Do responsible managers need ASIC approval?

From

Jaime Lumsden Kelly

There is no legal requirement for ASIC to “approve” Responsible Managers (RMs), but that’s exactly what’s happening in practice. It’s now creating problems for licensees and RMs.

The letter of the law

Under the law, an RM is legally appointed from the date the AFS licensee determines. This appointment then triggers a requirement for the licensee to notify ASIC within 20 business days of the change. While credit licensees need to notify ASIC of any changes once a year when they lodge their annual compliance certificate.

There is nothing in the law that says the appointment is only effective when ASIC approves the RM. This is something that is often misunderstood. 

What has changed?

In the past, ASIC would send a letter to licensees acknowledging that they had received their notification about RM changes and life went on. ASIC did not routinely assess whether an RM met the competence requirements of the law. Licensees assessed and maintained their own organisational competence.

In recent years, this has changed. While an RM is still legally appointed from the date the licensee determines, whether they remain on the licence is increasingly subject to ASIC’s review and opinion.

Before a licensee can be sure that an RM will remain on their licence long-term, that person will be assessed by ASIC.They review a detailed history of that person’s experience to determine if they are competent to oversee the provision of financial services or credit activities. This means that ASIC is effectively reviewing whether licensees are complying with their organisational competence obligations in light of the experience of its RMs.

The new process is problematic for everyone involved

This new process has created uncertainty and both licensees and RMs are hesitant to fully commit to a role until ASIC has rubber-stamped the arrangement. Licensees are increasingly reluctant to employ RMs, because they aren’t sure if they will have ongoing work for them. Similarly, potential RMs are reluctant to accept an employment offer from a licensee if they can’t be sure of job security.

The problem is exacerbated because it can take ASIC 4 to 12 months to process changes to RMs. These delays make it difficult for licensees and potential RMs to maintain a “holding pattern” while ASIC completes its review. It also raises several questions.

When should a licensee secure an RM? What if the RM gets a better offer? What happens to their licence if they lose an RM as they wait? Do they need to find a new RM and start the process all over again? What if that person can’t easily be replaced?

How can licensees overcome this issue?

Some licensees are forced to go to an external provider to source an RM which makes this issue difficult to manage. Training existing staff to fill these roles and creating internal succession plans is a more viable solution. By having staff internally who can be tapped to fill the role on short notice, licensees can mitigate the uncertainty of needing to recruit new RMs externally.

The argument is even more compelling for difficult authorisations, such as managed investment schemes, derivatives and custodial services. This is because there are relatively few qualified RMs and competition for their services is stiff.

By Jaime Lumsden Kelly

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