 130 Managed investments: Licensing [PS 130]. 
 
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F 
Risk management  
Note: This section does not apply to a licensee that is a body regulated by APRA. 
Risk management generally 
[PS 164.105]  A licensee must establish and maintain adequate risk 
management systems: see s912A(1)(h). A licensee that is regulated by 
APRA must have the risk management systems that APRA requires. 
[PS 164.106]  The requirement for risk management systems ensures 
licensees explicitly identify the risks their businesses face, and have 
measures, processes and procedures in place to keep those risks to an 
acceptable minimum. Risks in this context include risks to:  
(a)  consumers who use a licensee’s services; and  
(b)  the integrity of markets in which the licensee is active. 
[PS 164.107]  The nature and scope of a licensee’s risk management 
systems are dictated by the nature, scale and complexity of its business 
and its risk profile. What is required will be different in the case of each 
licensee. We recognise that the appropriate risk management systems for 
licensees whose business is small or whose main business is not the 
provision of financial services will not be the same as for a large 
organisation. 
[PS 164.107A]  It should not be assumed that the obligation to have risk 
management systems refers to having an electronic system or set of 
systems. The rest of this section discusses what we understand by the 
obligations for a licensee to have risk management systems. 
Note: We refer to systems in this section to reflect its use in the phrase “risk 
management systems”, again not to necessarily imply some form of electronic system. 
What we expect 
[PS 164.108]  As with other requirements for measures, processes and 
procedures (see [PS 164.15], [PS 164.15A] and [PS 164.48]), we expect 
that licensees will usually document in some form their risk management 
systems, including the systems they use for monitoring and reporting on 
risk management issues. 
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[PS 164.109]  Generally, we anticipate a licensee’s risk management 
systems will: 
(a)  be based on a structured and systematic process that takes into 
account the licensee’s obligations under the Corporations Act; 
(b)  identify risks of non-compliance with the financial services laws, 
focusing on those risks which would materially adversely affect 
consumers or market integrity objectives;  
(c)  set out steps to be taken if there are possible breaches of the financial 
services laws that may detrimentally affect consumers or the 
integrity of the markets in which the licensee operates; and 
(d) establish and maintain measures, processes and procedures 
(including compliance measures, processes and procedures) designed 
to address those risks. 
Using the Australian and New Zealand Standard on Risk 
Management Systems 
[PS 164.110]  In deciding whether a specific licensee’s risk management 
systems are adequate, the licensee may wish to refer to the Australian and 
New Zealand Standard on Risk Management Systems (AS/NZS 4360–
1999). The standard is a useful benchmark that we expect licensees to use 
as a guide in planning and implementing risk management systems. 
[PS 164.111]  We accept that there may be risk management systems 
that are not consistent with every element of AS/NZS 4360–1999, but 
which may still ensure compliance with the licensee obligations. 
Nonetheless, AS/NZS 4360–1999 can play a role in helping a licensee 
decide whether its risk management systems are adequate to ensure the 
licensee complies with the Australian law. 
[PS 164.112]  Adopting a methodology based on AS/NZS 4360–1999 
will assist a licensee to establish appropriate risk management systems by 
accurately identifying, assessing and prioritising risks. If these steps are 
not conducted properly, significant risk areas may not be identified. 
Financial risks 
[PS 164.113]  A licensee’s risk management systems normally address 
the risk that its financial resources will not be adequate. We have set out 
the required financial requirements (for non APRA-regulated licensees) 
in Policy Statement 166 Licensing: Financial requirements [PS 166]. 
These requirements are applied by imposing licence conditions: see Pro 
Forma 209 Australian Financial Services Licence conditions [PF 209]. 
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Compliance measures, processes and procedures 
[PS 164.114]  Risk management systems will include compliance 
measures, processes and procedures as a means to address identified 
risks. However, compliance measures, processes and procedures might 
only be one of the measures adopted under risk management systems to 
minimise risk to a licensee’s operations (including the risk of non-
compliance with its obligations under the Corporations Act). 
APRA-regulated licensees 
[PS 164.115]  We consider that the need for compliance measures, 
processes and procedures, applies to all licensees, including licensees 
regulated by APRA. This is because all licensees are required to comply 
with a range of licensee obligations, of which the obligation to have 
adequate risk management systems is only one.  
[PS 164.116]  Some APRA-regulated entities may include compliance 
with obligations under the Corporations Act as part of the risk 
management systems required by APRA. If so, they should be able to 
draw our attention to where the particular compliance issues are dealt 
with in those systems. 
Review 
[PS 164.117]  Risk management systems established to address 
identified risks will need to adapt to business developments and any 
changes in business risk profile over time. If a licensee makes material 
changes to the business structure that may affect its risk profile, it will 
usually need to adapt its risk management systems to address those 
changes. 
Governing body commitment 
[PS 164.118]  For risk management systems to work effectively in 
practice, a licensee’s governing body (or a sub-committee of this body) 
should understand and be committed to the systems’ successful 
operation. This helps ensure risks are effectively managed, both at initial 
application of the systems and on an ongoing basis, and that the risk 
management processes and procedures are integrated into the culture of 
the organisation.  
[PS 164.119]  The level of governing body commitment may extend to:  
(a)  communicating the risk management processes to those responsible 
for implementing them and to those with a vested interest;  
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(b)  ensuring staff education and awareness of the processes and 
procedures;  
(c)  implementing clear reporting lines for the risk manager; and 
(d)  receiving regular reports on risk management. 
Issues to consider: risk management systems 
See the Schedule at [PS 164.138C] for issues licensees may 
wish to consider when addressing risk management systems.  
 
Table 4 is moved to [PS 164.138C].  
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G 
Non-financial resources  
Note: This section does not apply to a licensee that is a body regulated by APRA. 
The obligation to have adequate non-financial 
resources 
[PS 164.120]  A licensee must have adequate resources to provide the 
financial services covered by its AFS licence and to carry out supervisory 
arrangements: see s912A(1)(d). This obligation includes financial, 
technological and human resources. 
[PS 164.121]  This section of the policy statement deals with a licensee’s 
obligation to have adequate non-financial resources. Our policy on 
financial requirements is set out in Policy Statement 166 Licensing: 
Financial requirements [PS 166]. These requirements are applied by 
imposing licence conditions: see Pro Forma 209 Australian Financial 
Services Licence conditions [PF 209]. 
[PS 164.122]  Having sufficient non-financial resources is crucial to an 
applicant’s ability to demonstrate it has the capacity to carry on the 
business in compliance with the licensee obligations. What is adequate 
will vary from licensee to licensee and will depend on the nature, size 
and complexity of the business a licensee carries on. 
What we expect 
[PS 164.123]  To ensure it complies with its non-financial resources 
obligation, we expect a licensee will have enough technological and 
human resources to enable it to: 
(a)  effectively implement measures, processes and procedures to meet 
its compliance and (except for licensees that are bodies regulated by 
APRA) risk management obligations; and 
(b)  meet current and anticipated future operational needs. 
[PS 164.124]  In most cases, licensees will document how they have 
analysed their compliance with the non-financial resources obligation, 
and the conclusions they have reached. This documentation will assist in 
demonstrating to us how a licensee, or an applicant for an AFS licence, 
complies with the obligation. 
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Technological resources 
[PS 164.125]  What technological resources are adequate will vary from 
one licensee to another and will depend on the nature, scale and 
complexity of a licensee’s business. It will also vary according to the 
types of systems a licensee uses in its business and the role IT systems 
and other technological resources have in its operations. We envisage 
licensees will use a spectrum of technological resources, ranging from 
simple manual systems to sophisticated IT systems. 
Are current IT systems adequate? 
[PS 164.126]  To ensure licensees continue to meet their licensee 
obligations, we expect licensees using IT systems to regularly review: 
(a)  their IT system security; 
(b)  the currency of hardware and software; 
(c)  the quality and relevance of applications in use; 
(d)  their disaster recovery systems and business resumption capacity; 
(e)  the number of users;  
(f)  the ongoing viability of software and other service providers; 
(g)  the response times of their IT systems; 
(h)  the down times of their IT systems; 
(i)  their use of legacy IT systems; and 
(j)  complaints from staff and clients about their IT systems. 
[PS 164.127]  If a licensee does not currently use IT systems, it may 
need to review its present system to decide whether: 
(a)  its present system is sufficient to ensure that it will continue to 
satisfy the licensee obligations; or  
(b)  an IT system would better maintain client records and data integrity. 
Small business  
[PS 164.128]  A number of small business licensees may not use IT 
systems to operate their businesses. We do not think the legislation 
requires the use of IT systems if current manual systems are sufficient to 
conduct properly the full range of their business activities.  
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Human resources 
[PS 164.129]  In our view, a licensee’s general obligation to have 
adequate human resources has two main components. The licensee must 
have: 
(a)  a large enough level of human resources to enable it to carry on its 
licensed business in full compliance with the law; and 
(b)  adequate arrangements to fulfil its obligations relating to the people 
who provide services on its behalf. 
Note: In Section E, we also consider a licensee’s obligation to have adequate human 
resources in the context of meeting its organisational expertise obligations. 
Level of human resources 
[PS 164.130]  Failure to have enough human resources may create an 
unacceptable risk that a licensee cannot comply with all its obligations. 
[PS 164.131]  The level of human resources required depends on:  
(a)  the number of clients a licensee has;  
(b)  how many representatives it has;  
(c)  the number of transactions a licensee is likely to enter into;  
(d)  the likely size of the transactions;  
(e)  the nature of the products the licensee is involved with; and  
(f)  the level of IT system used, if used. 
[PS 164.132]  Whether a licensee’s level of human resources is sufficient 
will be influenced by its organisational structure and the necessary 
monitoring and supervision of representatives. 
Licensees’ obligation to have adequate human resources 
[PS 164.133]  A licensee must ensure that people who provide financial 
services on its behalf are authorised (if required by s911B and 
912A(1)(c)), and are of good fame and character (where they are 
responsible officers: see s913B. It must also ensure it trains, supervises 
and monitors them: see Section D of this policy statement. 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
[PS 164.134]  There are a number of steps a licensee can take to ensure it 
meets its obligations relating to the people who provide services under 
the AFS licence. It is those representatives who enable the licensee to 
comply with all its obligations. Measures taken should ensure that: 
(a)  the licensee has appropriate internal control procedures and that staff 
are trained in their use;  
(b)  when staff are absent, client accounts and interests continue to be 
monitored;  
(c)  consumer complaints and queries can be responded to quickly and 
accurately; 
(d)  staff are monitored and supervised and, particularly where the 
licensee’s operations are diverse, supervisors have sufficient 
capacity to adequately supervise staff; and 
(e)  future operational demands are continuously assessed to ensure there 
are sufficient resources to meet demands. 
[PS 164.135]  Measures that a licensee takes to ensure these outcomes 
will normally relate to a number of aspects of its business including: 
(a)  the recruitment process — whether police checks, reliable referee 
reports and statements of employment are obtained prior to 
engagement; 
(b)  succession or recruitment planning, to ensure that there is continual 
access to the requisite mix and range of skills; 
(c)  the performance management system; 
(d)  the process for staff retrenchment and redundancy; and 
(e)  systems for induction and training of new staff. 
[PS 164.136]  In documenting measures for monitoring adequacy of 
human resources, licensees will normally describe key indicators that 
will reveal if the level of human resources is inadequate, or if those who 
provide services on behalf of the licensee are inadequately monitored, 
supervised and trained. Key indicators are likely to include a high level 
of: 
(a)  customer complaints about the quality of customer service; 
(b)  customer complaints about advice; 
(c)  staff with a short period of service (eg less than 6 months); and 
(d)  vacant positions.  
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Review 
[PS 164.137]  Licensees must have adequate non-financial resources on 
an ongoing basis. To ensure compliance with this obligation, a licensee 
will need to have processes in place to ensure that it can monitor and 
report on the sufficiency of its non-financial resources. 
[PS 164.138]  We recognise that licensees may have different monitoring 
arrangements to determine whether their technological and human 
resources are adequate. 
Issues to consider: non-financial resources 
See the Schedule at [PS 164.138D] for issues licensees may 
wish to consider when addressing non-financial resources.  
 
Table 5 is moved to [PS 164.138D].
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
Schedule: Other issues to consider 
This Schedule provides further guidance by showing some typical issues 
a licensee should think about when designing its measures, processes and 
procedures to comply with its obligations. It covers issues relating to: 
(a)  compliance measures, processes and procedures ([PS 164.138A]); 
(b) monitoring, supervision and training ([PS 164.138B]); 
(c)  risk management systems ([PS 164.138C]); and 
(d)  non-financial resources ([PS 164.138D]). 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
Compliance measures, processes and procedures — issues to 
consider 
[PS 164.138A]  We encourage licensees to consider the following issues when addressing 
compliance with the licensee obligations. It is not suggested that all the matters in this table 
are relevant to every particular licensee or that they are exhaustive. Licensees should 
determine which matters are relevant to their business. These are the types of matters that we 
will consider in assessing AFS licence applications and carrying out surveillance. We will 
review them in light of our experience in administering the Corporations Act. 
The following issues to consider should be applied with any necessary adaptation where 
compliance measures, processes and procedures include the use of third parties (whether 
external or within a corporate group). 
 
Requirement 
Issues 
Documented compliance 
•  Have you documented your compliance measures, processes 
measures, processes and 
and procedures? 
procedures  
•  Have they been approved (signed off) by the governing body? 
Note: We may require a copy of 
•  Are those compliance measures, processes and procedures 
your compliance measures, 
monitored? 
processes and procedures during 
•  How are your compliance measures, processes and procedures 
the licence assessment process. 
communicated to your directors, employees and 
representatives? Do you make use of facilitative 
Hint: Documentation may 
communication tools (such as electronic systems)? 
consist of training 
•  Are the compliance measures, processes and procedures 
material, board reports or 
integrated into relevant operational processes? 
IT system specification 
 
•  Can you identify who in your business is responsible for 
monitoring compliance with the measures, processes and 
procedures? 
Clear and convincing 
•  Are your compliance measures, processes and procedures 
measures, processes and 
clear and convincing? 
procedures 
•  Do your compliance measures, processes and procedures 
promote a culture of compliance? 
Hint: Do they explain 
what you do to ensure 
•  What testing of comprehension of your compliance measures, 
compliance – it could 
processes and procedures do you undertake? 
only be one page? 
 
 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Requirement 
Issues 
Updating of measures, 
•  On what basis and how often are your compliance measures, 
processes and procedures 
processes and procedures updated? 
•  On what basis and how often are your compliance measures, 
Hint: How do you know 
processes and procedures reviewed?  
they are working? 
 
•  On what basis is the monitoring of your compliance measures, 
processes and procedures reviewed?  
•  Do you undertake regular external and internal audit reviews 
of your compliance measures, processes and procedures and 
their monitoring? 
•  How do you communicate changes in your compliance 
measures, processes and procedures, so that your directors, 
employees and representatives understand the changes? 
Compliance function 
•  Have you set up a separate compliance function within your 
organisation? 
Hint: This may not be 
•  Have you a person in the compliance manager role? 
necessary for small 
business 
•  Is the allocation of responsibilities for the compliance 
function clear and understood by your directors, employees 
 
and representatives? 
•  Does the compliance manager have reporting access to the 
 
governing body (or its delegate)? 
•  Do the compliance function staff have access to relevant 
information held by the organisation in order to effectively 
perform their compliance responsibilities? 
•  Do you have compliance measures, processes and procedures 
to quickly fill vacancies in the compliance function staff? 
•  Are the compliance function staff adequately trained and 
qualified in compliance responsibilities? 
Reporting breaches 
•  Is there a clear, well-understood and documented process for 
reporting breaches of the financial services laws (including 
licence conditions) and for escalating reported breaches 
(including to the governing body or its delegate)? 
•  Is there a review of the compliance measures, processes and 
procedures to take into account breaches of the financial 
services laws (incl. Licence conditions) by the organisation? 
•  Is there a method to identify and address breaches of the 
financial services laws (including systemic breaches)? 
•  Is it clear within the organisation when you should report 
breaches of the financial services laws (including licence 
conditions) to ASIC? 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Requirement 
Issues 
Delegation and outsourcing 
•  What arrangements do you have in place to supervise 
of tasks 
delegation of tasks and functions (including by the use of 
outsourced agents) and to monitor the discharge of the 
Hint: Does what you do 
delegate’s functions or tasks? 
actually work? 
•  What arrangements do you have in place to assess the initial 
 
and ongoing suitability of a delegate to undertake the function 
or task? 
 
•  Do you obtain sufficient information from your agents and 
employees to enable you to assess the impact of outsourcing 
on your compliance measures, processes and procedures? 
Segregation of duties 
•  What arrangements do you have in place (where possible and 
appropriate) to segregate the duties of individuals and 
departments in such a way as to reduce opportunities for 
misappropriation or contraventions of the financial services 
laws (eg back office and front office functions)? 
Managing information 
•  What arrangements do you have in place to provide your 
governing body (or its delegate) with the information it needs 
to play its role in identifying, measuring, managing and 
controlling risks of non-compliance with the financial services 
laws (including licence conditions)? 
Safeguarding client money 
•  What controls do you have to ensure that client monies and 
and assets 
assets are separated from your monies and assets as required 
under Part 7.8 of the Corporations Act? 
•  What arrangements are in place to ensure that any person 
(other than you) holding client money or assets on your behalf 
meets the requirements under the Corporations Act for 
holding client money or assets? 
Accounts and record 
•  What arrangements are in place to ensure that accounting 
keeping 
records and other evidence about your business will be 
adequate to allow you and ASIC to conduct reviews of your 
Hint: Don't forget about 
business activities? 
privacy 
•  What procedures ensure that appropriate taxation and 
 
accounting requirements are adhered to? 
•  What procedures ensure that all statutory deadlines for 
 
reporting are complied with? 
•  What measures are in place to ensure that records are 
maintained for the statutory period? What measures ensure 
that records for compliance monitoring are kept? 
•  What arrangements are in place to monitor compliance with 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Requirement 
Issues 
financial resource requirements imposed as a condition of 
your AFS licence (for licensees not regulated by APRA)? 
Conduct of business 
•  What measures are in place to ensure that applicable “conduct 
obligations 
of business” requirements under the Corporations Act are 
complied with on an ongoing basis (eg requirements about 
giving personal advice to retail clients; trading requirements 
for best execution and fair allocation; conflicts of interests are 
managed; all applicable financial product advice disclosures 
and warnings are provided)? 
Disclosures and reporting 
•  What procedures are in place to ensure that all your 
publications (eg advertising, Product Disclosure Statements, 
Financial Services Guides) comply with the requirements of 
the Corporations Act (eg timing, content, not misleading)? 
•  What arrangements are in place to ensure that your financial 
statements and any of your products are true and fair and 
when relevant, appropriate continuous disclosure/significant 
event disclosures are made? 
Related party issues  
•  What controls are in place to ensure that flows of information 
between you and your related bodies corporate are 
appropriately protected (eg to minimise inside information 
and to manage conflicts of interests)? 
•  What measures are used to ensure that the use of a related 
third party service provider is in your and your clients’ best 
interests? 
Fees and expenses 
•  What procedures are used to ensure that only authorised fees 
and expenses are charged to a client and that the fees and 
expenses are calculated correctly? 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
Monitoring, supervision and training — issues to consider 
[PS 164.138B]  Licensees may wish to consider the following issues when addressing the 
monitoring, supervision and training obligations. It is not suggested that the matters in this 
table are relevant to every particular licensee or that they are exhaustive. Licensees should 
determine which matters are relevant to their business. These are the types of matters that we 
will consider in assessing AFS licence applications and carrying out surveillance. We will 
review them in light of our experience in administering the Corporations Act. 
 
Requirement 
Issues 
Representatives 
•  Have you identified all your representatives (in particular, any 
persons or entities other than employees, directors and 
authorised representatives who are acting on your behalf)? 
•  Do you have measures, processes and procedures in place to 
ensure that only appropriate persons are appointed as your 
representatives, including the use of individual assessments 
and background checks where necessary? 
•  Do you know what activities your representatives undertake 
and the level of training they have achieved? 
•  Have you established a clear reporting and supervisory 
structure that is applicable to all your representatives?  
Compliance arrangements 
•  Are your representatives aware of relevant compliance 
arrangements, and do they understand them? 
•  Have you ensured that these arrangements are updated as 
necessary (eg to deal with new products)?  
Assessing representatives’ 
•  What monitoring and supervision measures, processes and 
compliance 
procedures have you adopted to determine whether 
representatives are complying with the financial services 
laws? 
•  Do your monitoring and supervision procedures address 
higher risk activities of your representatives, such as 
providing retail financial product advice? 
•  How do you ensure that you are not receiving inaccurate 
information (eg reports that are based on “guess work” or that 
are sanitised)? 
•  Who carries out these measures, processes and procedures? 
How often? 
•  How are breaches rated? 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Requirement 
Issues 
Remedial action — correction, 
•  What arrangements are in place to ensure you take effective 
prevention and disciplinary 
remedial action in response to compliance failures? 
action 
•  What arrangements are in place to ensure you take appropriate 
action to correct compliance failures? 
•  What arrangements are in place to ensure you take appropriate 
action to prevent further breaches, such as: 
(a)  feedback and further training; 
(b)  special supervision; and 
(c)  addressing trends or patterns of compliance failures (eg by 
adjusting procedural controls, or by adjusting induction 
and continuous education training programs)? 
•  Have you provided your representatives with your disciplinary 
policy for breaches? Is this policy applied? Does this policy 
ensure that representatives are not rewarded, particularly 
financially, as a result of breaches occurring? 
Reporting  
•  What controls are in place to ensure that all breaches of the 
financial services laws by representatives are reported to the 
appropriate level of management? 
•  How do you ensure that breaches are reported to ASIC as 
required by s912D? Who is responsible for reporting to 
ASIC? 
Training responsibilities 
•  Have you ensured that your training programs or individual 
assessment methods for representatives who provide financial 
 
services address the relevant ASIC requirements at the 
 
appropriate education level? 
•  Have you implemented measures, processes and procedures 
for the continuing training of your representatives who 
provide financial services? 
Continuing training 
•  Have you nominated a person who is responsible for 
continuing training? 
•  Have you established an annual training program for each 
representative who provides financial services? 
•  Are you keeping records of training programs: see reg 
7.6.04(d)? 
•  Have you determined how much training each representative 
who provides financial services needs each year? 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
Risk management systems — issues to consider 
[PS 164.138C]  We do not intend to issue checklists of risks that licensees should be 
assessing, or detailed measures, processes and procedures to address risks. However, the 
following provides general guidance as to some issues licensees may wish to consider when 
addressing the licensee obligations. It is not suggested that the matters in this table are 
relevant to every particular licensee or that they are exhaustive. Licensees should determine 
which matters are relevant to their business. These are the types of matters that we will 
consider in assessing AFS licence applications and carrying out surveillance. We will review 
them in light of our experience in administering the Corporations Act. 
 
Requirement 
Issues 
Context 
•  What is your defined corporate governance approach? 
•  What is your management structure supporting your risk 
management processes? 
•  What strategies will your risks be measured against? 
Identifying risks  
•  Have you focused on the identification of risks to consumers 
and market integrity? 
•  Have you considered all your obligations under the 
Corporations Act (including the regulations and licence 
conditions)?  
•  Have you identified the risks of non-compliance with these? 
•  What systems and controls do you currently have in place to 
address risk? 
•  Are these systems and controls adequate to meet your 
obligations?  
•  Are your governing body, management and staff skilled, 
competent and fit to carry out their responsibilities? 
•  Do you have a “compliance culture” within your organisation 
(including where relevant within your corporate group)? If so, 
have you recently assessed whether it is working? If not, what 
education and information distribution processes are in place 
to build one? 
•  Is the sophistication level of your consumers matched to the 
products you offer? 
Assessing risks 
•  Have you established the probability of a risk event occurring 
and the impact of the problem if the risk occurs? 
•  Have you combined the probability and impact factors to 
determine the overall risk? 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Requirement 
Issues 
Evaluating risks 
•  Have you prioritised the assessed risks and established which 
risks need to be treated? 
Treating risks 
•  Have you treated those risks with appropriate measures?  
Documenting risk 
•  Have you documented the risks you have assessed and how 
management systems to 
you arrived at this assessment?  
control risk 
•  Have you documented the risk management processes and 
procedures that you have determined will address these risks 
and how you arrived at this determination? 
•  Have you in place a documented organisational structure that 
clearly specifies where the risk management responsibilities 
lie? 
Adapting to change in risk 
•  Are your systems able to keep pace with new products and 
dynamics 
industry technology? 
Governing body commitment 
•  Has your governing body signed off on the risk management 
systems and made a commitment to ongoing risk management 
processes? 
•  Have you appointed senior management to oversee risk 
management processes? 
•  Do you have procedures in place to educate staff on risk 
management processes? 
Audit and review processes 
•  Have you integrated annual reviews of your risk management 
and procedures 
processes and procedures into your business plan? 
•  Are independent evaluations being conducted? 
Reporting processes and 
•  Do your representatives know to whom they are to report and 
procedures 
who will report to them? 
•  Do your representatives understand what they are required to 
report on, and when? 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
Non-financial resources — issues to consider 
[PS 164.138D]  Licensees may wish to consider the following issues when addressing the 
non-financial resources. It is not suggested that the matters in this table are relevant to every 
particular licensee or that they are exhaustive. Licensees should determine which matters are 
relevant to their business. These are the types of matters that we will consider in assessing 
AFS licence applications and carrying out surveillance. We will review them in light of our 
experience in administering the Corporations Act. 
 
Requirement 
Issues 
Technological resources 
•  Do you have sufficient IT and communications systems?  
•  Do you have a reliable reporting system? 
•  Do you have an early warning system, such as a system that 
provides automated exception reports? 
•  Do you have sufficient technological resources to retain, store, 
access and keep secure your records? 
•  Do you have sufficient technological resources to protect 
confidential and other sensitive information you possess? 
•  How regularly do you back up your data? 
•  If data is backed up, is your back-up adequately stored? 
•  Have you contractual agreements with third parties for the 
development and maintenance of your IT system? If so, are 
there measurable service level targets in these contracts? 
•  Is there an IT strategy to support business operational and 
strategic imperatives? 
•  Do you have a dedicated in-house organisational structure to 
provide and/or manage the delivery of IT services? If no, how 
are IT services managed and delivered? 
•  Do you have data back-up and recovery plans? 
•  Is data back-up executed daily and stored off-site? 
•  Do you have disaster recovery plans and are they regularly 
tested? 
•  Is access to physical IT infrastructure restricted? 
•  Are operational service level agreements established and 
reported against for key performance indicators? 
•  Do you have network (Internet, WAN, LAN) security controls 
in place? How do you keep viruses out of your system? 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Requirement 
Issues 
Human resources 
•  What human resources do you have for each of your business 
activities (including matters such as complaints handling, 
monitoring and supervision)? 
•  Are extra resources made available for supervising staff or 
other representatives who have been involved in compliance 
failures? 
•  What are your recruitment processes? Do you check the prior 
history of key personnel before you hire them? 
•  What are your systems for inducting and training new staff?  
•  What are your performance management procedures? 
•  Do you have succession planning in place for absences (long 
or short) to ensure client accounts continue to be managed 
appropriately? 
•  Are your legal advisers and compliance staff independent? 
•  Do you have appropriate human resources to support your IT 
needs? 
•  What key indicators have you identified that need to be 
monitored to assess adequacy of your human resources? 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
Key terms  
[PS 164.139]  In this policy statement:  
“AFS licence” means an Australian financial services licence under 
s913B that authorises a person who carries out a financial services 
business to provide financial services 
Note: This is a definition contained in s761A. 
“APRA” means the Australian Prudential Regulation Authority 
“ASIC” means the Australian Securities and Investments Commission 
“authorised representative” of a licensee means a person authorised in 
accordance with s916A or 916B to provide a financial service or 
financial services on behalf of the licensee 
Note: This is a definition contained in s761A. 
“body regulated by APRA” has the meaning given in s3(2) of the 
Australian Prudential Regulation Authority Act 1998 
“Corporations Act” means the Corporations Act 2001 as amended by 
the FSR Act and includes regulations made for the purposes of the Act 
“financial product” means generally a facility through which, or 
through the acquisition of which, a person does one or more of the 
following: 
(a)  makes a financial investment (see s763B); 
(b)  manages financial risk (see s763C); 
(c)  makes non-cash payments (see s763D) 
Note: See Div 3 of Part 7.1 for the exact definition. 
“financial product advice” means a recommendation or a statement of 
opinion, or a report of either of those things, that: 
(a)  is intended to influence a person or persons in making a 
decision in relation to a particular financial product or class 
of financial products, or an interest in a particular financial 
product or class of financial products; or 
(b)  could reasonably be regarded as being intended to have such 
an influence. 
© Australian Securities and Investments Commission – November 2002 
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LICENSING: ORGANISATIONAL CAPACITIES 
 
However, the provision or giving of an exempt document or statement 
is not to be taken to be a provision of financial product advice 
Note: This is a definition contained in s766B(1). 
“Financial Services Guide” means a document that must be given to a 
retail client in relation to the provision of a financial service in 
accordance with Div 2 of Part 7.7 
Note: See s761A for the exact definition. 
“financial services law” means:  
(a)  a provision of Chapter 7 (Financial Services and Markets) or 
of Chapter 5C (Managed Investment Schemes), 6 
(Takeovers), 6A (Compulsory Acquisitions and Buy-Outs), 
6B Rights and Liabilities in Relation to Chapters 6 and 6A), 
6C (Information about Ownership of Listed Companies and 
Managed Investment Schemes) or 6D (Fundraising) of the 
Corporations Act; or  
(b)  a provision of Chapter 9 of the Corporations Act as it applies 
in relation to a provision referred to in paragraph (a); or  
(c)  a provision of Division 2 of Part 2 (Unconscionable Conduct 
and Consumer Protection in relation to financial services) the 
ASIC Act 2001; or  
(d)  any other Commonwealth, State or Territory legislation that 
covers conduct relating to the provision of financial services 
(whether or not it also covers other conduct), but only in so 
far as it covers conduct relating to the provision of financial 
services  
Note: See s761A for the exact definition. 
“FSR Act” means the Financial Services Reform Act 2001  
Note: The provisions contained in Schedule 1 form part of the Corporations Act 
from 11 March 2002. Schedule 1 contains the financial services licensing 
provisions under Parts 7.6 to 7.8 and the financial product disclosure provisions 
under Part 7.9. 
“FSR commencement” means 11 March 2002, the date fixed by 
proclamation under s2(2) of the FSR Act on which Schedule 1 of the 
FSR Act commenced 
Note: Schedule 1 contains the financial services licensing provisions under Parts 
7.6 to 7.8 and the financial product disclosure provisions under Part 7.9. 
© Australian Securities and Investments Commission – November 2002 
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Released by the Department of Finance under the Freedom of Information Act 1982
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LICENSING: ORGANISATIONAL CAPACITIES 
 
“governing body” means the board of directors, committee of 
management or other governing body of the entity, including in 
relation to a licensee who is a natural person, that person 
“licensee” means a person who holds an AFS licence 
“licensee obligations” means the obligations of a licensee as set out in 
s912A, 912B and the requirement to be of good fame and character as 
included in s913B 
“old Corporations Act” means the Corporations Act 2001 as in force 
immediately before FSR commencement 
“Part 7.9” (for example) means a Part of the Corporations Act after 
FSR commencement (in this example numbered 7.9), unless a 
contrary intention appears 
“personal advice” means financial product advice that is given or 
directed to a person (including by electronic means) in circumstances 
where: 
(a)  the provider of the advice has considered one or more of the 
person’s objectives, financial situation and needs; or 
(b)  a reasonable person might expect the provider to have 
considered one or more of those matters 
Note: This is a definition contained in s766B(3). 
“Product Disclosure Statement” means a document that must be given 
to a retail client in relation to the offer or issue of a financial product 
in accordance with Div 2 of Part 7.9  
Note: See s761A for the exact definition. 
“[PS 136]” (for example) means an ASIC policy statement (in this 
example numbered 136) 
“reg 7.6.04” (for example) means a regulation of the Corporations 
Regulations 2001 (in this example numbered 7.6.04) 
“regulations” means the Corporations Regulations 2001 
“representative” of a licensee means: 
(a)  an authorised representative of the licensee; or 
(b)  an employee or director of the licensee; or 
(c)  an employee or director of a related body corporate of the 
licensee; or 
(d)  any other person acting on behalf of the licensee  
© Australian Securities and Investments Commission – November 2002 
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Released by the Department of Finance under the Freedom of Information Act 1982
FOI 23-24/160 - Document 25
LICENSING: ORGANISATIONAL CAPACITIES 
 
Note: This is a definition contained in s910A. 
“retail client” means a client defined as such under s761G and Chapter 
7 Part 7.1 Div 2 of the regulations  
“s912A” (for example) means a provision of the Corporations Act 
after FSR commencement (in this example numbered 912A), unless a 
contrary intention appears 
“Statement of Advice” means a document that must be given to a 
retail client in relation to the provision of personal advice in 
accordance with Subdivisions C and D of Div 3 of Part 7.7. 
Note: See s761A for the exact definition. 
 
© Australian Securities and Investments Commission – November 2002 
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Released by the Department of Finance under the Freedom of Information Act 1982
FOI 23-24/160 - Document 25
LICENSING: ORGANISATIONAL CAPACITIES 
 
Related information 
[PS 164.140]   
Headnotes  
licensee obligations; compliance measures; efficiently, honestly and 
fairly; outsourcing; licence application process; representatives; para-
planners; monitoring, supervision and training of representatives; 
organisational expertise; risk management systems; non-financial 
resources; IT systems; technological resources; human resources 
Instruments 
 
Pro Forma 209 Australian Financial Services Licence conditions 
[PF 209] 
Policy statements  
Policy Statement 130 Managed investments: Licensing [PS 130]  
Policy Statement 146 Licensing: Training of financial product 
advisers [PS 146] 
Policy Statement 165 Licensing: Internal and external dispute 
resolution [PS 165] 
Policy Statement 166 Licensing: Financial requirements [PS 166]  
Policy Statement 167 Licensing: Discretionary powers and transition 
[PS 167] 
Legislation 
Corporations Act Chapter 7 Part 7.1 Div 2, Parts 7.6–7.9, s9, 
601FB(1), 761A, 761G, 763A(1), 763B–D, 766B(1), 766B(3), 769B, 
910A, 911B, 911B(1)(d), 912A, 912A(1), 912A(1)(a), 912A(1)(c), 
912A(1)(ca), 912A(1)(d)–(f), 912A(1)(h), 912B, 912D, 913B, 
913B(1)(b), 913B(1)(ca), 915C(2), 915I(1), 915I(2), 1274(8), 1307, 
1355, 1433, regulations 7.6.04(d), ASIC Act Div 2 Part 2, FSR Act 
s2(2), Schedule 1, APRA Act s3(2) 
Related FSR papers  
FSRB Policy Proposal Paper No 2 Licensing: Organisational 
capacities (April 2001) 
Building the FSRB Administrative Framework — Policy to implement 
the Financial Services Reform Bill 2001 (April 2001) and Supplement 
(September 2001) 
© Australian Securities and Investments Commission – November 2002 
 Page 60 

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Released by the Department of Finance under the Freedom of Information Act 1982
FOI 23-24/160 - Document 25
LICENSING: ORGANISATIONAL CAPACITIES 
 
Licensing: The scope of the licensing regime: Financial product 
advice and dealing — An ASIC guide (November 2001, updated 
November 2002) 
Licensing and disclosure: Making the transition to the FSR regime — 
An ASIC guide (October 2001, updated November 2002) 
Australian Financial Services (AFS) Licensing Kit (Version 2, 
October 2002) 
Making the transition to an AFS licence: pre-FSR licences and 
insurance broker registrations – An ASIC guide (April 2002) 
The hawking prohibitions – An ASIC guide (July 2002 updated 
October 2002) 
Media and information releases 
[MR 98/262] ASIC extends competency consultation timetable, 
2 September 1998 
[MR 01/135] Policy proposal and process papers for the FSR Bill, 
26 April 2001 
[MR 01/319] Revised timetable for FSR publications, 11 September 
2001 
[MR 01/418] ASIC releases policy statements and guidance paper for 
FSR legislation, 28 November 2001 
[IR 00/27] ASIC extends compliance date for training of advisers, 16 
August 2000 
[IR 00/35] ASIC guidance on the training of authorised 
representatives, 21 November 2000 
[IR 02/02] Training of financial product advisers: pre-1995 training 
courses, 6 March 2002 
[IR 02/10] Compliance with Policy Statement 146, 20 June 2002 
 
 
 
 
© Australian Securities and Investments Commission – November 2002 
 Page 61 

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Document Outline

• [PS 164] Licensing: Organisational capacities
• What this policy statement is about
• A Our overall approach in this policy statement
• B Our general approach to licensees’ obligations
  • Licensees’ responsibility for compliance
  • Industry standards, practices and codes
  • Outsourcing
  • Licensees also regulated by APRA
• The licence application process
• C Compliance measures, processes and procedures
  • Appropriate compliance measures, processes and procedures — general requirement
  • What we expect
• D Monitoring, supervision and training of representatives
  • Licensees’ obligations
  • What activities must a licensee monitor?
  • Training of representatives
  • Use of para-planners
• E Organisational competency
  • The organisational competency obligations
  • Whose organisational competency does the licensee rely on?
  • Demonstrating competency
  • Other issues
• F Risk management
  • Risk management generally
  • What we expect
  • Review
  • Governing body commitment
• G Non-financial resources
  • The obligation to have adequate non-financial resources
  • What we expect
  • Review
• Schedule: Other issues to consider
• Key terms
• Related information

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