ASIC also lays out some conditions (but not limited to), under which a provider will have acted as a principal. These conditions generally point to one key element: evidence of independence in providing financial services. In the event that such evidence is found to be true, where a provider conducts in a manner attributable to a principal rather than a representative and fails to meet these conditions, the provider will be required to have its own AFS license. The licensee is fully responsible for the conduct of its authorized and sub-authorized representatives and has indirect obligations to all third party representatives.
Licensee Obligations to Representatives:
General Obligations
Section 912A of the Act states broader obligations of licensees. Section 792A sets out some specific but general obligations in relation to authorized representatives, which licensees are required to perform and it further states their duties in compliance to ASIC and matters relating to fair market practice rules. ASIC is entitled to assess a licensee's compliance in relation to its obligations. Depending on the seriousness of the findings, ASIC may either refer its findings to affected persons if it has "material extent" and if in serious breach of the law, ASIC would refer to relevant authorities. ASIC summaries the main obligations of licensees under the following points:
"conduct and disclosure; the provision of your financial services; the competence, knowledge and skills of your responsible officers, as well as their good fame and character; the training and competence of your representatives and authorized representatives; compliance, managing conflicts of interest and risk management; the adequacy of your financial, technological and human resources, and; your dispute resolution and compensation arrangements (if your clients are retail clients)".
There are specific obligations that a licensee will have to perform mostly in the areas of compliance and competency, which, lack of either will have statutory and common law implications being borne by the licensee itself.
Specific Obligations
A licensee's specific obligations in relation to authorized and sub-authorized representatives are a combination of provisions in the Act and its Regulations and ASIC Policy Statements. Also, due to the contractual nature of the arrangement, a licensee's obligations extend to general law. Through PS146, ASIC as administrator of the Act sets out the minimum training requirements for financial product advisers. The term "financial product advisers" is used when referring to licensees and authorized representatives who provide financial product advice to retail clients.
ASIC requires all natural persons that are financial advisers who are themselves the licensees, authorizers, authorized representatives of corporate bodies or sub-authorized representatives, must all meet the minimum training standard required. It is therefore the role of the licensee to make sure it's authorized and sub-authorized representatives meet ASIC's minimum training requirements for the provision of all services that could possibly be classified as financial services. ASIC explicitly states that it is the "ultimate responsibility" of the licensee in making sure all financial advise providers under the licensee's umbrella are adequately trained and practice within their authorized limits.
In the event of financial advice being relayed by customer service representatives or provided by para-planners and trainee advisers, ASIC lays down the ground rules for proper practice. In particular, a customer service representative may only be allowed to provide financial product advice if the advice is:
"... Derived from a script approved by a person who meets the [PS 146] standards [PS 146.15A]; or made under the direct supervision of a person who meets the [PS 146] standards [PS 146.15B].
ASIC therefore enforces statutory contractual obligations on the part of licensees' to abide by those provisions and rulings drawn by way of policy statements. Failure to abide may trigger civil and common law proceedings. ASIC states various common law obligations that may arise when providing financial advice which includes the need to disclose conflict of interest situations, exercising due care, diligence and competency. ASIC's stand in the case of para-planners is that they do not necessarily need to be complying with PS146 unless otherwise if the para-planner:
".... Plays a material role in the provision of financial product advice to retail clients; and remains responsible (together with the licensee) for the provision of financial product advice to retail clients.
Furthermore, it is the licensee's duty to notify ASIC about the appointment of authorized representatives to offer financial services as prescribed. In the case of a sub-authorized representative, either the licensee or the authorizer can revoke the appointment and that revocation must be conveyed to the individual.
The licensee's duties also extend towards ensuring the authorized representative provide a Product Disclosure Statement (“PDS”) or a Supplementary Product Disclosure Statement (“SPDS”) of which, failure to do so entails an offence.Division 7 of Part 7.9 of the Act states the various offenses in relation to PDS or SPDS, particularly the obligation to make available such documents, defective status of PDS and unauthorized alterations.
