ASIC’s commencement of proceedings against Dixon Advisory has highlighted the importance of having effective conflicts of interest management frameworks in place as an AFSL holder. ASIC has accused representatives of Dixon Advisory of failure to act in the best interests of their clients and provide advice in accordance with their clients’ circumstances. ASIC are seeking contravention and pecuniary penalties against Dixon Advisory for alleged conflicts of interest and inappropriate advice given.
What is a Conflict of Interest?
Conflicts of interest arise when the interests of an AFSL holder or its Representatives are inconsistent with or divergent from its clients’ interests. There may also be conflicts between:
- the AFSL itself and their employees/representatives; and/or
- a number of clients of the AFSL
These include actual, potential or perceived conflicts of interest.
Licensees have an obligation under s912(a)(aa) of the Corporations Act to ensure adequate arrangements for the management of conflicts of interest in relation to its provision of financial services. The underlying principle is that adequate conflicts management can minimise the potential adverse impact on your clients and ensure the quality of your financial services is not compromised. The most direct outcome from insufficient conflicts arrangements is the inability to act in the best interest of your clients.
However, conflicts of interest is not a black and white concept. Conflicts management does not prohibit all conflicts of interest situations from existing within your business. What constitutes adequate conflicts management depends on the nature, scale and complexity of your business. You may be able to comply with the regulatory requirements in several different ways. Ultimately, successful management requires all conflicts of interest to be adequately managed through a combination of internal controls and disclosures. If conflicts cannot be managed by a combination of the two, then AFSL holders must avoid the conflict.
How to stay on track?
AFSL holders should keep records of what they have done to monitor compliance with their conflicts management arrangements. Documents and records can be kept electronically. We recommend AFSL holders have a written conflicts management policy and keep track of potential and actual conflicts to monitor in the form of a register. These documents and records need to be reviewed and updated on a regular basis.
What do you need to do?
We recommend licensees utilise the three available mechanisms to manage conflicts of interest as recommended by ASIC. These are:
- avoiding; and
You can put these into action by:
- having an appropriate system, policies and procedures to ensure you comply; and
- seeking advice from an independent compliance consultant.
ASIC’s Regulatory Guide 181.64 has provided a list of issues to consider when managing conflicts of interest. We encourage you to check the list and ensure your conflicts of interest are being managed appropriately.
How Sophie Grace can help you?
Sophie Grace can help you by providing compliance support to identify and manage conflicts in an appropriate manner. We can assist you in the following ways:
- assess the adequacy of the arrangements you have in place to manage conflicts of interest; or
- develop your policy and monitoring documentation.
If you would like to further discuss how these arrangements work in your business, please contact us.
- Corporations Act 2001 (Cth), particularly:
- Section 912A(1)(aa) articulates the overarching conflicts management obligation;
- Section 961K(2) imposes liability on licensees for contraventions by their representatives of duties including sections 961B (best interests);
- Section 961G (appropriate advice); and
- Section 961J (conflicts between the client’s interests and those of the provider).
- ASIC Regulatory Guide 181