Introduction
Responsible Managers’ compliance plays a pivotal role in maintaining the organisational competence of an Australian Credit Licence (ACL) holder, as outlined in ASIC’s Regulatory Guide 206 (RG 206). Consequently, understanding the potential personal liabilities a Responsible Manager might face, particularly when things go wrong with the credit licensee, is a significant concern for both the individuals in these roles and the ACL licensees themselves.
This guide aims to clarify the circumstances under which a Responsible Manager for an Australian Credit Licence can be held personally liable. It will explore the nuances of liability, moving beyond the general understanding that the credit licensee primarily bears responsibility, to detail specific situations where a Responsible Manager’s actions or inactions can lead to personal repercussions, including the possibility of being banned if not deemed a “fit and proper” person.
General Position: No Direct Statutory Liability for ACL Responsible Managers
For individuals appointed as a Responsible Manager (RM) under an Australian Credit Licence (ACL), it is important to understand the general position regarding personal liability. Moreover, the role of a responsible manager itself—an ASIC construct detailed in guidance such as RG 206 for credit licensing—does not automatically attract personal legal liability under legislation for the Australian credit licence holder.
It does not automatically attract liability because:
- the concept of a responsible manager is not a formal legal role defined within statutes like the Corporations Act 2001 (Cth)
- appointment as an RM for an Australian Credit Licence or Australian Financial Services Licence does not, in itself, create direct statutory liability
When things go wrong and breaches of law occur within an Australian credit licensee’s operations, the primary accountability rests with:
- the credit licensee entity
- its directors
It is the licensee that is obligated to meet the conduct requirements under the Corporations Act 2001 (Cth) and will face the enforcement consequences. Therefore, the liability of a responsible manager is not an automatic outcome of their appointment; the individuals responsible when things go wrong are principally the licensee and its directors.
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How Personal Liability Arises for ACL RMs
Liability from Direct Involvement in Your Credit Licensee’s Legal Contraventions
A Responsible Manager (RM) for an Australian Credit Licence (ACL) holder may face personal repercussions if their actions directly contribute to the credit licensee breaching the law. If your personal acts or omissions caused or contributed to a breach of the relevant laws by the licensee that appointed you, you could potentially be found personally liable.
This direct involvement increases the likelihood that any contravention of the law by the Australian credit licensee could be seen as having your participation. Such involvement can lead to significant consequences, including:
- The possibility of receiving a banning order from ASIC, which could be for a set period or even for life
- Potential financial penalties in the form of fines
This risk is particularly pronounced in smaller licensees where there are only one or two RMs, as your involvement in day-to-day operations is likely to be more substantial.
Officer Liability When Your RM Role Extends to Corporate Officer Duties for the Credit Licensee
Your role as a Responsible Manager for an Australian credit licence holder might extend to you being considered an “officer” of the company under the Corporations Act 2001 (Cth). This can occur if you have the requisite level of involvement in the business, such as making significant day-to-day decisions that affect the credit licensee’s operations.
The determination of whether an RM is an officer will largely depend on:
- The specific circumstances of your role
- How ASIC interprets your level of involvement in the business
If you are deemed an officer, you will be subject to various duties stipulated in the Corporations Act 2001 (Cth). These duties include the obligation to act in good faith and in the best interests of the corporation.
For instance, if decisions you make as a Responsible Manager result in the credit licensee contravening the law, thereby exposing it to the risk of losing its Australian credit licence, you might be considered to have failed to act in the company’s best interests. This failure can lead to personal liability for breaching officer duties.
ASIC’s Power to Ban Responsible Managers of Australian Credit Licensees
Grounds for ASIC Imposing a Banning Order on an ACL Responsible Manager
The Australian Securities and Investments Commission (ASIC) possesses significant authority to issue banning orders against individuals, including Responsible Managers of Australian Credit Licence (ACL) holders. Such orders can prohibit a person from providing credit services or performing specific roles within the industry.
ASIC may impose a banning order on an ACL Responsible Manager based on several grounds:
| Ground for Banning Order | Explanation |
|---|---|
| Involvement in Contraventions | A Responsible Manager risks a banning order if their personal actions or omissions contribute to the licensee’s breach of law. |
| Failure to Meet Obligations | This includes being found inadequately trained or competent, failing to properly supervise authorised representatives, or not maintaining the required competence for the licensed credit services. |
The “Fit & Proper” Person Test & Its Implications for ACL Responsible Manager Bans
ASIC has the power to ban any person, including an ACL Responsible Manager, if it has reason to believe they are not a “fit and proper” person to provide credit services or to perform their role within a credit licensee. This critical standard must be continuously met by Responsible Managers.
According to ASIC, a “fit and proper” person possesses several key attributes:
| Attribute | Description |
|---|---|
| Competence | The individual must be competent to undertake their designated role. |
| Good Character | They must demonstrate good character. |
| Diligence, Honesty, Integrity, and Judgement | The person should exhibit diligence, honesty, integrity, and sound judgement in their professional conduct. |
| Not Disqualified | They must not be disqualified by law from performing their role. |
| No Conflicts of Interest | There should be no conflicts of interest that would create a material risk that they would fail to properly perform their role. |
If ASIC determines that an Australian credit licence Responsible Manager fails to meet these criteria, it can issue a banning order.
Factors that might lead ASIC to question a Responsible Manager’s suitability under the “fit and proper” test include:
- A history of having a licence suspended or cancelled
- Being banned or disqualified by a court
- Being disqualified from managing corporations
- Having been convicted of an offence within the past 10 years
Failing this test can therefore have severe implications for a Responsible Manager’s career in the credit industry.
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Contractual Liabilities & Other Career Consequences for Australian Credit Licence Responsible Managers
Breaching Your Employment or Consultancy Agreement with the Australian Credit Licensee
A Responsible Manager’s obligations and potential liabilities to the Australian credit licensee are typically outlined in their employment or consultancy agreement. For those who are not Directors or officers of the credit licensee, this contract generally determines the scope of their liability to the company.
Non-performance of specified duties or failure to meet agreed-upon obligations can lead to contractual liability. For example, a poorly performing Responsible Manager might be found to have failed to meet their contractual duties, potentially resulting in legal consequences initiated by the credit licensee.
It is crucial for Responsible Managers to be fully aware of the terms within their agreement with the Australian credit licence holder, as these terms define their responsibilities and potential liabilities.
Impact on Your Future Suitability & Career as an ACL Responsible Manager
Beyond immediate contractual liabilities or formal banning orders, involvement in a credit licensee’s contraventions of the law can have lasting repercussions on a Responsible Manager’s career. These consequences can manifest in several ways:
| Career Consequence | Description |
|---|---|
| Damage to Professional Reputation | Association with a non-compliant Australian credit licensee can significantly harm a Responsible Manager’s standing in the industry, even without a formal ban. |
| Future Appointment Challenges | ASIC may take a negative view of a Responsible Manager’s past involvement with non-compliant licensees when considering them for future appointments. |
| Suitability Concerns | If involved in an environment with frequent breaches, ASIC might determine the individual is not suitable to act as a Responsible Manager for another licensee. |
Consequently, ASIC may reject your nomination for such roles in the future, significantly impacting your career prospects within the credit licensing regime.
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Conclusion
Responsible Managers under an Australian Credit Licence (ACL) must be aware that while their role, as defined by ASIC’s RG 206, doesn’t automatically create personal statutory liability for the credit licensee’s breaches, personal repercussions can arise. Liability can stem from direct involvement in legal contraventions, being deemed an “officer” under the Corporations Act 2001 (Cth), failing ASIC’s “fit and proper” person test leading to a ban, or breaching contractual obligations, all of which can significantly impact their career.
Understanding these potential liabilities is crucial for both Responsible Managers and ACL licensees to ensure diligent compliance and safeguard their professional standing. Our trusted, expert ACL lawyers will help you navigate the complexities of Responsible Manager obligations and potential liabilities under an Australian credit licence. Contact AFSL House today for specialised services tailored to your needs and achieve peace of mind.
