How to Manage Your AFSL Representatives to be AFS Compliant

Introduction

Holding an Australian Financial Services Licence (AFSL) brings significant and continuous legal responsibilities, particularly concerning the management of individuals and entities acting on the licensee’s behalf, known as representatives. Under the Corporations Act 2001 (Cth), an AFSL holder is ultimately accountable for the conduct and compliance of every authorised representative and adviser operating under their AFS licence, a responsibility critical for maintaining compliance with financial services laws.

This guide provides AFS licensees with essential information and practical strategies for effectively managing their financial advisers and authorised representatives. It aims to ensure robust AFS compliance by outlining how to meet key obligations, thereby safeguarding the financial services business and upholding the integrity of the Australian financial services sector.

Key AFSL Licensee Obligations for Representative Management

Understanding Your Vicarious Liability for Representatives

An Australian Financial Services (AFS) licensee holds significant responsibility for the actions of its representatives. This principle is known as vicarious liability, meaning that as an AFSL holder, you are generally legally responsible for the conduct of your authorised representatives when they are acting within the scope of their authority.

This responsibility is underscored by section 917B of the Corporations Act 2001 (Cth), which outlines that a licensee is liable for the conduct of its authorised representatives. The liability extends to various types of representatives, including:

• Employees
• Authorised representatives (ARs)

If a representative breaches financial services laws, the Australian Securities and Investments Commission (ASIC) can, and often will, hold the AFS licensee accountable. The consequences of non-compliance can be severe, including:

• Substantial financial penalties
• Significant reputational damage
• Additional regulatory actions by ASIC, such as:
  • Imposing additional conditions on the AFS licence
  • Suspension or cancellation of the licence

The case of ASIC v Union Standard International Group Pty Ltd (USG) illustrates this principle, where the court held the AFSL holder liable for its representatives’ misconduct, emphasising that a licensee cannot delegate its core responsibilities.

Core Duties Under Section 912A of the Corporations Act 2001 (Cth) for AFS Licensees

The Corporations Act 2001 (Cth), particularly section 912A(1), establishes the general obligations for AFS licensees, which are fundamental to managing representatives effectively and maintaining AFS compliance. ASIC’s Regulatory Guide 104 (RG 104) provides detailed guidance on these obligations.

For AFS licensees, several core duties are paramount when overseeing their representatives:

Section Reference	Core Duty	Key Implication/Focus
s 912A(1)(a)	Ensuring efficient, honest, and fair service provision	Licensees must do all things necessary to ensure that the financial services covered by their AFS licence are provided efficiently, honestly, and fairly. This overarching obligation applies to all services, whether delivered directly by the licensee or through its authorised representatives, and requires robust oversight to ensure representatives’ conduct and advice quality meet this high standard.
s 912A(1)(ca)	Ensuring representative compliance with financial services laws	An AFS licensee must take reasonable steps to ensure that its representatives comply with all applicable financial services laws. The “reasonable steps” required are scalable and depend on the nature, scale, and complexity of the licensee’s business and the risks associated with its representatives’ activities. This necessitates active monitoring and supervision systems.
s 912A(1)(f)	Ensuring representatives are adequately trained and competent	The AFS licensee is responsible for ensuring that its representatives who provide financial services are adequately trained and competent to do so. This involves implementing comprehensive initial and ongoing training programs and robust competency assessment processes.
s 912A(1)(d)	Maintaining adequate resources	Licensees must have adequate financial, technological, and human resources to provide the financial services covered by their licence and to carry out supervisory arrangements effectively. Sufficient investment in compliance personnel, systems, and technology is crucial for the effective oversight of every authorised representative.
s 912A(1)(cc)	Complying with the ASIC Reference Checking and Information Sharing Protocol	When recruiting financial advisers or mortgage brokers, the AFS licensee must comply with the ASIC protocol for reference checking and information sharing. This involves requesting references about prospective representatives and sharing information with other licensees as prescribed.

Recruiting & Appointing Compliant AFSL Representatives for Your AFS Licence

Conducting Thorough Due Diligence & Background Checks for Prospective Advisers & Representatives

Before an AFSL holder appoints any individual or entity as an authorised representative, it is crucial to conduct comprehensive due diligence and background checks. These checks ensure that prospective representatives are suitable, competent, and do not pose an undue risk to clients or the AFS licensee’s compliance standing. ASIC expects these measures to include appropriate background checks before new representatives are appointed.

The range of background checks an AFS licensee should consider, proportionate to the risks involved with the appointment, typically includes:

Assessment Method	Description
Knowledge tests or quizzes	Focusing on recent regulatory changes or new product information.
Role-playing exercises	Designed to evaluate client interaction skills and the application of advice processes.
Direct observation of client meetings	Conducted with client consent, to assess real-world performance.
Systematic reviews of advice documents	Such as Statements of Advice (SOAs) or Records of Advice (ROAs), to check for quality, clarity, and compliance.
Analysis of case studies	To gauge problem-solving abilities and understanding of complex situations.

AFSL licensees must maintain detailed records of all background checks performed and the outcomes of these inquiries. This documentation is vital for demonstrating that the licensee has taken reasonable steps to ensure the suitability of its authorised representatives.

Adhering to the ASIC Reference Checking & Information Sharing Protocol for Financial Advisers

A mandatory component of the due diligence process for an AFSL licensee recruiting financial advisers or mortgage brokers is adherence to the ASIC Reference Checking and Information Sharing Protocol. This protocol, detailed in ASIC Information Sheet 257 (INFO 257) and the ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2024/647, is designed to promote better and more consistent information sharing about the performance history of these individuals, focusing on compliance and risk management. Under section 912A(1)(cc) of the Corporations Act 2001 (Cth), AFS licensees must comply with this ASIC protocol.

Key obligations under this protocol for the recruiting AFS licensee include:

• Obtaining Consent: The recruiting licensee must obtain explicit written consent from the prospective adviser or mortgage broker before requesting a reference. This consent must be documented using the template form specified by ASIC.
• Requesting References: The recruiting AFS licensee is obligated to request a reference from the candidate’s current and former AFS licensee(s) or credit licensee(s) where they were licensed in the preceding five years. This request must also use the prescribed ASIC template form.
• Information to be Shared: The protocol outlines the specific factual information that referee licensees must share. This includes details about the representative’s employment period, roles, reasons for cessation (if applicable), compliance history, involvement in significant breaches or misconduct, unresolved dispute resolution matters, and ongoing investigations. Recent updates to the protocol also require disclosure of any warnings or reprimands the individual may have received from ASIC or the Financial Services and Credit Panel (FSCP).
• Timelines for Response: Referee licensees are generally required to provide the reference within 10 business days of receiving a compliant request.
• Record-Keeping: Both the recruiting AFS licensee and the referee licensee must maintain records of all consents, reference requests, and references provided or received for a period of seven years.

The diligence of both recruiting and referee licensees is essential for the protocol’s effectiveness in preventing individuals with poor compliance histories from moving between licensees.

Formalising Representative Appointments & Notifying ASIC

Once due diligence and reference checking processes are satisfactorily completed, the appointment of an authorised representative must be formally documented by the AFSL holder. This involves creating a clear written authorisation or agreement that explicitly outlines the scope of the financial services and financial products the representative is permitted to provide on behalf of the AFS licensee.

This documentation is crucial for defining the boundaries of the representative’s authority and helps prevent “scope creep,” where a representative might engage in activities for which they are not authorised or competent.

Following the formal appointment, the AFS licensee has an obligation to notify ASIC:

• For authorised representatives, this notification must typically be made to ASIC within 30 business days of the appointment, in accordance with section 916F of the Corporations Act 2001 (Cth).
• Similar notification requirements apply to the appointment of financial advisers.
• These notifications are generally made using ASIC’s Online services, such as the ASIC Connect portal.
• It is also a requirement for the AFS licensee to notify ASIC upon the cessation of a representative’s authorisation.

Maintaining accurate and up-to-date records of all appointed representatives, their roles, and the scope of their authorisation is an ongoing compliance responsibility for the AFS licensee. These records, including onboarding documentation and ASIC notifications, should be kept in a central file.

Ensuring Ongoing Competence Through Effective Training & Development for Your Representatives

Tailoring Initial Training Programs for Diverse Representative Roles & AFS Licence Authorisations

An AFS licensee holds the responsibility for designing and implementing comprehensive initial training programs for all its authorised representatives. These programs must be carefully tailored to suit the diverse roles that representatives undertake, and the specific authorisations granted under the AFS licence.

Effective initial training is fundamental to establishing a baseline of competence and ensuring representatives understand their obligations from the outset. The content of these initial training programs should cover several key areas to equip representatives adequately:

• Licensee-Specific Policies and Procedures: This includes the AFS licensee’s internal operational guidelines, codes of conduct, and day-to-day processes.
• Product Suites and Service Offerings: Representatives must be knowledgeable about the range of financial products and services they are authorised to provide under the AFS licence.
• Ethical Standards: Training must instil the ethical behaviour and professional conduct expected by the AFS licensee and required by financial services laws.
• Compliance Framework: A thorough understanding of the AFS licensee’s compliance structure, including reporting obligations and how to identify and manage conflicts of interest, is crucial.

ASIC Regulatory Guide 146 (RG 146) outlines minimum training standards that continue to be relevant in certain contexts. While the Professional Standards for Financial Advisers have largely superseded RG 146 for “relevant providers” (individuals providing personal advice to retail clients on most financial products), RG 146 training requirements still apply to an authorised representative who is:

• Providing general advice on any financial product.
• Giving personal advice on basic banking products.
• Offering personal advice on general insurance products.
• Providing personal advice on consumer credit insurance.
• Advising on time-sharing schemes.

For these representatives, the AFS licensee must ensure they meet the applicable Tier 1 or Tier 2 product training standards outlined in RG 146. Furthermore, for representatives whose roles fall outside the direct scope of RG 146, such as those dealing exclusively with wholesale clients or performing non-advisory functions, the AFS licensee still has an obligation under section 912A(1)(f) of the Corporations Act 2001 (Cth) to ensure they receive adequate initial training. This training must render them competent for their specific duties and ensure they understand the scope of their authorisation and their obligations under the financial services laws.

Implementing Continuous Professional Development & Competency Assessments for Financial Advisers & Other Representatives

An AFS licensee’s obligation to ensure representative competence extends beyond initial training; it necessitates a commitment to ongoing learning and development. Facilitating continuous professional development (CPD) for all authorised representatives, including financial advisers and those in other roles, is crucial for maintaining and enhancing their skills and knowledge in a dynamic regulatory and market environment.

This ongoing development ensures that representatives remain competent to provide financial services efficiently, honestly, and fairly. CPD programs should be structured to cover essential areas, ensuring that each authorised representative remains up-to-date:

• Regulatory Updates: Keeping abreast of changes to financial services laws, ASIC regulatory guides, and other compliance obligations.
• Product Knowledge: Understanding new or modified financial products and services offered under the AFS licence, including their features, risks, and target markets.
• Skills Development: Enhancing practical skills such as client communication, ethical decision-making, risk assessment, and the use of relevant technologies.
• Addressing Identified Deficiencies: Tailoring training to address any knowledge gaps or areas for improvement identified through compliance monitoring, supervision activities, or performance reviews.

Alongside CPD, regular competency assessments are vital for an AFS licensee to verify that its representatives are maintaining the required standards. These assessments should be practical and relevant to the representative’s role. Methods for assessing competence can include:

• Knowledge tests or quizzes focusing on recent regulatory changes or new product information.
• Role-playing exercises designed to evaluate client interaction skills and the application of advice processes.
• Direct observation of client meetings, conducted with client consent, to assess real-world performance.
• Systematic reviews of advice documents, such as Statements of Advice (SOAs) or Records of Advice (ROAs), to check for quality, clarity, and compliance.
• Analysis of case studies to gauge problem-solving abilities and understanding of complex situations.

If an assessment reveals that an authorised representative is not competent, the AFS licensee must take appropriate and timely action. This may involve providing additional targeted training, implementing closer supervision, restricting the scope of the representative’s authorisation, or, if necessary, ceasing their authorisation.

Maintaining Comprehensive Training Records for AFS Compliance & ASIC Scrutiny

Maintaining comprehensive and accurate training records for every authorised representative is a critical AFS compliance requirement for an AFS licensee. This is not merely good practice but a specific legal obligation under regulation 7.6.04(1)(d) of the Corporations Regulations 2001 (Cth).

ASIC places significant emphasis on these records as tangible evidence of an AFS licensee’s adherence to its training and competence obligations, as stipulated in section 912A(1)(f) of the Corporations Act 2001 (Cth). ASIC expects these records to be meticulously kept and readily available.

For each authorised representative, the training records should comprehensively document their learning and development journey. Typically, these records must include:

• The dates on which all training sessions, courses, or modules were completed.
• The specific topics covered during each training activity, providing detail on the content delivered.
• The duration of each training module or program, indicating the time commitment involved.
• The results of any assessments, examinations, or competency evaluations undertaken by the representative.
• Evidence of competence achieved, which might include certificates of completion, supervisor sign-offs, or assessment reports.
• Details of any qualifications obtained as a result of the training undertaken.

These detailed training records are subject to ASIC scrutiny during routine surveillance activities, thematic reviews, or specific investigations. They are vital for an AFS licensee to demonstrate that it is proactively managing and fulfilling its crucial obligations to ensure that every authorised representative is adequately trained and competent to provide financial services.

Implementing Robust Monitoring & Supervision of Your AFSL Representatives

Adopting a Risk-Based Approach to Representative Supervision for Your AFS Licence

An AFS licensee should tailor the nature, frequency, and intensity of its supervision activities based on the specific risks associated with its authorised representatives. This risk-based approach allows an AFSL holder to focus its compliance resources more effectively.

The level of monitoring and supervision required will depend on the nature, scale, and complexity of your financial services business, including the functions your representatives perform and whether your business operates from one or multiple locations (RG 104.73).

Factors to consider when determining the risk profile of an authorised representative and the corresponding level of supervision include:

• Individual Representative Activities: The types of financial products and financial services the representative is authorised to provide. For instance, representatives advising on complex financial products or handling client money may require more intensive oversight.
• Experience Levels: Newer or less experienced representatives may pose a higher risk and therefore necessitate closer supervision and more frequent reviews until they demonstrate consistent competence and AFS compliance.
• Complexity of Products Advised On: The intricacy of the financial products offered by a representative influences the risk. Advising on sophisticated or high-risk products generally calls for a higher degree of scrutiny from the AFS licensee.
• Compliance History: Past performance and compliance history are crucial indicators. An authorised representative with a record of compliance issues or minor breaches should be subject to more rigorous monitoring and supervision by the AFSL holder. Conversely, a representative with a consistently strong compliance record might require a less intensive, though still diligent, level of oversight.
• Client Base: The nature of the clients served, such as whether they are retail clients or wholesale clients, can also affect the risk profile and the necessary supervisory response.

ASIC expects that an AFS licensee will identify and address higher-risk activities of its representatives (RG 104, Table 4). This involves a dynamic assessment, meaning the risk profile of an authorised representative and the corresponding supervision strategy may need to be adjusted over time as circumstances change.

Key Monitoring & Supervision Mechanisms for AFSL Licensees to Oversee Advisers

To effectively oversee advisers and ensure they comply with financial services laws, AFS licensees can implement various monitoring and supervision mechanisms. These methods allow the AFSL holder to determine whether their authorised representatives are adhering to their obligations and the AFS licence conditions (RG 104.74).

ASIC’s Regulatory Guide 104, particularly Table 4 in the appendix, provides a useful reference for designing these measures. Practical methods an AFS licensee can use to monitor representative conduct include:

• Advice Reviews (Pre-vetting or Post-vetting):
  • Pre-vetting: This involves reviewing an adviser’s advice before it is provided to the client. This mechanism is particularly useful for new, inexperienced, or higher-risk authorised representatives, or for complex advice situations.
  • Post-vetting: This consists of reviewing a sample of advice documents, such as Statements of Advice (SOAs) or Records of Advice (ROAs), after they have been delivered to clients. This helps the AFSL holder assess the quality of advice and compliance with documentation standards.
• Client File Audits: Conducting regular and systematic reviews of client files maintained by the authorised representative. These audits help verify adherence to internal policies, procedures, and regulatory requirements, including record-keeping obligations.
• Direct Observation of Client Interactions: Observing client meetings, with client consent, or internal discussions involving the adviser. This can provide valuable insights into an adviser’s communication style, needs analysis process, and overall professionalism.
• Call Monitoring: For authorised representatives who provide financial services or advice over the phone, monitoring recorded calls can help assess compliance, service quality, and adherence to scripts or disclosure requirements.
• Analysis of Data and Complaints:
  • Data Analytics: Analysing trading patterns, product recommendations, fee structures, and other data points from CRM or transaction systems to identify outliers, unusual activity, or potential compliance risks associated with specific advisers.
  • Complaints Monitoring: Tracking and analysing complaints received about specific advisers or advice. A high-volume or particular pattern of complaints can indicate underlying issues with an adviser’s conduct or competence.
• Regular Meetings and Performance Reviews: Holding scheduled meetings with advisers to discuss performance, AFS compliance matters, key risk indicators, and areas for professional development.
• Review of Communications: Sampling emails, social media interactions, or other forms of client correspondence to ensure professionalism, accuracy, and compliance with the AFSL holder’s communication policies.

These mechanisms should be part of a documented monitoring and supervision framework that outlines how the AFS licensee will keep track of its representatives, ensure they act within their authorisation, monitor their compliance, and respond to any compliance failures (RG 104.80).

Documenting All Monitoring & Supervision Activities for ASIC Review & Compliance Evidence

Maintaining clear, comprehensive, and contemporaneous records of all monitoring and supervision activities is of crucial importance for an AFS licensee. This documentation serves as vital evidence for ASIC to assess whether the AFSL holder is meeting its general obligations, particularly the duty to take reasonable steps to ensure its authorised representatives comply with financial services laws (s912A(1)(ca) of the Corporations Act 2001 (Cth)).

ASIC expects licensees to document their compliance measures (RG 104.26) and keep records of their monitoring and reporting (RG 104.29). The records of monitoring and supervision activities should meticulously detail:

• The nature of the activity: For example, whether it was a client file audit, a pre-vetting review of advice, direct observation, or call monitoring.
• The date and time of the activity: Ensuring a contemporaneous record.
• Who conducted the monitoring or supervision: Identifying the responsible manager or compliance personnel involved.
• Which authorised representative or activity was reviewed: Clearly specifying the scope of the review.
• The specific findings of the review: This includes both positive observations and any identified deficiencies, discrepancies, or potential breaches of financial services laws or the AFS licence conditions.
• Any remedial actions taken: Detailing the steps implemented to address identified issues. This could include further training for the adviser, revisions to advice documents, client remediation, or disciplinary actions.
• Follow-up actions and their outcomes: Documenting how the AFSL holder ensured that corrective measures were effective and that the authorised representative addressed the identified concerns.

ASIC’s Regulatory Guide 104 (Table 4, Appendix) emphasises the need for AFS licensees to keep sufficient records about their monitoring and supervisory activities. These records are not only for ASIC’s review during surveillance or investigations but also enable the sharing of information under the ASIC protocol regarding current and former representatives.

Robust record-keeping demonstrates that the AFSL holder has an active and ongoing commitment to its compliance obligations, and is crucial for defending against potential allegations of inadequate supervision. Failure to maintain such records can make it difficult for a licensee to prove it has taken reasonable steps to ensure its authorised representatives comply with the law.

Managing Non-Compliance & Breach Reporting for Representatives Under Your AFSL

Establishing Processes for Investigating & Remediating Representative Breaches & Misconduct

An AFSL holder must establish clear internal processes for managing any instances of non-compliance or misconduct by an authorised representative. These processes are crucial for maintaining AFS compliance and protecting clients.

When a potential compliance issue or suspected misconduct by a representative is identified, whether through monitoring, a client complaint, or other means, the AFS licensee is expected to conduct a thorough and objective investigation.

The investigation should aim to:

• Determine the full facts surrounding the incident
• Assess the nature and extent of any non-compliance with financial services laws or the AFSL holder’s internal policies
• Identify the root cause of the breach to prevent recurrence

Following an investigation, if a breach or misconduct by an authorised representative is confirmed, the AFS licensee must implement appropriate and timely corrective actions. The specific actions will depend on the severity and nature of the breach, but may include:

• Providing additional, targeted training to the adviser
• Implementing closer or more intensive supervision of the authorised representative
• Placing restrictions on the representative’s authorisation
• Taking disciplinary action, which could range from formal warnings to the termination of their authorisation

If the representative’s actions have resulted in financial loss or harm to clients, the AFSL licensee must have procedures for client remediation. This could involve compensation for any losses incurred. ASIC Regulatory Guide 256 Client review and remediation conducted by advice licensees (RG 256) and Regulatory Guide 277 Consumer remediation (RG 277) provide guidance on these processes.

The efficiency of these internal investigation and remediation capabilities is paramount, as protracted investigations into potential significant breaches may themselves become reportable situations to ASIC.

Understanding & Fulfilling Reportable Situation Obligations to ASIC for Your Representatives

An AFS licensee has a mandatory obligation under the Corporations Act 2001 (Cth) to notify the Australian Securities and Investments Commission (ASIC) of “reportable situations,” a regime formerly known as breach reporting. This requirement is detailed in ASIC Regulatory Guide 78 Breach reporting by AFS licensees and credit licensees (RG 78).

Generally, an AFSL holder must lodge a report with ASIC via the ASIC Regulatory Portal within 30 calendar days of becoming aware that there are reasonable grounds to believe a reportable situation has arisen or is likely to have arisen.

Reportable situations involving an authorised representative can include a range of circumstances. Key examples include:

• A significant breach, or likely significant breach, of “core obligations” by the AFS licensee or its authorised representative. Core obligations generally refer to the general obligations under section 912A(1) of the Corporations Act 2001 (Cth) and other key legislative provisions
• An internal investigation into whether a significant breach of a core obligation has occurred, if that investigation continues for more than 30 days. The outcome of such an investigation must also be reported
• Conduct by an authorised representative who constitutes gross negligence or serious fraud
• If the AFS licensee becomes aware of conduct by a representative of another licensee that they believe is a reportable situation

Failure by an AFSL holder to identify and report these situations to ASIC in a timely manner can be viewed by ASIC as a serious matter. It may indicate systemic weaknesses in the licensee’s compliance framework, monitoring systems, or internal escalation processes for compliance issues.

Such failures can lead to further regulatory scrutiny and potential enforcement action, as this reporting is a key mechanism through which ASIC monitors industry conduct and risks.

Leveraging Resources & Technology for Representative Oversight by Your AFSL

Ensuring Adequate Human Financial & Technological Resources for Effective Supervision of Advisers

An AFS licensee has a fundamental obligation under section 912A(1)(d) of the Corporations Act 2001 (Cth) to maintain adequate resources. This includes having sufficient financial, technological, and human resources to provide the financial services covered by the AFS licence and to effectively carry out supervisory arrangements for every authorised representative. The adequacy of these resources is crucial for an AFSL holder to demonstrate its capacity to operate its financial services business in full compliance with financial services laws and to properly supervise its advisers.

The requirement for adequate human resources means an AFSL licensee must have enough competent personnel to fulfil all legal obligations, conduct thorough monitoring and supervision of its authorised representative network, and meet current and anticipated operational needs. ASIC’s Regulatory Guide 104 (RG 104) highlights that indicators of inadequate human resources can include a low ratio of compliance staff to representatives or insufficient staff to conduct regular reviews. Investment in compliance personnel is essential for an AFSL holder.

Similarly, an AFSL holder must possess adequate technological resources. These resources should enable the AFS licensee to:

• Comply with all its obligations under the law.
• Maintain client records accurately and ensure data integrity.
• Protect confidential and other sensitive information.
• Meet current and anticipated future operational needs of the financial services business. Failure by a licensee to invest in appropriate technological systems can impede its ability to take reasonable steps in supervising its authorised representative, potentially leading to compliance failures.

Exploring RegTech Solutions for Enhanced Monitoring Compliance & Risk Management for Financial Advisers & Representatives

Regulatory Technology (RegTech) offers AFSL holders a suite of digital tools to enhance the efficiency and effectiveness of managing and supervising their authorised representative network. These solutions can automate and improve various compliance processes, assisting the AFSL holder in meeting its obligations.

Various types of RegTech tools can be utilised by an AFS licensee for improved oversight of an adviser:

RegTech Tool Type	Function/Benefit
Monitoring and Surveillance Tools	These often use Artificial Intelligence (AI) to scan advice documents like Statements of Advice (SOAs) for compliance, analyse client communications for misconduct indicators, monitor transactions for unusual activity, and provide real-time alerts for potential breaches.
Training and Competency Management Systems	Learning Management Systems (LMS) can deliver, track, and document training for each authorised representative, including Continuing Professional Development (CPD), while other platforms can facilitate online competency assessments.
Compliance Management and Reporting Platforms	These tools help an AFSL holder manage obligations registers, track regulatory changes, streamline incident management and breach reporting workflows, and generate compliance reports.
Risk Assessment and Management Tools	Software solutions can assist in identifying, assessing, and mitigating risks associated with the conduct of an authorised representative, often employing predictive analytics.

The adoption of RegTech by an AFS licensee can offer significant benefits, such as:

• Increased Efficiency: Automating manual tasks can save time and reduce operational expenses for the AFSL holder.
• Improved Consistency and Accuracy: Automated checks can apply compliance rules more uniformly than manual reviews.
• Enhanced Monitoring: Technology allows for the analysis of vast amounts of data, enabling more comprehensive oversight of each authorised representative.
• Better Data Insights: RegTech can provide better insights into compliance trends, representative performance, and emerging risks.
• Better Record-Keeping: Digital systems often provide more robust and auditable records of compliance activities, which is vital for an AFSL holder.

However, an AFS licensee must also be aware of the limitations and considerations when implementing RegTech for the supervision of an authorised representative. These include:

• Cost and Complexity of Implementation: The initial investment and integration of RegTech with existing systems can be substantial for any AFS licensee.
• Need for Human Oversight: Technology is a tool to assist the AFSL holder, not a replacement for human judgment and accountability. Outputs from RegTech systems require interpretation and action by skilled compliance professionals. Over-reliance on automation without adequate human oversight can lead to new compliance risks.
• Data Security and Privacy: Handling sensitive client and authorised representative data through third-party RegTech solutions necessitates robust data security measures and adherence to privacy laws by the AFS licensee.
• Fitness for Purpose: Not all RegTech solutions are suitable for every AFS licensee. The choice should be driven by a thorough risk assessment of the licensee’s specific representative network, business model, and identified compliance risks.
• Algorithmic Bias and Accuracy: AI-driven tools may be subject to biases, potentially leading to unfair or inaccurate outcomes if not carefully managed by the AFSL holder.

As AI becomes more integrated into RegTech, ASIC’s scrutiny of how an AFS licensee governs these advanced tools in representative oversight is likely to intensify. Licensees will increasingly need to demonstrate that such tools are used responsibly, their outputs are validated, and AI-specific risks are managed, ensuring supervisory arrangements remain adequate and contribute to financial services being provided efficiently, honestly, and fairly.

Conclusion

Effectively managing authorised representatives and financial advisers under an Australian Financial Services Licence involves diligent recruitment, ongoing training and competence assurance, robust monitoring and supervision, and clear processes for handling non-compliance, all underpinned by adequate resources and a strong compliance culture. Adherence to these comprehensive strategies is crucial for an AFSL holder to meet their obligations under the Corporations Act 2001 (Cth), particularly section 912A, thereby ensuring financial services are provided efficiently, honestly, and fairly.

To ensure your AFS licence remains compliant, and your representatives are managed effectively in line with your obligations, reach out to AFSL House today. Our experts specialise in providing tailored compliance frameworks and support for financial services companies, helping you turn regulatory challenges into strategic opportunities and safeguard your business.

Frequently Asked Questions (FAQs)