ASIC urges licensees to review and improve recruitment of new advisers

ASIC has warned financial services licensees to ensure they have robust recruitment processes in place when appointing representatives who have worked for a business ASIC has taken action against.

The warning follows recent ASIC action against licensees, including financial advisers and securities dealers, with ASIC becoming aware many of their representatives have moved to new licensees.

‘More broadly, we are seeing significant industry restructuring at present and it is vital that recruitment standards are high in such an environment,’ ASIC Deputy Chairman Peter Kell said.

‘Generally, licensees have good compliance and governance standards and ensure representatives go through rigorous checking before taking them on. However, we want to make sure that all licensees are fully aware of the need to do this. The reputation of a firm can painstakingly be built over a number of years but seriously damaged overnight through poor representatives.

‘In many cases, representatives of licensees against which ASIC has taken action will be adequately trained and competent, and comply with the financial services law. However, where representatives have come from an environment in which there was a culture of poor compliance or poor quality advice, appointing licensees need to take extra care to satisfy themselves that representatives are properly trained and monitored to address early any issues that might arise.

‘ASIC urges all licensees to review their current approach to appointing representatives and make sure processes are robust.

‘Licensees must have in place adequate compliance and governance standards. This includes being responsible for the conduct of representatives they appoint.’

Licensees must:

• ensure migrating representatives are competent and adequately trained. It is important that they are effectively screened and their background checked
• have adequate supervisory arrangements in place to identify and address deficiencies quickly, and
• have adequate financial, technological and human resources to supervise and monitor new representatives, especially in cases of business growth.

‘Monitoring and supervision are much more than audits and compliance checks. They are about proactively ensuring that advice is appropriate and clients are treated fairly,’ Mr Kell said.

‘ASIC is continuing to closely scrutinise licensees’ obligations to demonstrate adequate monitoring and supervision and will not hesitate to take action where we find those practices deficient.’

Mr Kell reminded licensees of ASIC’s new powers under FOFA. ‘The powers allow us to restrict or remove from the industry firms and individuals who might cause or contribute to investor losses,’ he said.