ASIC’s New RG 181: Managing Conflicts of Interest for AFS Licensees

Introduction

In December 2025, the Australian Securities and Investments Commission (ASIC) released its updated Regulatory Guide 181 (RG 181), marking the first major revision to its guidance on managing conflicts of interest since 2004. This change reflects insights from ASIC’s recent surveillance and post-Royal Commission expectations, signalling that the effective management of conflicts is now a primary enforcement focus for the regulator.

For Australian Financial Services (AFS) licensees, this updated guidance represents a significant shift in regulatory expectations. This article explains the key changes in RG 181, including the move to an objective test for identifying conflicts and the need for tailored conflict management frameworks, to help licensees understand their updated obligations.

Interactive Tool: Check If Your Conflict Management Meets New ASIC Standards

Legal Foundations for Conflicts Management

The Core Conflicts Obligation

The legal requirement for AFS licensees to manage conflicts of interest is established in federal law. Under section 912A(1)(aa) of the Corporations Act 2001 (Cth), a licensee must have “in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee”.

This statutory duty forms the basis of all conflict management frameworks. Furthermore, it requires AFS licensees to establish and maintain systems to handle conflicts that emerge from their financial services business. As outlined in ASIC’s RG 181, this obligation is broad and applies to the licensee and anyone acting on their behalf, including:

• employees;
• directors; or
• authorised representatives.

What RG 181 Does & Does Not Do

RG 181 does not introduce new laws for AFS licensees. Instead, its purpose is to explain how ASIC interprets the existing legal obligations under the Corporations Act 2001 (Cth).

According to RG 181.2, the guide clarifies how the law applies and what ASIC considers to be “adequate arrangements” for managing a conflict of interest. In addition, it serves as a practical benchmark for the financial services industry, outlining the regulator’s expectations for:

• identifying conflicts;
• assessing conflicts; and
• responding to conflicts.

Ultimately, by following this guidance, licensees can better understand how to meet their statutory duties.

Key Updates in the New RG 181

A Shift to Principles-Based & Practical Guidance

The updatedRG 181 released in December 2025, represents a move away from high-level, abstract compliance. Instead, ASIC’s refreshed guidance focuses on the real-world application of conflict management. Therefore, this ensures it is embedded in the daily governance and operations of AFS licensees.

Furthermore, the guidance is now structured around principles-based and practical steps. It includes updated, sector-relevant examples to help AFS licensees understand how to manage conflicts of interest within their specific business contexts.

The Objective, Fact-Based Test for Identifying Conflicts

A critical change in the updated RG 181 is the shift to an objective standard for identifying a conflict of interest. Consequently, the previous focus on “perceived” or “apparent” conflicts has been removed. Licensees must now apply a “common-sense” and objective test to identify “actual” and “potential” conflicts.

Under RG 181.31, this approach requires a fact-based assessment of the circumstances. The key question is whether there is a “real and sensible possibility” of competing interests swaying the judgement or actions of the licensee or its representatives in an adverse way. Ultimately, this moves the assessment away from subjective perceptions and toward the practical realities of a firm’s structure and operations.

Expanded Scope & Clarity of Obligations

The updated guidance confirms the broad scope of the conflicts management obligation. According to RG 181.11, the obligation applies to all conflicts of interest other than those “wholly outside” the financial services business. In addition, this includes conflicts that arise between an interest within the business and one outside of it, if it could reasonably affect how financial services are provided.

ASIC has also provided greater clarity on specific areas that fall within this expanded scope, as follows:

• Structural conflicts: RG 181.44 addresses conflicts that arise from business structures, such as vertical integration, the influence of related entities, or misaligned incentives within a corporate group;
• Conflict of duties: a conflict of duties, such as owing competing duties to different clients, will generally give rise to a conflict of interest under RG 181.41; and
• Remuneration: RG 181.47 makes it clear that remuneration practices, including commissions and volume-based payments, can create misaligned incentives that result in a conflict of interest, an issue further detailed in guides to conflicted and banned remuneration.

Requirement for Tailored & Risk-Based Frameworks

Generic, off-the-shelf conflicts management policies are no longer considered sufficient. Instead, the updated RG 181 requires AFS licensees to adopt a proportionate and risk-based approach to their arrangements.

As stated in RG 181.49, conflict management frameworks must be tailored to the specific circumstances of the business. The adequacy of these arrangements depends on several factors relating to the financial services business, including its:

• nature;
• scale; and
• complexity.

As a result, this ensures that the controls implemented are appropriate for the specific risks posed by the conflicts identified.

The Four-Step Conflict Management Framework

To help AFS licensees operationalise their obligations, ASIC has introduced a four-step conflicts management framework. This framework, detailed in Table 2 of RG 181.62, outlines a continuous cycle for compliance, including:

• Identify: establish arrangements to identify when a conflict of interest or a class of conflicts may or does occur;
• Assess: evaluate and assess the identified conflict to understand its materiality and seriousness, which informs an appropriate response;
• Respond: decide on and apply an appropriate response to effectively manage the conflict, which may involve avoidance, control mechanisms, or disclosure; and
• Implement: implement, monitor, maintain, and review the arrangements to ensure they remain robust and effective over time, which includes senior management endorsement, staff training, and compliance monitoring.

ASIC’s Regulatory Direction & Focus

Conflicts: A Core Source of Misconduct & Consumer Harm

The updated RG 181 signals a clear regulatory narrative from ASIC: unmanaged conflicts of interest are a primary cause of misconduct and harm. According to RG 181.9, the conflicts management obligation is designed to ensure financial markets are fair and honest, directly promoting consumer protection and market integrity. Furthermore, ASIC views the effective management of conflicts as essential to preventing misconduct and reducing harm to investors.

ASIC has explicitly stated that conflicts of interest are a significant driver of poor outcomes. Under RG 181.56, conflicts are identified as a major source of consumer, investor, and economic harm, with the potential to negatively impact market integrity. Ultimately, this positions conflict management not as a secondary compliance task, but as a central pillar of a licensee’s duty to protect clients and maintain trust in the financial services sector.

From Policy Documents to Operational Reality

ASIC has made it clear that having a conflicts of interest policy is not enough. The regulator’s focus has shifted from reviewing paper documents to testing the operational effectiveness of a licensee’s arrangements, often through ASIC audits and investigations. Therefore, AFS licensees must be able to demonstrate that their conflict management frameworks are actively embedded in their governance, operations, and decision-making processes.

The updated RG 181 is positioned as a benchmark for supervision and enforcement, not just as high-level guidance. This means ASIC will assess how conflicts are managed in practice, including:

• how they are identified;
• how they are evaluated; and
• how they are managed.

Licensees must be prepared to provide evidence that their controls are working effectively. This requires moving beyond mere documentation to prove that their arrangements lead to fair client outcomes in the real world.

Increased Scrutiny of Incentives & Remuneration

The updated guidance signals a heightened enforcement risk associated with remuneration and incentive structures. According to RG 181.47, certain practices can create misaligned incentives that result in conflicts of interest and lead to poor consumer outcomes, including:

• the payment of commissions;
• the use of volume-based remuneration; and
• the awarding of staff bonuses.

ASIC has specifically flagged certain practices as being inherently high-risk. For instance, RG 181.87 states that volume-based remuneration is “typically conflicted” because it creates incentives for staff to maximise sales, potentially at the expense of a client’s interests. As a result, AFS licensees with such arrangements will face increased scrutiny and must have robust controls to ensure these incentives do not lead to client detriment.

Key Actions for AFS Licensees

Review & Rebuild Your Conflicts Frameworks

AFS licensees should treat the release of the updated RG 181 as a prompt for immediate action. Legacy policies and frameworks are likely insufficient to meet the new standards, which require a risk-based approach and alignment with objective testing principles. As a result, a comprehensive review is necessary to align with the updated guidance.

Practical steps for AFS licensees include:

• Gap assessment: Conducting a gap assessment of current arrangements against the updated RG 181.
• Framework updates: Updating conflict management frameworks and related policies to reflect the expanded scope and the principles of avoiding, controlling, and disclosing conflicts.
• Conflict mapping: Mapping actual and potential conflicts across all products, services, and related-party arrangements.
• Remuneration review: Reviewing remuneration and incentive structures to identify and address arrangements that misalign staff behaviour with client interests.
• Register maintenance: Creating or updating conflicts registers to capture actual and potential conflicts as required by the new guidance.

Strengthen Governance & Accountability

Effective conflict management requires strong governance and active oversight from the highest levels of an organisation. Under the updated RG 181, senior management and the board must approve and endorse the arrangements for managing conflicts of interest, which is a critical duty considering the liabilities of directors of AFSL holders. Ultimately, this ensures that accountability is clearly established.

According to Step 4 of the framework in RG 181.62, licensees must have a person or persons accountable for complying with the arrangements. This involves establishing clear escalation channels and board-level reporting to demonstrate that conflicts are being actively identified, monitored, and managed.

Improve Documentation & Evidence of Compliance

ASIC’s focus has shifted to the operational effectiveness of a licensee’s arrangements. This means that simply having a policy is not enough; AFS licensees must be able to demonstrate compliance through robust documentation and record-keeping. Furthermore, documenting how judgement is exercised when assessing and managing conflicts is critical for defensibility.

Under RG 181.63, licensees should keep records to demonstrate compliance, including:

• Identified conflicts: Documenting identified conflicts and the actions taken to manage them, typically in a conflicts register;
• Management reports: Keeping records of reports about conflict matters made to senior management; and
• Disclosure records: Storing records of any written or oral disclosures provided to affected parties.

Embed Conflict Management into Business Operations

Conflict management must be integrated into daily business operations rather than being treated as a separate compliance function. This involves embedding the principles of RG 181 into frontline decision-making and governance processes.

To achieve this, licensees should invest in practical, role-specific staff training. Staff at all levels need to understand what a conflict of interest looks like in their specific duties and how to escalate issues. This helps foster a culture of transparency and accountability where employees are encouraged to identify and manage conflicts effectively.

Impact on Brokers & Brokerage Firms

Principal Trading Models & Structural Conflicts

For brokers, particularly those in the Contracts for Difference (CFD) and Foreign Exchange (FX) markets, structural conflicts are often built into the business model. When a firm acts as the principal or counterparty to a client’s trade, its financial interests can be directly opposed to the client’s. As a result, this arrangement creates what ASIC identifies as a structural conflict of interest, where the broker’s revenue may be derived from client losses.

Under the objective test in the updated RG 181, this model presents a “real and sensible possibility” of swaying the broker’s actions. Examples of such conflicts include:

• A firm using confidential client order information to inform its own proprietary trading positions; and
• A market maker using client order data to anticipate price movements for its own benefit.

Ultimately, these inherent conflicts require robust controls, such as functional separation between trading desks and clear protocols for fair pricing and execution, to demonstrate that client interests are not being compromised.

Incentives, Rebates & Margin Structures

ASIC has signalled major enforcement risk for brokers using certain incentive structures. Arrangements such as margin discounts, trading rebates, and other forms of volume-based remuneration can create a conflict by misaligning the broker’s interests with client outcomes.

According to RG 181.87, volume-based remuneration is “typically conflicted” because it creates incentives for staff or the firm to maximise sales or trading volume, potentially at the expense of a client’s interests. For instance, an area of focus for legal compliance for stockbrokers is when one might be encouraged to generate high trading volumes on a client’s account to increase their own brokerage fees, even if such activity is not aligned with the client’s financial objectives.

Platform Design & Distribution Conflicts

For online and crypto brokers, conflicts of interest can be embedded in the design of the trading platform itself, often requiring specialised legal advice for crypto brokers. Technology-driven models can create situations where the platform’s architecture is designed to promote high-risk or frequent trading to maximise revenue, which may not be suitable for the client.

In addition, fintechs may face conflicts when their platform design or algorithms recommend their own higher-fee products over more suitable alternatives. If the user interface or experience design exploits cognitive biases to encourage trading activity that leads to poor client outcomes, it represents a significant structural conflict that must be managed.

Research, Advice & Related-Party Products

A common conflict for brokerage firms arises when they provide research or advice that promotes in-house or affiliated financial products. As noted in Table 1 of RG 181, a potential conflict is created when an adviser is in a position to recommend that clients invest in products from a related entity, as they could prioritise their own financial interests over those of their clients.

Similarly, individual conflicts can arise if research analysts have personal holdings in the assets they cover, potentially compromising their independence. To manage these risks, ASIC expects robust controls, including:

• The establishment of strict information barriers between research departments and proprietary trading desks; and
• Functional separation of advisory roles from other business units.

Data, Information Asymmetry & Client Outcomes

An emerging area of risk for brokers is the conflict arising from information asymmetry. Brokers possess superior data on client behaviour, trading patterns, and profitability. Therefore, a conflict of interest can occur when a firm leverages this data for its own benefit at the expense of clients.

For example, if a broker’s data reveals that a particular product or distribution method is consistently leading to significant client harm, a failure to act on this information could be viewed as a breach. Ultimately, continuing to profit from an activity known to cause poor client outcomes represents a failure to manage the conflict between the firm’s commercial interests and its clients’ interests.

Practical Takeaways for Your AFS Licensee

Conflict Management Is Now a Core Regulatory Risk Area

The updated RG 181 confirms that managing conflicts of interest is no longer a secondary compliance issue. Instead, ASIC now views it as a fundamental expectation across the financial services sector.

This shift elevates conflict management to a core regulatory risk area. Consequently, it signals to AFS licensees that the integrity of their business model and governance frameworks will be assessed through this lens.

Generic Policies Will Not Meet ASIC Expectations

Off-the-shelf or generic conflict management policies are now insufficient. Under RG 181.49, ASIC requires AFS licensees to implement a risk-based approach, meaning arrangements must be specifically tailored to the business.

Ultimately, the adequacy of these frameworks will depend on the following aspects of the financial services offered:

• nature;
• scale; and
• complexity.

As a result, this makes customised policies a mandatory requirement.

Incentives & Business Models Will Be Scrutinised

ASIC has placed a significant focus on how remuneration and business models can create conflicts of interest. According to RG 181.47, practices that can create misaligned incentives and lead to poor consumer outcomes include:

• commissions; and
• volume-based payments.

Furthermore, RG 181.87 states that volume-based remuneration is “typically conflicted” because it encourages staff to prioritise sales over a client’s interests. Therefore, such structures will face intense scrutiny.

Evidence of Effectiveness Matters More Than Documentation

Simply having a conflicts of interest policy is not enough to meet ASIC’s expectations. The regulator has positioned the updated RG 181 as a benchmark for its supervision and enforcement activities.

AFS licensees must be able to demonstrate that their conflict management arrangements are effective in practice. Specifically, these arrangements must be embedded in their:

• governance; and
• operations.

Ultimately, the focus has shifted from reviewing policy documents to testing real-world outcomes and the practical effectiveness of the controls in place.

Conclusion

The December 2025 update to RG 181 marks a significant shift, requiring AFS licensees to adopt a proactive, evidence-based approach to managing conflicts of interest. This change demands that licensees move beyond generic policies and demonstrate through tailored, operational controls that their business models do not cause client harm.

Given these heightened expectations, ensuring your conflict management framework aligns with the updated RG 181 is essential for maintaining compliance. The expert team at AFSL House specialises in helping financial services firms review and strengthen their arrangements, so contact AFSL House’s experienced AFSL lawyers today to ensure your business is prepared

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