How do you hire a Responsible Manager for an AFSL?

Introduction

Recruiting a capable Responsible Manager is vital for those holding an Australian Financial Services Licence. It shows organisational skill and keeps everything in line with the strict rules of the Australian Securities and Investments Commission. A well-qualified RM looks after big daily financial service choices and is key to the success and honesty of the licensing journey.

Given ASIC’s intensified scrutiny of AFSL applications, particularly surrounding the competence and fit of external RMs, it is imperative to understand the requirements and processes involved in appointing the right RM. This article explores the steps and qualifications necessary to hire an RM for your AFSL.

Understanding the Role of a Responsible Manager (RM)

Definition and Purpose

A Responsible Manager (RM) is a key individual nominated by an Australian Financial Services Licence (AFSL) holder to demonstrate to the Australian Securities and Investments Commission (ASIC) that the AFS licensee possesses the necessary knowledge, skills, and experience to provide the financial services covered by their AFSL. The RM ensures the AFS licensee maintains organisational competence, fulfilling ASIC’s regulatory requirements as outlined in Regulatory Guide 105 (RG 105).

Responsibilities of an RM

RMs are entrusted with overseeing the provision of financial services and ensuring compliance with regulatory standards. Their key responsibilities include:

• Decision-Making Oversight: RMs are directly responsible for significant day-to-day decisions regarding the ongoing provision of financial services. This involves determining how services are delivered and supervising the operations to maintain quality and regulatory adherence.
• Organisational Competence: RMs must collectively possess appropriate knowledge and skills covering all financial services and products the licensee offers. This ensures that the organisation can efficiently, honestly, and fairly provide the authorised services.
• Compliance Management: They play a pivotal role in fostering a compliance culture within the organisation. This includes implementing and monitoring compliance programs, conducting regular reviews, and staying updated with regulatory changes to ensure ongoing adherence to ASIC’s standards.
• Risk Management: RMs are responsible for identifying and managing non-financial risks, including conflicts of interest and operational risks, to safeguard the financial services’ integrity.
• Training and Development: Maintaining and updating the knowledge and skills of RMs is essential. RMs are expected to engage in continuous professional development to stay abreast of industry standards and regulatory changes.
• Reporting and Documentation: They must ensure accurate and timely reporting to ASIC, including nominations, changes to RM appointments, and any breaches of compliance obligations. Proper documentation is crucial for demonstrating organisational competence.

Relevant Laws and Regulations Governing RMs

RG 105 Overview

RG 105 is fundamental in establishing the standards and expectations for RMs within AFSL holders. RG 105 outlines the requirements for organisational competence, emphasising that RMs must possess the necessary knowledge and skills to effectively oversee financial services. This guide assists ASIC in assessing whether a licensee maintains compliance with regulatory standards by appointing qualified RMs.

Corporations Act 2001 (Cth)

The Corporations Act 2001 (Cth) provides the legal framework governing the appointment and responsibilities of RMs. Section 912A mandates that AFSL licensees must appoint RMs of good fame and character, ensuring they can maintain organisational competence in providing financial services. Additionally, Section 913B requires that RMs demonstrate they possess the appropriate qualifications and experience to manage the financial services covered by the AFSL. These provisions ensure that RMs play a pivotal role in upholding the integrity and compliance of financial services providers under the AFSL framework.

The Hiring Process for an RM

Identifying Competency Requirements

Determining the necessary knowledge, skills, and experience for an RM involves aligning with RG 105 guidelines. An RM must meet one of the five options set by ASIC to demonstrate appropriate competence:

1. Industry or APRA Standard Compliance: Meeting relevant industry standards or those set by the Australian Prudential Regulation Authority (APRA).
2. Individual Assessment: Undergoing assessment by an authorised assessor to verify diploma-level knowledge.
3. University Degree and Industry Course: Holding a relevant university degree combined with a specialised short industry course.
4. Industry-Specific Qualification: Possessing an industry or product-specific qualification equivalent to a diploma or higher.
5. Alternative Demonstration: Providing a comprehensive written submission that details relevant experience and knowledge.

Searching for Qualified Candidates

Sourcing qualified RM candidates can be achieved through several approaches, including:

• Internal Promotions: Identifying and elevating existing employees with the required experience and qualifications.
• Industry Networks: Leveraging professional associations and networks to connect with experienced professionals within the financial services sector.
• Recruitment Agencies: Engaging specialised recruitment firms with access to a pool of qualified RMs.
• Professional Service Providers: Utilising external consultants or RM service providers to ensure compliance without solely relying on internal resources.

Assessing Candidate Suitability

Once potential candidates are identified, assessing their suitability involves several key steps. These steps include:

• Verifying Qualifications: Confirm that the candidate holds the necessary educational qualifications or certifications in line with RG 105.
• Checking Compliance History: Conduct thorough background checks, including criminal history and bankruptcy checks, to ensure the candidate is a ‘fit and proper person’.
• Assessing Relevant Experience: Evaluate the candidate’s financial services experience to ensure they have the appropriate knowledge and skills to provide and oversee the financial services covered by the AFSL.
• Reviewing References: Obtain and verify professional references to attest to the candidate’s competence, integrity, and character.

Qualities and Qualifications of an Effective RM

Educational Qualifications

RM must possess a strong educational foundation to effectively oversee financial services. Typically, RMs should hold tertiary-level qualifications in relevant fields such as Business, Commerce, Economics, or Finance.

This educational background ensures that RMs have the necessary theoretical knowledge to understand and manage the complexities of financial services provision. Additionally, depending on the specific financial products and services the AFSL offers, further specialised education or certifications may be required to meet ASIC’s regulatory expectations.

Professional Experience

ASIC mandates that RMs have significant industry experience to demonstrate their capability in managing financial services. Typically, an RM should have 3 to 5 years of relevant experience within the past 5 to 8 years, depending on the pathway chosen for demonstrating competence.

This experience should ideally be in roles that involve direct responsibility for financial services provision, ensuring that the RM is well-versed in both operational and regulatory aspects of the financial industry. Such roles may include senior positions in financial planning, investment management, or compliance oversight, which provide the practical skills necessary to maintain organisational competence.

Personal Attributes

Beyond education and experience, personal attributes are essential for an RM to perform effectively. Integrity and good character are paramount, as RMs are entrusted with significant responsibilities that require ethical decision-making.

ASIC assesses the personal qualities of RMs to ensure they are fit and proper individuals capable of upholding the standards required by the financial services industry. Attributes such as diligence, honesty, and strong judgement are critical, as they contribute to the RM’s ability to oversee financial operations and ensure compliance with regulatory standards. Additionally, RMs must exhibit resilience and the ability to handle complex and high-pressure situations, which are common in the financial services sector.

Ongoing Training and Development

RMs must engage in ongoing training and professional development to ensure continuous compliance. This commitment helps them stay updated with regulatory changes and industry standards. Effective training programs may include:

• Regulatory Updates: Regular sessions that cover new laws, regulations, and compliance requirements.
• Professional Courses: Advanced courses related to financial services and specific products the licensee offers.
• Industry Seminars: Participation in seminars and workshops to gain insights into best practices and emerging trends.

Nomination and Approval by ASIC

Submitting Nominations through ASIC Connect

To officially nominate an RM for your AFSL, you are required to utilise the ASIC Connect portal. This online platform facilitates submitting all necessary forms and procedures required by the Australian Securities and Investments Commission (ASIC).

The key steps include:

1. Accessing the Portal: Log in to your ASIC Connect account. If you do not have an account, you should create one to proceed.
2. Completing Form FS20: Navigate to Form FS20, which changes details of an existing AFSL, including nominating a new RM.
3. Providing RM Details: Enter the full name, qualifications, experience, and contact information of the nominated RM.
4. Review and Submit: Ensure all information is accurate and complete before submitting the nomination through the portal.

Supporting Documentation Required

When nominating an RM, it is essential to provide comprehensive supporting documentation to demonstrate their suitability. Required documents typically include:

• Qualifications and Certifications: Copies of relevant tertiary qualifications, such as a Bachelor’s Degree in Business, Commerce, Economics or Finance, or an Advanced Diploma in Financial Services.
• Experience Records: Detailed records of the RM’s relevant financial services experience, including roles, responsibilities, and duration.
• Character References: At least two business references attesting to the RM’s integrity, skills, and reliability.
• Criminal History and Bankruptcy Checks: Proof of recent criminal history checks and bankruptcy status to confirm the RM is a fit and proper person.
• Statement of Personal Information: A completed statement outlining personal details and professional background.
• RM Agreement: If the RM is an external contractor, include an RM Agreement detailing their role and responsibilities.

Common Challenges and Solutions in Hiring RMs

ASIC Rejection of External RMs

Hiring external RMs presents significant challenges due to ASIC’s strict evaluation criteria. ASIC increasingly rejects AFS license applications where firms hire external RMs without demonstrating genuine competence and commitment.

Challenges:

• Perceived RM for Hire: ASIC rejects applications when it suspects external RMs are being hired merely to meet licensing requirements rather than provide substantial oversight and expertise.
• Limited Acceptance of Exempt Experience: Previous exemptions, such as accountants relying on past Self-Managed Superannuation Fund (SMSF) experience, are no longer recognised, compelling firms to seek new internal solutions.

Solutions:

• Mentoring Approach: Implementing a mentoring system where experienced industry professionals support internal RMs can address ASIC’s concerns about superficial RM appointments.
• Internal Appointments: Developing and promoting internal talent ensures that RMs are deeply integrated into the firm’s operations, aligning with ASIC’s expectations for organisational competence.

Balancing Internal and External Expertise

Maintaining a balance between internal and external RMs is essential for ensuring organisational competence without over-reliance on external hires.

Strategies:

• Internal Promotions: Identifying and elevating existing employees with the required experience and qualifications helps ensure that RMs are well-acquainted with the firm’s culture and operations.
• Selective External Hiring: When external RMs are necessary, firms should engage experienced professionals who can seamlessly integrate with the internal team and contribute to long-term compliance.
• Comprehensive Training: Providing extensive training and support to internal and external RMs ensures that all managers meet ASIC’s knowledge and skills requirements, fostering a robust compliance framework.

Conclusion

Hiring a qualified Responsible Manager (RM) is essential for maintaining compliance and demonstrating organisational competence under an Australian Financial Services Licence (AFSL). A proficient RM oversees the day-to-day provision of financial services and ensures adherence to Australian Securities and Investments Commission’s (ASIC) regulatory standards, fostering a culture of compliance within the organisation.

To confidently ensure your Responsible Managers meet essential competency standards and maintain full regulatory compliance, connect with our skilled AFSL compliance lawyers at AFSL House today. Let our unrivaled expertise provide you with tailored training solutions for seamless adherence to financial regulations.

Frequently Asked Questions (FAQ)