ASIC has commenced legal proceedings in the Federal Court in what is the first action taken in relation to an alleged breach of the conflicted remuneration and other banned remuneration provisions as outlined in Divisions 4 and 5 of Part 7.7A of the Corporations Act 2001 (the Divisions). If found guilty, both the Australian Financial Services Licence (AFSL) holder and the Corporate Authorised Representative (CAR) may be subject to a civil penalty of up to $1 million.
In June 2019, ASIC released Media Release 19-135MR (the Media Release) detailing the commencement of proceedings against an AFSL holder and its CAR for an alleged breach of the Divisions regarding conflicted remuneration. The CAR had referral agreements in place which detailed arrangements for the payment of referral fees to the CAR. ASIC has brought the proceedings on the basis that the referral payments in question could reasonably be expected to influence any financial product advice provided to retail clients by the CAR and therefore should be considered conflicted remuneration. ASIC also alleges that the AFSL holder was aware of the referral agreements and the payments being made to the CAR and did not take reasonable steps to stop the CAR from accepting such payments.
Interestingly, ASIC also alleges that the AFSL holder’s failure to take reasonable steps to ensure the CAR’s compliance with the financial services law and the Divisions regarding conflicted remuneration is itself a breach of the law.
What Does This Mean?
AFSL holders should:
- review their remuneration structures to ensure they are not paying or receiving conflicted remuneration or other banned remuneration and make any necessary changes to ensure the Divisions are not being breached.
- ensure their CARs and other Authorised Representatives are not breaching the Divisions and conduct a review of all relevant remuneration structures.
- consider their compliance monitoring procedures to ensure appropriate supervision is in place for all CARs and Authorised Representatives.
Under the Divisions:
- product issuers and sellers must not pay conflicted remuneration to AFSL holders, Authorised Representatives or any other representative (Financial Services Participants);
- Financial Services Participants must not accept conflicted remuneration; and
- employers of AFSL holders must not pay Financial Services Participants conflicted remuneration for their work as an employee.
Section 963F of the Corporations Act requires AFSL holders to take reasonable steps to ensure its Authorised Representatives and other representatives are not accepting conflicted remuneration.
ASIC Regulatory Guide 246 (RG 246) provides further information on the types of conflicted remuneration and other banned remuneration as well as useful practical examples of the types of payments which may be deemed conflicted remuneration. It is important to note RG 246 also includes examples of scenarios where the ban on conflicted remuneration does not apply.
You can read the Media Release on ASIC’s website.
You can read RG 246 here.
If you require any assistance in regards to your businesses conflicted remuneration obligations or require further advice regarding fees, please contact us.
Sarah works with the Compliance Team with a particular focus on compliance and legal services. Sarah works with the Legal Team providing ongoing assistance in drafting and reviewing documentation as well as legal research. Sarah assists clients with AFSL and ACL applications, variations and also assists in the implementation of compliance reviews. She provides ongoing compliance support in the form of compliance program implementation and reviews.