Although much has been made of the compliance costs of holding an AFS license, many advisers are still contemplating a move towards self-licensing. Investment Trends’ 2022 Adviser Business Model Report found that 37% of advisers intend to switch licensees. Of those, nearly 70% indicated they would adopt a self-licensed model.
One of the requirements to hold an AFS license is the nomination of Responsible Managers. It’s an area of compliance we regularly receive enquiries about, both in terms of the initial educational requirements and ongoing professional development.
Whether you’re a business owner applying for an AFS license, or someone considering taking on an RM role, this back-to-basics guide will help get you started on the path to compliance.
What is a Responsible Manager?
Responsible Managers (RMs) are an integral part of the financial services compliance framework. Under s912A(1)(e) of the Corporations Act, AFS licensees have an ‘organisational competence obligation’. This obligation requires the licensee to ensure its staff are competent (ie: have the appropriate skills and knowledge) to deliver the financial services covered by the license.
ASIC assesses a licensee’s compliance with the organisational competence obligation by looking at the skills and knowledge of the people who manage the business; in other words, the organisation’s RMs. RMs must be nominated prior to an AFS license being granted.
What does a Responsible Manager do?
An effective responsible manager is an entity’s superhero.
ASIC expects RMs to play an active role in fostering a compliance culture in their business and in the financial services industry more broadly.
Responsible managers are the people that a licensee appoints to demonstrate that the licensee has the skills and experience to provide specific financial services. They are the ones responsible for making or influencing the day-to-day decisions regarding the financial services provided by the licensee. They are critical to a company demonstrating and maintaining its compliance and competence.
Who can be nominated as an RM?
RMs must meet the following criteria:
They must be directly responsible for significant day-to-day decisions in regard to the provision of financial services.
They must meet one of the options for demonstrating knowledge and skills appropriate to their role.
They must be a ‘fit and proper’ person.
You also need to ensure that you nominate responsible managers whose combined knowledge and skills cover all of your financial services and products: see RG 105.39–RG 105.48.
What are the appropriate knowledge and skills to be a RM?
The people you nominate as responsible managers also need appropriate knowledge and skills for the financial services and products their role relates to. RG105.36
Generally speaking, an RM should hold a tertiary level qualification in a relevant field (eg: an Advanced Diploma in Financial Services, a Bachelor’s Degree in Business, Commerce, Economics or Finance). However, additional education or assessment may be required, depending on the products and services the RM is responsible for, and their qualifications and experience.
These are the five options ASIC has provided for demonstrating an RM has the appropriate knowledge and skills for their role.
Under Option 3, ASIC will accept a responsible manager with a university degree that is only broadly relevant to their role if they have also completed a short industry course covering the specific knowledge not covered by their degree. Your responsible manager must also have three years relevant experience over the past five years. RG105.66
While a university degree in a relevant discipline is desired, prospective RMs need to demonstrate they have the appropriate level of knowledge about the product or service they are responsible for. If the tertiary qualification possessed by the prospective RM is not specific enough to qualify them for option 4, they can complete a short industry course that is specifically relevant to the industry or product their role relates to.
Do Responsible Managers need CPD?
ASIC requires AFS licensees to maintain and update the knowledge and skills of their RMs. Unlike the 20 hours of CPD, ASIC prescribes for RMs of credit licensees, ASIC doesn’t specify how many CPD hours are required for RMs of AFS licensees.
However, the CPD must be ‘adequate’ and assist an RM to:
Maintain knowledge and skills that are appropriate for their activities and responsibilities, and are consistent with any applicable training standards
Update their knowledge and skills, especially in areas where there is continual change
Develop new knowledge and skills to assist with their current role or roles contemplated in the near future.
How FEP can assist with your Responsible Manager Training
Aspiring to become a Responsible Manager?
Our Responsible Manager Fundamentals includes what aspiring RM’s need to know about their role and responsibilities, and the industry regulations licensees must comply with.
Already a Responsible Manager needing CPD?
Our AFSL Responsible Manager CPD is an essential annual update for responsible managers and governance, risk and compliance leaders, providing 15 CPD hours/points.