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Australian Securities
and Investments Commission
Office address (inc courier deliveries):
Level 5, 100 Market Street,
Sydney NSW 2000
Mail address for Sydney office:
GPO Box 9827,
Brisbane QLD 4001
Tel: +61 1300 935 075
Discretionary Payments Team
Fax: +61 1300 729 000
Risk & Claims Branch
www.asic.gov.au
Department of Finance
7 December 2020
Dear Sir/Madam,
ACT OF GRACE APPLICATIONS SUBMITTED BY s22(1)(a)(ii)
1. ASIC refers to six applications submitted by s22(1)(a)(ii) to the Department
of Finance (
Finance) from 28 September 2020 to 9 October 2020 seeking
act of grace payments (
Applications).
2. s22(1)(a)(ii) submitted the Applications on behalf of investors in SFSGlobal
Group Pty Ltd (
SFS Global) and Suncoast Financial Solutions Pty Ltd
(
Suncoast Financial) listed in in the excel spreadsheet found at
Annexure
1 (
Applicants).
3. The Applications were made under s65(1) of the
Public Governance,
Performance and Accountability Act 2013 (Cth) (
PGPA Act) in relation
to the loss of the Applicants’ investments in SFS Global and Suncoast
Financial.
4. ASIC notes that the Applications are accompanied by forms signed by
the Applicants authorising s22(1)(a)(ii)
from s22(1)(a)(ii) to act on behalf
of the Applicants as their representative.
SUMMARY OF ASIC’S RESPONSE
5. ASIC recommends that Finance finalises the Applications as they do not
disclose any
‘special circumstances’ within the meaning of s65(1) of the
PGPA Act or
Resource Management Guide 401: Requests for
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purposes of s65(1) of the PGPA Act existed. For practical reasons, ASIC
wil not comment on any circumstances specific to the Applicants as
referred to in their Victim Impact Statements.
STATUTORY FRAMEWORK FOR ACT OF GRACE PAYMENTS
16. Subsection 65(1) of the PGPA Act sets out the statutory basis for the
Finance Minister to authorise an act of grace payment to an applicant.
It states:
‘The Finance Minister may, on behalf of the Commonwealth,
authorise, in writing one or more payments to be made to a
person if the Finance Minister considers if appropriate to do so
because of special circumstances.
Note 1: A payment authorised even though the payment or
payments would not be authorised by law or required to meet a
legal liability.
Note 2: Act of grace payments under this section must be made
from money appropriated by the Parliament. Generally, an act
of grace payment can be debited against a non-corporate
Commonwealth entity’s annual appropriation, providing that it
relates to some matter that has arisen in the course of the
administration of the entity.
(emphasis added)
17. The terms
‘appropriate’ and
‘special circumstances’ are not defined in
the PGPA Act. However, ASIC understands that the act of grace
payment scheme is discretionary and that it is intended to promote
fairness and equity in certain circumstances.
18. RMG 401 states at paragraph 10 that examples of special circumstances
which may make it appropriate to approve an act of grace payment
include where:
a. an act of an NCE has caused an unintended and inequitable
result to the individual seeking the payment;
b. Commonwealth legislation or policy has had an unintended,
anomalous, inequitable or otherwise unacceptable impact on
the claimant’s circumstances; or
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c. the matter is not covered by legislation or a specific policy, but
the Commonwealth Government intends to introduce such
legislation or policy, and it is considered desirable in a particular
case to apply the benefits of the relevant policy prospectively.
19. RMG 401 also states:
‘3. The act of grace mechanism is generally a remedy of last
resort and it is not used when there is another viable remedy
available to provide redress in the circumstances giving rise to the
application.
4. If other avenues exist for a person to receive financial
assistance from the Commonwealth (such as existing legislation
or schemes), it is recommended that those avenues are
investigated before a request is made for an act of grace
payment.’
ASIC RESPONSE
20. ASIC understands that the concerns expressed in the s22(1)(a)(ii) Report
are:
a. ASIC failed to perform the duties conferred on it by the ASIC Act,
by allowing s22(1)(a)(ii)
to operate an investment scheme while
contravening numerous laws and legislative requirements;
b. ASIC failed to regulate s22(1)(a)(ii)
and take enforcement action
against him, allowing him to operate without membership of an
EDR scheme; and
c. The Applicants are unable to obtain redress elsewhere.
21. In preparing its response, ASIC considered the statutory framework for
act of grace payments and RMG 401, as referred to at paragraphs 16
to 19 above.
22. ASIC wil address each of these concerns below.
Statutory objectives of ASIC
23. ASIC regulates corporations, managed investment schemes,
participants in the financial services industry and people engaged in
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credit activities under a number of Commonwealth laws. These laws
include the Act and the ASIC Act.
24. Section 1(2) of the ASIC Act sets out ASIC’s objectives. It states that:
‘In performing its functions and exercising its powers, ASIC must
strive to:
[…]
(g) take whatever action it can take, and is necessary, in order to
enforce and give effect to the laws of the Commonwealth that
confer functions and powers on it.’
25. It is clear from the statutory language of s1(2) of the ASIC Act that ASIC
generally does not operate under any legal duty to take any particular
action in any given set of facts.
ASIC’s oversight in regulation and failure to take enforcement action
26. ASIC refers to
Info Sheet 151: ASIC’s approach to Enforcement (
INFO
Sheet 151) which sets out how ASIC selects matters for formal
investigation.
27. INFO Sheet 151 states that ASIC considers the following issues when
deciding whether to take enforcement action:
a. ASIC’s strategic priorities, taking into account matters such as the
seriousness of the alleged misconduct;
b. the regulatory benefits of pursuing the alleged misconduct;
c. the issues specific to a case, such as the availability of evidence
admissible in court and whether the alleged conduct is
continuing; and
d. alternatives to a formal investigation which might address ASIC’s
concerns more effectively, such as engagement with
stakeholders and surveil ance.
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ASIC action
s37(2)(b) and s47E(d)
29. ASIC refers to
Information Sheet 153: How ASIC deals with reports of
misconduct (
INFO Sheet 153) which states that:
a. ASIC records every report of misconduct it receives;
b. ASIC makes preliminary enquiries and conducts initial
assessments of reports it receives to determine whether a law
relating to corporations or financial services has been broken;
c. ASIC weighs every report of misconduct it receives against four
basic questions:
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i. what is the extent of harm or loss;
ii. what are the benefits of pursuing the misconduct;
iii. how do other issues, such as the type or seriousness of the
misconduct and the evidence available, affect the
matter; and
iv. is there an alternative course of action;
d. Al reports of misconduct provide ASIC with valuable information
but not every matter brought to ASIC’s attention requires ASIC to
take action; and
e. Under the laws ASIC administers, ASIC has the discretion to
decide whether to take further action on reports of misconduct it
receives.
30. Consumer reports of misconduct by a person or entity are a valuable
source of intelligence for ASIC and assist ASIC to identify potential
targets for enforcement action.
s37(2)(b) and s47E(d)
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Australian Securities
and Investments Commission
Office address (inc courier deliveries):
Level 5, 100 Market Street,
Discretionary Payments Team
Sydney NSW 2000
Risk & Claims Branch
Mail address for Sydney office:
Department of Finance
GPO Box 9827,
Brisbane QLD 4001
Tel: +61 1300 935 075
Fax: +61 1300 729 000
www.asic.gov.au
4 March 2021
Dear Sir / Madam,
ACT OF GRACE APPLICATIONS SUBMITTED BY s22(1)(a)(ii)
– SFSGLOBAL GROUP
PTY LTD
1.
We refer to your request of 11 December 2020 for additional information
concerning applications for act of grace payments lodged by the
s22(1)(a)(ii) in relation to s22(1)(a)(ii)
and SFSGlobal Group Pty Ltd
(
Applications).
2.
In summary, ASIC repeats its submissions of 7 December 2020 and
submits that the Applications do not identify any special circumstances.
As detailed below, ASIC’s conduct in this matter was appropriate and
reasonable in light of the information received by ASIC and the enquiries
it made at the relevant time.
s47C and s47E(d)
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s47C and 47E(d)
s37(2)(b) and s47E(d)
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s37(2)(d) and s47E(d)
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s37(2)(b) and s47E(d)
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Sheet 151: ASIC’s approach to enforcement (
INFO Sheet 151) which sets
out how ASIC selects matters for further investigation.
24.
As noted in ASIC’s response dated 7 December 2020, INFO Sheet 151
states that ASIC considers various issues when deciding whether to take
enforcement action.8
25.
ASIC also refers to Information Sheet 153: How ASIC deals with reports of
misconduct (
INFO Sheet 153)9.
s47C and s47E(d)
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s47C and s47E(d)
33.
We would be happy to discuss the contents of this submission or provide
any further information you consider necessary to resolve the
applications.
Yours faithfully,
Australian Securities and Investments Commission
s47E(d)
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ANNEXURE A
Relevant Legislation
Section 911A(1) Corporations Act 2001 (Cth)
Need for an Australian financial services licence
1) Subject to this section, a person who carries on a financial services
business in this jurisdiction must hold an Australian financial services
licence covering the provision of the financial services.
Section 911B(1) Corporations Act 2001 (Cth)
Providing financial services on behalf of a person who carries on a financial
service business
1) A person (the
provider) must only provide a financial service in this
jurisdiction on behalf of another person (the
principal) who carries on
a financial services business if one or more of the following paragraphs
apply:
a) these conditions are satisfied:
i)
the principal holds an Australian financial services
licence covering the provision of the service; and
ii)
the provider is an employee or director of the
principal or of a related body corporate of the
principal; and
iii)
the provider is not an employee or director, or
authorised representative, of any other person who
carries on a financial services business and who is
not a related body corporate of the principal; and
iv)
the provider is not an employee or director, or
authorised representative, of a related body
corporate of a person of the kind mentioned in
subparagraph (ii );
b) these conditions are satisfied:
i)
the principal holds an Australian financial services
licence covering the provision of the service; and
ii)
the provider is an authorised representative of the
principal; and
iii)
the authorisation covers the provision of the service
by the provider; and
iv)
in the case of a provider who is an employee or
director of any other person (the
second principal)
who carries on a financial services business, or of a
related body corporate of such a second principal--
if the provider provides any financial services in this
jurisdiction on behalf of the second principal, the
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provider does so as an authorised representative of
the second principal;
c) these conditions are satisfied:
i)
the principal holds an Australian financial services
licence covering the provision of the service; and
ii)
the provider is an employee of an authorised
representative of the principal; and
iii)
the authorisation covers the provision of the service
by the authorised representative; and
iv)
the service is the provision of a basic deposit
product or of a facility for making non-cash
payments (see section 763D) that is related to a
basic deposit product, or is the provision of a
financial product of a kind prescribed by regulations
made for the purposes of this subparagraph;
d) the provider holds their own Australian financial services
licence covering the provision of the service;
Section 763B Corporations Act 2001 (Cth)
When a person makes a financial investment
For the purposes of this Chapter, a person (the
investor) makes a financial
investment if:
a) the investor gives money or money’s worth (the
contribution) to
another person and any of the following apply:
i)
the other person uses the contribution to generate a financial
return, or other benefit, for the investor;
ii)
the investor intends that the other person wil use the
contribution to generate a financial return, or other benefit, for
the investor (even if no return or benefit is in fact generated);
iii)
the other person intends that the contribution wil be used to
generate a financial return, or other benefit, for the investor
(even if no return or benefit is in fact generated); and
b) the investor has no day-to-day control over the use of the
contribution to generate the return or benefit.
Note Examples of actions that constitute making a financial investment
1:
under this subsection are:
(a) a person paying money to a company for the issue to the person
of shares in the company (the company uses the money to generate
dividends for the person and the person, as a shareholder, does not
have control over the day-to-day affairs of the company); or
(b) a person contributing money to acquire interests in a registered
scheme from the responsible entity of the scheme (the scheme uses
the money to generate financial or other benefits for the person and
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the person, as a member of the scheme, does not have day-to-day
control over the operation of the scheme).
Note Examples of actions that do not constitute making a financial
2:
investment under this subsection are:
(a) a person purchasing real property or bullion (while the property or
bul ion may generate a return for the person, it is not a return
generated by the use of the purchase money by another person); or
(b) a person giving money to a financial services licensee who is to
use it to purchase shares for the person (while the purchase of the
shares wil be a financial investment made by the person, the mere
act of giving the money to the licensee wil not of itself constitute
making a financial investment).
Section 601ED Corporations Act 2001 (Cth)
When a managed investment scheme must be registered
1) Subject to subsections (2) and (2A), a managed investment scheme
must be registered under section 601EB if:
a) it has more than 20 members; or
b) it was promoted by a person, or an associate of a person, who
was, when the scheme was promoted, in the business of
promoting managed investments schemes; or
c) a determination under subsection (3) is in force in relation to
the scheme and the total number of members of all of the
schemes to which the determination relates exceeds 20.
2) A managed investment scheme does not have to be registered if all
the issues of interests in the scheme that have been made would not
have required the giving of a Product Disclosure Statement under
Division 2 of Part 7.9 if the scheme had been registered when the issues
were made.
3) ASIC may, in writing, determine that a number of managed investment
schemes are closely related and that each of them has to be
registered at any time when the total number of members of all of the
schemes exceeds 20. ASIC must give written notice of the
determination to the operator of each of the schemes.
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Section 1012E Corporations Act 2001 (Cth)
Small scale offerings of managed investment and other prescribed financial
products (20 issues or sales in 12 months)
1) This section applies only to financial products that are:
a) managed investment products; or
b) financial products of a kind prescribed by regulations
2) Personal offers of financial products do not need a Product Disclosure
Statement under this Part if:
a) all of the financial products are issued by the same person (
the
issuer); and
b) none of the offers results in a breach of the 20 purchasers ceiling
(see subsections (6) and (7)); and
c) none of the offers results in a breach of the $2 mil ion ceiling (see
subsections (6) and (7)).
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Australian Securities
and Investments Commission
Office address (inc courier deliveries):
Level 5, 100 Market Street,
Sydney NSW 2000
Mail address for Sydney office:
GPO Box 9827,
Brisbane QLD 4001
Tel: +61 1300 935 075
Discretionary Payments Team
Fax: +61 1300 729 000
Risk & Claims Branch
www.asic.gov.au
Department of Finance
26 May 2021
By email: xxx@xxxxxxx.xxx.xx
Dear Sir / Madam,
ACT OF GRACE APPLICATION SUBMITTED BY s22(1)(a)(ii)
ON BEHALF OF
INVESTORS IN SFSGLOBAL PTY LTD
1. ASIC refers to applications for act of grace payments submitted to the
Department of Finance (
Finance) by s22(1)(a)(ii) (
Applications) relating
to SFSGlobal Pty Ltd (
SFSGlobal).
2. ASIC notes the following correspondence:
a. ASIC’s submission dated 7 December 2020 in response to the
Applications (
December Submission);
b. s22(1)(a)(ii) Letter dated 3 February 2021 (
February s22(1)(a)(ii)
Letter);
c. ASIC’s further submission in response to questions from Finance
dated 4 March 2021 (
4 March Submission) which was supported
by a chronology;
d. ASIC’s further submission dated 18 March 2021 in response to the
February s22(1)(a)(ii) Letter (
18 March Submission); and
e. s22(1)(a)(ii) Letter dated 22 April 2021 (
April s22(1)(a)(ii)
Letter).
3. The purpose of this letter is for ASIC to respond to the April s22(1)(a)(ii)
Letter.
ASIC’S RESPONSE
4. ASIC thanks Finance for the opportunity to comment on the April
s22(1)(a)(ii) Letter and submits that:
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a. the matters raised in the April s22(1)(a)(ii) Letter have been
addressed by ASIC in its previous submissions; and
b. the April s22(1)(a)(ii) Letter does not raise any new information
which supports the existence of special circumstances which
would warrant an act of grace payment under subsection 65(1)
of the
Public Governance, Performance and Accountability Act
2013 (Cth).
5. ASIC otherwise makes no further comments in response to the April
s22(1)(a)(ii) Letter.
Yours faithfully,
s22(1)(a)(ii)
Senior Lawyer, Chief Legal Office
Australian Securities and Investments Commission
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Australian Securities
and Investments Commission
Office address (inc courier deliveries):
Level 5, 100 Market Street,
Sydney NSW 2000
Mail address for Sydney office:
GPO Box 9827,
Brisbane QLD 4001
Tel: +61 1300 935 075
Discretionary Payments Team
Fax: +61 1300 729 000
Risk & Claims Branch
www.asic.gov.au
Department of Finance
25 November 2020
Dear Sir/Madam
ACT OF GRACE PAYMENT APPLICATIONS SUBMITTED TO APRA BY s22(1)(a)(ii)
I refer to a letter from s22(1)(a)(ii) dated October 2020 (
Letter) responding to
submissions from APRA with respect to act of grace applications submitted by
s22(1)(a)(ii) on behalf of investors in schemes managed by Trio Capital Limited
(
Trio Capital).
ASIC notes an additional point raised in the Letter that the s22(1)(a)(ii) believes
should qualify as
'special circumstances' for the purposes pf s65(1) of the
Public
Governance, Performance and Accountability Act 2013 (Cth) (
PGPA Act). Trio
Capital, as the responsible entity of the Astarra Strategic Fund (
ASF), held an
Australian financial services licence (
AFSL). s22(1)(a)(ii) asserts that in 2009, when
Trio Capital collapsed, there was no legislative requirement for Trio Capital, as
an AFSL holder, to be a member of an external dispute resolution (
EDR) scheme.
ASIC understands that Trio Capital was a member of the Financial Industry
Complaints Service from early 2004 until its membership was transferred to the
Financial Ombudsman Service (
FOS) in July 2008 as part of a scheme merger.
Trio Capital was a member of FOS until June 2010.
ASIC notes that Trio Capital's membership of FOS in 2009 was in accordance
with its obligation as an AFSL holder under ss 912A(1)(g) and 912(2)(b), as these
provisions existed in 2009.
ASIC makes no further comment about the concerns raised by the s22(1)(a)(ii) in
the Letter.
Yours faithfully,
Australian Securities and Investments Commission
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Australian Securities
and Investments Commission
Office address (inc courier deliveries):
Level 5, 100 Market Street,
Sydney NSW 2000
Mail address for Sydney office:
GPO Box 9827,
Brisbane QLD 4001
Tel: +61 1300 935 075
Discretionary Payment Team
Fax: +61 1300 729 000
Risk & Claims Branch
www.asic.gov.au
Department of Finance
13 July 2021
Dear Sir / Madam,
ACT OF GRACE PAYMENT APPLICATIONS SUBMITTED BY s22(1)(a)(ii)
ON BEHALF
OF INVESTORS IN TRIO CAPITAL LIMITED
1. ASIC refers to the applications submitted by the s22(1)(a)(ii) to the
Department of Finance (
Finance) on behalf of investors (
Applicants) in
Trio Capital Limited (
Trio Capital) (
Applications).
2. The Applications are made under subsection 65(1) of the
Public
Governance, Performance and Accountability Act 2013 (Cth) (
PGPA
Act) and seek act of grace payments in respect of losses incurred by the
Applicants, as a result of alleged
‘defective administration and
conduct’ by the Australian Prudential Regulation Authority (
APRA).
3. The Applications are accompanied by forms signed by the Applicants
authorising s22(1)(a)(ii) of s22(1)(a)(ii) to act on behalf of each Applicant
as their representative. The Applications are supported by a report
prepared by s22(1)(a)(ii) on behalf of each of the Applicants titled
‘Application for an Act of Grace Payment’ (s22(1)(a)(ii)
Submission).
4. ASIC has reviewed APRA’s responses to the Applications dated 30 July
2020 (
APRA Submission) and 12 January 2021 (
APRA Further Submission).
5. The APRA Submission provides at paragraphs 5 to 6 a summary of the
legal basis for act of grace payments. ASIC considers that this is an
accurate summary of the statutory framework.
6. The purpose of this submission is to respond to Finance’s request for a
response from ASIC to any concerns or matters raised by s22(1)(a)(ii) in the
Applications that ASIC considers it is appropriate for it to address.
ASIC RESPONSE
7. There are only limited references to ASIC in the s22(1)(a)(ii) Submission, and
no specific contentions of defective administration. The primary purpose
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b. the regulatory benefits of pursuing the alleged misconduct;
c. the issues specific to a case, such as the availability of evidence
admissible in court and whether the alleged conduct is
continuing; and
d. alternatives to a formal investigation which might address ASIC’s
concerns more effectively, such as engagement with
stakeholders and surveil ance.
14. ASIC’s statutory obligations mean that ASIC is obliged to take such
enforcement action as it decides is best suited to the evidence
available to it at the relevant times. As stated in INFO Sheet 151, ASIC:
‘ … can pursue a variety of enforcement remedies, dependent
on the seriousness and consequences of the misconduct. Some
remedies involve relatively minor consequences while others wil
be serious, such as imprisonment and high monetary penalties.
We wil pursue the enforcement remedies best suited to the
circumstances of the case and what we want, and are able, to
achieve.
We can take enforcement action designed to punish
wrongdoers, protect investors, preserve assets, correct disclosures
and compensate people. We can also try to resolve matters
through negotiation or issuing infringement notices.’
ASIC’s actions in relation to Trio Capital
15. As noted in the s22(1)(a)(ii) Submission, ASIC took action against current
and former directors, auditors and financial advisers of Trio Capital. The
results of ASIC’s actions are summarised at
Annexure A.
16. The s22(1)(a)(ii) Submission refers to criticism by Parliamentary Joint
Committee on Corporations and Financial Services (
PJC) about the
timing of the commencement of ASIC’s investigation into Trio Capital in
October 2009, and a lack of communication between APRA and ASIC.
17. Detailed consideration of the chronology of events regarding Trio
Capital, and an assessment of APRA and ASIC’s conduct, is contained
in the Treasury report
Review of the Trio Capital Fraud and Assessment
of the Regulatory Framework (April 2013) (
Treasury report) and the
Report by the Parliamentary Joint Committee on Corporations and
Financial Services; Inquiry into the col apse of Trio Capital (May 2012)
(
PJC report). As stated in these reports:
a. Between 2003 and mid-2009, ASIC investigated Trio Capital or
related parties for various minor regulatory breaches (including
inadequate disclosure of commissions, Trio Capital’s marketing
materials and late lodgement of compliance plan audits). These
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issues were subsequently remedied and did not point to fraud
within any of the funds managed by Trio Capital.2
b. In mid-2009, ASIC commenced surveilance work in the hedge
fund sector in response to the Bernie Madoff case in the United
States of America.3 In the course of this work, ASIC identified some
potential issues with Trio Capital and the Astarra Strategic Fund
(
ASF) (for which Trio Capital was the Responsible Entity).4 The ASF
was one of 100 funds (from a total of approximately 650 funds)
identified in mid-2009 for further investigation.5
c. In September 2009 ASIC received a formal complaint from John
Hempton about the ASF.6 At that time, ASIC had already
identified ASF as a fund of high risk requiring further enquiry.7 ASIC
was then of the view that it had sufficient credible evidence to
conduct a more intensive investigation of the ASF, and acted
promptly in doing so. As described by the Treasury report
, ‘[t]he
additional information combined with ASIC’s own internal
analysis, accelerated ASIC’s concerns’.8 ASIC communicated
this information to APRA in late September 2009.9
d. On 2 October 2009, ASIC commenced formal investigations. On
16 October 2009, ASIC issued an interim stop-order, preventing
offers, issuances, sales or transfers of interests in the ASF.10
s47C
2
Treasury report p 11.
3
PJC report, p 76.
4
PJC report, p 76.
5
Treasury report p 12.
6
PJC report pp 109, 125; p xx (20) of Executive Summary of PJC report
7
PJC report, p 76.
8
Treasury report p 13.
9
Treasury report p 13.
10
Treasury report p 13.
11
Treasury report, p 5.
12
Treasury report, p 15.
13
PJC Report 4.68, 9.16.
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s37(2)(b) and 47E(d)
35. The grant of an AFSL to Trio Capital, including the appointment of Shawn
Richard as a responsible officer, was considered in detail in the PJC
report.17 In particular, consideration was given to submissions made by
14
Corporations Act 2001 (Cth) ss 1410, 1430, 1431, 1433 (as at December 2003).
15
ASIC,
Policy Statement 164 Licensing: Organisational capacities (issued 28
November 2001; updated on 8 November 2002) pp 24-33 (
Annexure B);
Corporations Act 2001 (Cth) s 912A(1) (as at 18 August 2004).
16
Refer to page 15 of PS164
17
PJC report, pp 79-83, 116-118, 127-128,
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ASIC about the adequacy of licensing arrangements at the time, and
the regulatory arrangements for entities regulated by both ASIC and
APRA.
36. As acknowledged in the PJC report, ASIC’s submissions to the PJC
emphasised that there were limitations provided by the AFSL regime at
the relevant time, which set the threshold for obtaining an AFSL relatively
low and the threshold for cancel ing an AFSL relatively high, and focused
on the licensed entity rather than the directors, employees or other
representatives.18
37. The PJC report acknowledged the difficulties with the licensing system in
place at the time,19 but did not make any criticism of ASIC regarding the
grant of an AFSL to Trio Capital. Relevant provisions of the Corporations
Act were subsequently amended to give ASIC greater discretion in
granting and cancel ing AFSLs. However, as stated by ASIC in its
submission to the inquiry, while the amendments may have enabled
ASIC to act at an earlier stage had they been enacted at that time, they
would not necessarily have prevented investor losses.20
Conclusion
38. While ASIC acknowledges the difficult circumstances described in the
statements accompanying the Applications, and the substantial impact
that the loss of their investments has had on the Applicants, ASIC
considers that the Applicants’ loss was the regrettable result of the
fraudulent conduct by Trio Capital. ASIC also notes and endorses the
comments made in the APRA submissions concerning the role of a
regulator more general y.
39. ASIC would be happy to provide any further information which may
assist Finance in its consideration of these applications.
Yours faithfully,
s22(1)(a)(ii)
Senior Lawyer
Australian Securities and Investments Commission
Annexure A: Overview of ASIC’s Enforcement Outcomes
Annexure B: ASIC, Policy Statement 164 Licensing: Organisational capacities
(issued 28 November 2001; updated on 8 November 2002)
18
PJC report pp 79-80.
19
PJC report p 128.
20
PJC report p 81.
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Annexure A
Overview of ASIC’s Enforcement Outcomes
ASIC’s enforcement outcomes include:
•
Shawn Richard, former investment manager of ASF, being sentenced to 3
years and 9 months jail with a minimum of 2 years and 6 months. ASF was
one of the managed investment schemes operated by Trio. Mr Richard
pleaded guilty to two offences involving dishonest conduct in carrying on
a financial services business. Mr Richard also admitted to making a false
statement about a financial product.
•
The sentencing of Tony Maher (changed his name from Paul Gresham) to
25 months jail with a non-parole period of 15 months. Mr Maher was the
investment manager of ARP, a managed investment scheme operated by
Trio. Mr Maher pleaded guilty to 20 charges of making false or misleading
statements to obtain a financial advantage.
•
The permanent banning of Eugene Liu, ASF's chief investment strategist,
from providing financial services.
•
Enforceable Undertakings with five former Trio directors by which they
agreed not to be involved in the financial services industry or manage a
company for between two and 15 years. The former directors are Natasha
Beck, Keith Finkelde, David O’Bryen, David Andrews and Rex Phil pott.
•
An Enforceable Undertaking with planning firm Kilara Financial Solutions to
address compliance issues.
•
An Enforceable Undertaking with Tony Maher to never provide financial
services or manage a company.
•
Suspending the licence of financial planners Seagrims, and subsequent
cancel ation of this licence at the company’s request on 19 September
2011.
•
Banning Seagrims directors Peter Seagrim and Anne-Marie Seagrim for
three years. Their bans were subsequently reduced to 6 months by the
Administrative Appeals Tribunal (
AAT) on review.
•
An Enforceable undertaking with former ASF
auditor Timothy Frazer, that he
would not act as a registered company auditor for three years.
•
Banning Ross Tarrant from providing financial services for 7 years, a ban
that was subsequently upheld by the AAT. Mr Tarrant's appeal to the Ful
Court of the Federal Court was unsuccessful.
•
Permanent banning of Jeffrey Revell-Reade from providing financial
services in Australia.
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Some of the Enforcement Outcomes in Detail
Richard
• Shawn Richard served his minimum jail term of two and a half years and
was released from prison on 20 January 2014.
• This sentence was imposed after Mr Richard pleaded guilty to 2 offences
involving dishonest conduct in carrying on a financial services business. Mr
Richard also admitted to making a false statement about a financial
product.
• Mr Richard entered into an Enforceable Undertaking with ASIC on 3
December 2010 and has permanently undertaken not to participate in the
Australian financial services industry.
Maher
• On 27 June 2014 Tony Maher, the former director of the investment
manager of ARP was sentenced in the District Court of New South Wales to
a total of 25 months imprisonment with 15 months to be served before he is
eligible for parole.
• This sentence was imposed after Mr Maher pleaded guilty to 20 criminal
charges including publishing false statements for the purpose of obtaining
a financial advantage.
• In February 2012 ASIC accepted an Enforceable Undertaking from Maher
that he would not ever again work in the Australian financial services
industry or manage a corporation.
Liu
• On March 2013, an ASIC delegate permanently banned Eugene Liu, the
former Chief Investment Strategist for ASF from providing financial services.
• Mr Liu sought a review of the decision to ban him in the AAT. On 31 October
2014 the AAT affirmed the decision of ASIC's delegate to ban him
permanently.
Tarrant
• Ross Tarrant was the sole director and authorised representative of a
financial services business operating in Wol ongong which invested more
than $23 mil ion of its clients’ funds in the ASF.
• On 8 January 2014, the AAT affirmed ASIC's decision to ban Mr Tarrant from
providing financial services for 7 years.
• Mr Tarrant was banned on the basis that he failed to disclose in statements
of advice that he was receiving a marketing allowance from Shawn
Richard; and failing to have a reasonable basis for the advice he provided
to 8 clients.
• Mr Tarrant then appealed the AAT's decision to the Ful Court of the Federal
Court.
• The Ful Court handed down its decision on 6 February 2015. The Ful Court
dismissed Mr Tarrant's appeal as they did not identify any error of law by the
AAT and the 7 year ban stands.
Revell-Reade
• On 5 May 2015, ASIC served an order on Jeffrey Revell-Reade banning him
permanently from providing financial services in Australia.
• Revell-Reade is currently serving a 9 and half year sentence in the UK for his
involvement in a conspiracy to defraud UK investors through the mis-sel ing
of shares through boiler rooms operating from Spain.
• Revell-Reade is an Australian citizen and is likely to be deported to Australia
on his release (either at the end of his sentence of on parole).
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• Revell-Reade was banned from providing financial services in Australia on
the basis of his conviction in the UK.
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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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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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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.
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[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.
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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].
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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]).
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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?
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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?
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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
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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.
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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.
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“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
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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.
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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
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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
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Australian Securities
and Investments Commission
Office address (inc courier deliveries):
Level 5, 100 Market Street,
Sydney NSW 2000
Mail address for Sydney office:
GPO Box 9827,
Brisbane QLD 4001
Tel: +61 1300 935 075
Fax: +61 1300 729 000
www.asic.gov.au/
Discretionary Payments Team
Risk & Claims Branch
Department of Finance
13 April 2022
By email: xxx@xxxxxxx.xxx.xx
Private & Confidential
Dear Sir/Madam
ACT OF GRACE APPLICATION SUBMITTED BY s22(1)(a)(ii)
ON BEHALF OF CLIENTS
OF s22(1)(a)(ii)
1. ASIC refers to the applications (
Applications) submitted to the Department
of Finance (
Finance) by s22(1)(a)(ii) seeking act of grace payments totalling
$11,363,828.41 on behalf of 20 individuals (
Applicants).
2. The Applications are made under subsection 65(1) of the
Public
Governance, Performance and Accountability Act 2013 (Cth) (
PGPA Act)
in relation to losses suffered by the Applicants’ dealings with s22(1)(a)(ii)
and his company Papalia Enterprises Pty Ltd (
Papalia Enterprises).
A table listing the Applicants is at
Annexure A.
3. The Applications are each accompanied by a form signed by each of the
Applicants authorising s22(1)(a)(ii)
from s22(1)(a)(ii) to act on behalf of each
Applicant.
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STATUTORY FRAMEWORK FOR ACT OF GRACE PAYMENTS
16. Subsection 65(1) of the PGPA Act sets out the statutory basis for the Finance
Minister to authorise and act of grace payment to an applicant. It states
that:
The Finance Minister may, on behalf of the Commonwealth,
authorise, in writing, one or more payments to be made to a
person if the Finance Minister considers it appropriate to do so
because of special circumstances.
(emphasis added)
17. The terms
‘appropriate’ and
‘special circumstances’ are not defined in the
PGPA Act. Section 65 confers a broad discretion on the Finance Minister or
delegate.
18. Resource Management Guide 401: Requests for discretionary financial
assistance under the
Public Governance, Performance and Accountability
Act 2013 (
RMG 401) describes the types of discretionary financial assistance,
including act of grace payments, which may be authorised by the Finance
Minister under the PGPA Act.
19. RMG 401 states at paragraphs 3 and 4:
‘The act of grace mechanism is generally a remedy of last resort
and it is not used when there is another viable remedy available
to provide redress in the circumstances giving rise to the
application.
If other avenues for a person to receive financial assistance from
the Commonwealth (such as existing legislation or schemes), it is
recommended that those avenues are investigated before a
request is made for an act of grace payment.’
20. RMG 401 states at paragraph 10 that examples of special circumstances
which may make it appropriate to approve an act of grace payment
include where:
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a. an act of a non-corporate Commonwealth entity has caused an
unintended and inequitable result to the individual seeking the
payment;
b. Commonwealth legislation or policy has had an unintended,
anomalous, inequitable or otherwise unacceptable impact on the
applicant’s circumstances and those circumstances were specific to
the applicant, outside the parameters of events for which the
applicant was responsible or had the capacity to adequately
control and consistent with what could be considered to be the
broad intention of the relevant legislation; or
c. the matter is not covered by legislation or a specific policy, but the
Commonwealth Government intends to introduce such legislation or
policy, and it is considered desirable in a particular case to apply the
benefits of the relevant policy prospectively.
ASIC RESPONSE
21. In preparing its response, ASIC has considered the statutory framework for
act of grace payments and RMG 401, referred to above at paragraphs 16
to 20.
22. ASIC notes the contents of its
Information Sheet 152: Public comment of
ASIC’s regulatory activities (
INFO Sheet 152) and that ASIC’s ability to
comment on its regulatory activities is restricted because of legislative
restrictions on the disclosure of material provided to ASIC in confidence7,
the
Privacy Act 1988 (Cth), legal professional privilege and public interest
immunity.
23. Subject to the restrictions noted at paragraph 22 above, ASIC has prepared
a chronology of key events at
Annexure B.
ASIC’s statutory objectives
24. ASIC regulates corporations, managed investment schemes, participants in
the financial services industry and people who engage in credit activities
under a number of Commonwealth laws. These laws include the
Corporations Act 2001 (Cth) (
Corporations Act),
Australian Securities and
7 Section 127(1) of the ASIC Act 2001
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Investments Commission Act 2001 (Cth)
(
ASIC Act) and the
National
Consumer Credit Protection Act 2009 (Cth) (
National Credit Act).
25. The objectives of ASIC, as set out in subsection 1(2) of the ASIC Act,
relevantly include that ASIC
‘take whatever action it can take, and is
necessary, in order to enforce and give effect to the laws of the
Commonwealth that confer functions and powers on it’: see subsection
1(2)(g).
26. It is clear from the terms of subsection 1(2) of the ASIC Act that it does not
impose a legal duty, obligation or requirement on ASIC to take any
particular action on any given set of facts. ASIC must strive to achieve its
objectives but is not under an obligation to anybody to take any particular
action.8
27. ASIC’s
Information Sheet 151: ASIC’s approach to enforcement (
INFO Sheet
151) sets out how ASIC selects matters for formal investigation.
28. INFO Sheet 151 states that ASIC considers the following issues when
deciding whether to take enforcement action:
a. ASIC’s strategic priorities, taking into account such matters as the
seriousness of the alleged misconduct;
b. the regulatory benefits of pursuing the alleged misconduct;
c. the issues specific to a case, such as the availability of evidence
admissible in court and whether the alleged conduct is
continuing; and
d. alternatives to a formal investigation which might address ASIC’s
concerns more effectively, such as engagement with
stakeholders and surveil ance.
29. ASIC’s statutory obligations mean that ASIC is to take the enforcement
action it decides is best suited to the evidence available to it at the relevant
time. As stated in INFO Sheet 151, ASIC:
‘ … can pursue a variety of enforcement remedies, dependent
on the seriousness and consequences of misconduct. Some
8
Bhagat v Global Custodians Ltd [2000] NSWSC 321 at [8] and [12]
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b. Banned from providing financial services under ss 920A and 920B of
the Corporations Act; and
c. Banned from engaging in credit activities under ss 80 and 81 of the
National Credit Act.13
43. ASIC refers to
Regulatory Guide 98: ASIC’s power to suspend, cancel and
vary AFS licences and make banning orders (
RG 98) which describes the
administrative powers available to ASIC to enforce compliance with the
Corporations Act, including the financial services licensing provisions, by
suspending, cancelling and varying AFS licences and making banning
orders.
44. When deciding whether to take administrative action including making a
banning order under s 920A of the Corporations Act, the factors ASIC wil
consider include:
a. Whether the proposed action is within ASIC’s power;
b. Whether taking the action wil promote the objects of the financial
services regime;
c. Whether taking the action wil deter misconduct;
d. The strategic significance of taking action;
e. The need to protect investors and consumers; and
f. Other benefits of pursuing misconduct.
45. ASIC notes that under s 920A(1)(c) of the Corporations Act, ASIC can make
a banning order against a person convicted of fraud.
46. ASIC also notes that, under s 920A(2) of the Corporations Act, it can only
issue a banning order prohibiting a person from provided financial services
under section 920B of the Corporations Act14 against a person if it has given
that person an opportunity:
a. to appear, or be represented, at a hearing before ASIC that takes
place in private; and
b. to make submissions to ASIC on the matter.15
13 Refer to
Annexure G 14 Refer to
Annexure G 15 Refer to
Annexure G. ASIC notes
that this requirement is waived where the person has been
convicted of serious fraud; s 920A(3)(b).
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s47C and s47E(d)
s47C
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List of Annexures
Annexure A – table listing the Applicants
Annexure B – Chronology of key events.
s47F
Annexure G – Extracts from the
Corporations Act 2001 (Cth) and the
National
Consumer Credit Protection Act 2009 (Cth)
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Annexure G
Extracts from the Corporations Act 2001 (Cth) and the National Consumer
Credit Protection Act 2009 (Cth)
Section 206F of the Corporations Act 2001 (Cth) – ASIC’s power of
disqualification
Power to disqualify
(1) ASIC may disqualify a person from managing corporations for up to
5 years if:
(a) within 7 years immediately before ASIC gives a notice under
paragraph (b)(i):
(i) the person has been an officer of 2 or more corporations;
and
(ii) while the person was an officer, or within 12 months after
the person ceased to be an officer of those corporations,
each of the corporations was wound up and a liquidator
lodged a report under subsection 533(1) (including that
subsection
as
applied
by
section 526-35
of
the
Corporations (Aboriginal and Torres Strait Islander) Act
2006) about the corporation’s inability to pay its debts; and
(b) ASIC has given the person:
(i) a notice in the prescribed form requiring them to
demonstrate why they should not be disqualified; and
(ii) an opportunity to be heard on the question; and
(c) ASIC is satisfied that the disqualification is justified.
(1A) To avoid doubt, the references in paragraph (1)(a) to corporations
include references to Aboriginal and Torres Strait Islander
corporations.
Grounds for disqualification
(2) In determining whether disqualification is justified, ASIC:
(a) must have regard to whether any of the corporations
mentioned in subsection (1) were related to one another; and
(b) may have regard to:
(i) the person’s conduct in relation to the management,
business or property of any corporation; and
(ii) whether the disqualification would be in the public interest;
and
(ii ) any other matters that ASIC considers appropriate.
(2A) To avoid doubt, the references in subsection (2) to a corporation
includes a reference to an Aboriginal and Torres Strait Islander
corporation.
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Notice of disqualification
(3) If ASIC disqualifies a person from managing corporations under this
section, ASIC must serve a notice on the person advising them of the
disqualification. The notice must be in the prescribed form.
Start of disqualification
(4) The disqualification takes effect from the time when a notice
referred to in subsection (3) is served on the person.
Section 920A of the Corporations Act Corporations Act 2001 (Cth) – ASIC’s
power to make a banning order
Making a banning order
(1) ASIC may, in writing, make one or more orders (
banning orders)
against a person if:
(a) ASIC suspends or cancels an Australian financial services
licence held by the person; or
(b) the person has not complied with their obligations under
section 912A; or
(ba) ASIC has reason to believe that the person is likely to
contravene their obligations under section 912A; or
(bb) the person becomes a Chapter 5 body corporate or an
insolvent under administration; or
(c) the person is convicted of fraud; or
(d) ASIC has reason to believe that the person is not a fit and
proper person to:
(i) provide one or more financial services; or
(ii) perform one or more functions as an officer of an entity
that carries on a financial services business; or
(ii ) control an entity that carries on a financial services
business; or
(da) ASIC has reason to believe that the person is not adequately
trained, or is not competent, to:
(i) provide one or more financial services; or
(ii) perform one or more functions as an officer of an entity
that carries on a financial services business; or
(ii ) control an entity that carries on a financial services
business; or
(db) the person has not complied with any one or more of his or her
obligations under section 921F (requirements relating to
provisional relevant providers); or
(dc) both of the following apply:
(i) a supervisor referred to in section 921F has not complied
with any one or more of his or her obligations under that
section in relation to a provisional relevant provider;
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(ii) both the supervisor and the provisional relevant provider
are authorised to provide personal advice to retail clients,
on behalf of the person, in relation to relevant financial
products; or
(dd) both of the following apply:
(i) a provisional relevant provider has not complied with his or
her obligations under subsection 921F(7);
(ii) the provisional relevant provider is authorised to provide
personal advice to retail clients, on behalf of the person, in
relation to relevant financial products; or
(de) ASIC has reason to believe that the person was authorised, in
contravention of subsection 921C(2), (3) or (4), to provide
personal advice to retail clients in relation to relevant financial
products; or
(e) the person has not complied with a financial services law (other
than subsection 921E(3) (relevant providers to comply with the
Code of Ethics)); or
(f) ASIC has reason to believe that the person is likely to
contravene a financial services law; or
(g) the person has been involved in the contravention of a
financial services law by another person; or
(h) ASIC has reason to believe that the person is likely to become
involved in the contravention of a financial services law by
another person; or
(i) the person is the operator of, or another person connected
with, an Australian passport fund, and each of the following is
satisfied:
(i) a host regulator for the fund has notified ASIC in writing that
it is of the opinion that the person or the fund has not
complied, is not complying or is not likely to comply with
the law of that host economy to the extent that the law is
administered by the host regulator for the fund (including
the Passport Rules for the host economy for the fund);
(ii) ASIC is of the opinion that it should make the banning
order, given the potential impact of the failure, or potential
failure, to comply on members or potential members of the
fund; or
(j) the person has, at least twice, been linked to a refusal or failure
to give effect to a determination made by AFCA relating to a
complaint that relates to:
(i) a financial services business; or
(ii) credit activities (within the meaning of the
National
Consumer Credit Protection Act 2009); or
(k) subsection (1C) applies to the person in relation to 2 or more
corporations.
Note: To work out whether a person has been linked as
described in paragraph (j), see section 910C.
(1AA) Subsection (1) has effect subject to subsection (2).
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When a person is not a fit and proper person
(1A) For the purposes of paragraph (1)(d), ASIC must have regard to the
matters in section 913BB.
When a person contravenes a financial services law
(1B) To avoid doubt, a person contravenes a financial services law if a
person fails to comply with a duty imposed under that law, even if
the provision imposing the duty is not an offence provision or a civil
penalty provision.
When a person has been an officer of a corporation unable to pay
its debts
(1C) This subsection applies to a person in relation to a corporation if,
within the last 7 years:
(a) the person was an officer of the corporation when the
corporation was:
(i) carrying on a financial services business; or
(ii) engaging in credit activities (within the meaning of
the
National Consumer Credit Protection Act 2009); and
(b) the corporation was wound up either:
(i) while the person was an officer of the corporation; or
(ii) within the 12 months after the person ceased to be an
officer of the corporation; and
(c) a liquidator lodged a report under subsection 533(1) (including
that
subsection
as
applied
by
section 526-35
of
the
Corporations (Aboriginal and Torres Strait Islander) Act
2006) about the corporation’s inability to pay its debts.
Person to be given an opportunity to be heard
(2) Subject to subsection (3), if ASIC has not delegated its power to
make a banning order against a person to a Financial Services and
Credit Panel, ASIC may make the order only after giving the person
an opportunity:
(a) to appear, or be represented, at a hearing before ASIC that
takes place in private; and
(b) to make submissions to ASIC on the matter.
Note: If ASIC delegates its power to make a banning order
against a person to a Financial Services and Credit Panel,
the panel may make the order only after holding a hearing
in relation to the proposed order (see section 157 of the ASIC
Act).
(3) ASIC may make a banning order against a person without giving
the person the opportunities mentioned in subsection (2) if:
(a) either:
(i) ASIC has not delegated its power to make the banning
order to a Financial Services and Credit Panel; or
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(ii) ASIC exercises its power to make the banning order despite
such a delegation; and
(b) ASIC’s grounds for making the banning order are or include
both of the following:
(i) that the suspension or cancellation of the relevant licence
took place under section 915B;
(ii) that the person has been convicted of serious fraud.
Note: See section 34AB of the
Acts Interpretation Act
1901 (effect of delegation).
Special procedure for RSE licensees
(3A) If a person against whom ASIC proposes to make a banning order
is a financial services licensee who is authorised to provide a
superannuation trustee service, the following provisions apply:
(a) ASIC cannot make the banning order if doing so would, in
ASIC’s opinion, have the result of preventing the licensee from
providing that service, unless:
(i) APRA agrees in writing to the making of the banning order;
or
(ii) the licensee’s RSE licence is not in effect, and is not treated
by
section 29GB
of
the
Superannuation
Industry
(Supervision) Act 1993 as if it were in effect;
(b) if ASIC makes the banning order and paragraph (a) does not
apply to that action, ASIC must, within one week, inform APRA
of the action that has been taken.
(3B) A failure to comply with a requirement of subsection (3A) to get the
agreement of APRA about a banning order does not invalidate the
action taken.
Copy of banning order to be given to the person
(4) ASIC must give a copy of a banning order to the person against
whom it was made.
Section 920B of the Corporations Act 2001 (Cth) – What a banning order
prohibits
(1) A banning order made against a person may specify that the person is
prohibited from doing one or more of the following:
(a) providing any financial services;
(b) providing specified financial services in specified
circumstances or capacities;
(c) controlling, whether alone or in concert with one or more other
entities, an entity that carries on a financial services business;
(d) performing any function involved in the carrying on of a
financial services business (including as an officer, manager,
employee, contractor or in some other capacity);
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(e) performing specified functions involved in the carrying on of a
financial services business.
(2) The banning order may specify that a particular prohibition
specified in the order applies against the person:
(a) if the sole ground for the banning order is because
paragraph 920A(1)(k) applies—for a specified period of up to 5
years; or
(b) otherwise—either permanently or for a specified period.
Note: This subsection applies separately to each prohibition
specified in the order.
(3) A banning order may include a provision allowing the person
against whom it was made, subject to any specified conditions:
(a) to do specified acts; or
(b) to do specified acts in specified circumstances;
that the order would otherwise prohibit them from doing.
Section 80 of the National Consumer Credit Protection Act 2009 (Cth) – ASIC’s
power to make a banning order
Making a banning order
(1) ASIC may, in writing, make one or more orders (
banning orders)
against a person:
(a) if ASIC suspends or cancels a licence of the person; or
(b) if the person becomes insolvent; or
(c) for a natural person—if the person is convicted of fraud; or
(d) if the person has:
(i) contravened any credit legislation; or
(ii) been involved in a contravention of a provision of any
credit legislation by another person; or
(e) if ASIC has reason to believe that the person is likely to:
(i) contravene any credit legislation; or
(ii) be involved in a contravention of a provision of any credit
legislation by another person; or
(f) if ASIC has reason to believe that the person is not a fit and
proper person to:
(i) engage in one or more credit activities; or
(ii) perform one or more functions as an officer (within the
meaning of the
Corporations Act 2001) of another person
who engages in credit activities; or
(ii ) control another person who engages in credit activities; or
(fa) if ASIC has reason to believe that the person is not adequately
trained, or is not competent, to:
(i) engage in one or more credit activities; or
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(ii) perform one or more functions as an officer (within the
meaning of the
Corporations Act 2001) of another person
who engages in credit activities; or
(ii ) control another person who engages in credit activities; or
(fb) if the person has, at least twice, been linked to a refusal or
failure to give effect to a determination made by AFCA (as
defined in section 910C of the
Corporations Act 2001) relating
to a complaint that relates to:
(i) credit activities; or
(ii) a financial services business (within the meaning of
the
Corporations Act 2001); or
(fc) if subsection (3) applies to the person in relation to 2 or more
corporations; or
(g) if a prescribed State or Territory order is in force against the
person; or
(h) in any other circumstances prescribed by the regulations.
(1A) Subsection (1) has effect subject to subsection (4).
When a person is not a fit and proper person
(2) For the purposes of paragraph (1)(f), ASIC must have regard to the
matters in section 37B.
When a person has been an officer of a corporation unable to pay
its debts
(3) This subsection applies to a person in relation to a corporation if,
within the last 7 years:
(a) the person was an officer (within the meaning of
the
Corporations Act 2001) of the corporation when the
corporation was:
(i) engaging in credit activities; or
(ii) carrying on a financial services business (within the
meaning of the
Corporations Act 2001); and
(b) the corporation was wound up either:
(i) while the person was such an officer of the corporation; or
(ii) within the 12 months after the person ceased to be such
an officer of the corporation; and
(c) a liquidator lodged a report under subsection 533(1) of
the
Corporations Act 2001 (including that subsection as
applied by section 526-35 of the
Corporations (Aboriginal and
Torres Strait Islander) Act 2006) about the corporation’s inability
to pay its debts.
Person to be given an opportunity to be heard
(4) Subject to subsection (5), if ASIC has not delegated its power to
make a banning order against a person to a Financial Services and
Credit Panel, ASIC may make the order only after giving the person
an opportunity:
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(a) to appear, or be represented, at a hearing before ASIC that
takes place in private; and
(b) to make submissions to ASIC on the matter.
Note: If ASIC delegates its power to make a banning order
against a person to a Financial Services and Credit Panel,
the panel may make the order only after holding a hearing
in relation to the proposed order (see section 157 of the ASIC
Act).
(5) ASIC may make a banning order against a person without giving
the person the opportunities mentioned in subsection (4) if:
(a) either:
(i) ASIC has not delegated its power to make the banning
order to a Financial Services and Credit Panel; or
(ii) ASIC exercises its power to make the banning order despite
such a delegation; and
(b) subsection (6) or (6A) applies.
Note: See section 34AB of the
Acts Interpretation Act
1901 (effect of delegation).
(6) This subsection applies if:
(a) ASIC’s grounds for making a banning order against a person
include that ASIC has suspended or cancelled a licence of the
person (see paragraph (1)(a)); and
(b) the suspension or cancellation took place without a hearing
under section 54.
(6A) This subsection applies if:
(a) ASIC’s grounds for making a banning order against a person
include that the person has been convicted of fraud (see
paragraph (1)(c)); and
(b) the person has been convicted of serious fraud.
Copy of banning order to be given to the person
(7) ASIC must give a copy of a banning order to the person against
whom it was made.
Section 81 of the National Consumer Credit Protection Act 2009 (Cth) – What a
banning order prohibits
(1) A banning order made against a person may specify that the person is
prohibited from doing one or more of the following:
(a) engaging in any credit activities;
(b) engaging in specified credit activities in specified
circumstances or capacities;
(c) controlling, whether alone or in concert with one or more other
entities (as defined by section 64A of the
Corporations Act
2001), another person who engages in credit activities;
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Released by the Department of Finance
under the Freedom of Information Act 1982
FOI 24-25/023 - Document 45
24
(d) performing any function involved in the engaging in of credit
activities (including as an officer (within the meaning of
the
Corporations Act 2001), manager, employee, contractor or
in some other capacity);
(e) performing specified functions involved in the engaging in of
credit activities.
(2) The banning order may specify that a particular prohibition
specified in the order applies against the person:
(a) if the sole ground for the banning order is because
paragraph 80(1)(fc) applies—for a specified period of up to 5
years; or
(b) otherwise—either permanently or for a specified period.
Note: This subsection applies separately to each prohibition
specified in the order.
(3) A banning order may include a provision allowing the person
against whom it was made, subject to any specified conditions:
(a) to do specified acts; or
(b) to do specified acts in specified circumstances;
that the order would otherwise prohibit them from doing.
(4) A banning order is not a legislative instrument.
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Document Outline
- FOI 24-25-023 - Document 25.pdf
