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Do I really need to do Responsible Manager (RM) training? – Financial Services


You’re busy. Demand for financial services is high and
there’s a skills shortage. This leaves you with a lot to do. On
top of that, your compliance consultant is saying you need to do
Responsible Manager training. Is she joking?

Let’s take a look at whether, as the Responsible Manager (“RM”) of an Australian financial services
(“AFS”) licensee, you really need to do RM Training and
what drives the answer to that.

What the law tells us

There is no reference to “Responsible Managers”, let
alone to the need for them to do ongoing training, in the
Corporations Act 2001 (“the Act”). RMs were
created by ASIC as a way for an AFS licensee to demonstrate that it
meets a particular requirement under section 912A of the Act. This
is the requirement under section 912A(1)(e) to “maintain the
competence to provide [the financial services covered by the
licence]”.

What ASIC policy tells us

ASIC sets out its policy in relation to this legislative
requirement, and the ways in which ASIC considers RMs satisfy the
requirement, in Regulatory Guide 105: AFS Licensing:
Organisational competence
(“RG 105”).

ASIC policy is not law but, rather, an indication of how ASIC
interprets and will enforce the law. In relation to RMs, if ASIC
took the view that a licensee’s RMs were deficient, it might
bring action against the licensee alleging a breach of section
912A(1)(e) of the Act.

This Regulatory Guide explains that ASIC:

  • refers to the obligation under section 912A(1)(e) as the
    “organisational competence obligation” (RG 105.1)

  • assesses compliance with this obligation by “looking at
    the knowledge and skills of the people who manage your financial
    services business” and refers to these people as
    “Responsible Managers” (RG 105.2).

RG 105 sets out base requirements for those people the licensee
nominates as its RMs. One of these requirements is that they,
together, “have appropriate knowledge and skills for all of
[the licensee’s] financial services and products” (RG
105.5(b)).

The need for knowledge and skills to pick up the regulatory
context

RG 105 does not explicitly refer to the need for an RM to have
knowledge and skills in relation to the Australian regulatory
framework applicable to financial services. However, ASIC’s
approach over the years reveals that this is regarded as an
essential component of being an RM. For example, at RG 105.85, when
discussing requirements for RMs who have overseas experience and
will be working in a financial advice business, ASIC requires them
to complete a course listed on the ASIC Training Register “so
that they can become familiar with Australian regulatory
requirements (e.g. obligations under the Corporations Act)”.
Over nearly 20 years of assisting organisations prepare licence
applications, the team at Holley Nethercote Compliance has observed that
ASIC is alert to situations which suggest that a proposed RM may,
in ASIC’s view, have insufficient familiarity with the
Australian regulatory context to be appointed as an RM.

So, you need to have appropriate knowledge and skills to be
appointed an RM in the first place. These include familiarity with
the Australian regulatory context in which the licensee operates.
You’ve obviously ticked these boxes as you’re already an
RM. What about ongoing training?

The need to maintain knowledge and skills

ASIC expects that a licensee will have measures in place to
ensure that it maintains its organisational competence at all times
(RG 105.6). This expectation derives from a standard condition on
all AFS licences that:

The licensee must establish and maintain compliance measures
that ensure, as far as is reasonably practicable, that the licensee
complies with the provisions of the financial services
laws.

Don’t be tempted to brush aside licence conditions. Section
912A(1)(b) of the Act requires a licensee to comply with the
conditions on its licence. This means they well and truly have the
force of law.

ASIC expects that a licensee’s measures for ongoing
compliance with the organisational competence obligation will
ensure that the licensee maintains and updates the knowledge and
skills of its RMs (105.7(b)).

Maintaining knowledge and skills – documentation and areas to
consider

In practical terms, there are a range of ways a licensee might
maintain the knowledge and skills of its RMs and this would often
be documented by way of a professional development plan or other
documentation which both plans what will be covered (perhaps in a
12 month period) and records activities once they have actually
been completed.

A range of activities will relate to the RM maintaining their
skills and knowledge in relation to the technical aspects of the
provision of the financial services for which they are responsible
under the licence and the industry developments in relation to
those financial services. For example, an RM of a financial
planning licensee which provides personal advice to retail clients
would need to stay abreast of developments in superannuation law
and of market developments affecting investments.

Maintaining knowledge and skills in relation to the regulatory
environment

Other activities will need to relate to the regulatory framework
applicable to the licensee. The regulatory framework of primary
importance is the AFS licensing framework. But other regulatory
frameworks directly impacting the financial services for which the
RM is responsible, such as anti-money laundering and counter-terrorism
financing
(“AML/CTF”), are important as well. This is
because section 912A(1)(c) requires a licensee to comply with the
“financial services laws” and this phrase captures other
“legislation that covers conduct relating to the provision of
financial services” (section 761A of the Act).

How do you, as RM, maintain your knowledge and skills in
relation to the regulatory framework applicable to the licensee and
particularly in relation to the financial services for which you
are responsible? You might do things like:

And, of course, you might do training that specifically
addresses AFS licensing obligations and the associated regulatory
framework. Ideally, this training would also provide a refresher on
the role of an RM, so that you are reminded where you fit into the
bigger picture. This kind of training is what we generally mean
when we talk about “RM training”.

Why are the answers not clearer?

It’s probably frustrating to read that you “might”
do this or you “might” do that. The reality is that the
licensee needs to make sure that its RMs do something to
keep their knowledge and skills up to date. But it’s then over
to the licensee to determine what exactly that is and how often it
happens. You have probably heard ASIC’s regular refrain on
areas where neither the law nor ASIC is terribly prescriptive:

What you need to do to comply will depend on the nature,
scale and complexity of your business.
(RG 105.4)

To boot, ASIC’s media releases do not reveal many instances
where ASIC has taken action against a licensee specifically on the
basis that it failed to maintain the knowledge and skills of its
RMs. By contrast, there are many examples of ASIC taking action
against the director of an AFSL licensee (where the
director also happens to be an RM), resulting in a banning order
under section 920A of the Act. While some commentary on the RM role
may be thrown in to such media releases, the crux of such issues is
usually attached to the role of the banned person as
director of the licensee, rather than as RM.

Could RM training help you steer (personally) clear of
trouble?

Nevertheless, a recent decision of the Administrative Appeals
Tribunal, Schroeder and ASIC [2021] AATA 3519 (30 September
2021)
addressing just such a scenario, was interesting because
of the comments it contained about the kind of culture the director
and RM, Mr Schroeder, fostered at the organisation. The Tribunal
found that the evidence spoke to “a culture that promoted
growth, sales and revenue over compliance.” The Tribunal
broadened the ban originally imposed by ASIC.

It is not clear from the decision whether or not Mr Schroeder
attended any RM training during the course of his role as RM but
one of the grounds for the ban under section 920A was that there
was reason to believe that Mr Schroeder was not adequately trained
or competent to provide financial services or be involved in a
financial services business. One wonders whether regular (or more
regular) attendance at RM training would have sharpened Mr
Schroeder’s senses as to the kinds of regulatory issues and
risks faced by the licensee and caused him either to strive to
change the organisation’s culture or to step down.

Good licensees send their RMs to RM training

As an organisation which provides RM training, it is only fair
to declare our conflict of interest here. Holley Nethercote
Compliance, provides regular half day training sessions to RMs both
in-person and online.

This declaration aside, completion of a half day RM training
course once a year is not a bad element to have in any RM’s
professional development plan. In our experience, licensees with
well-run, orderly compliance frameworks generally send their RMs to
an RM training session at least once a year.

There are now a number of organisations (not just ours) that
offer these kinds of courses.

What to look for in RM training

Look for a course that:

  • provides a refresher on the role of an RM

  • provides a refresher on the AFS legislative framework
    applicable to your licensee and, particularly, applicable to the
    financial services and products for which you are responsible under
    the licence

  • updates you on any recent regulatory developments applicable to
    this legislative framework

  • identifies “big ticket” items on the regulatory scene
    at the time – for example, in recent, times one might expect at
    least some discussion of ASIC’s interest in cyber security and
    the 2021 reforms relating to breach reporting.

It is the responsibility of the licensee (and not your
responsibility as RM) to maintain competence under section
912A(1)(e) and therefore to ensure that the RMs’ knowledge and
skills are kept up to date. However, there can be implications for
you if the licensee fails in this regard. For example, if the
licensee contravenes the obligation under section 912A(1)(e), you
may, as RM, be considered to be involved in that contravention.
Being involved in the contravention of a financial services law by
another person provides grounds for ASIC to ban you from the
financial services industry under section 920A of the Act.

For this reason, for your own benefit, you might like to look
for an RM course that also addresses the topic of personal
liability of RMs and senior managers.

Doing RM training is sensible

So, where we land, then, is that you don’t absolutely have
to do RM training. But a sensible licensee would send its RMs to a
half day RM course at least annually as part of ensuring that it
meets its obligations under section 912A(1)(e).

Other advantages of RM training

Attending such a course also has other potential advantages.

  1. It’s a good risk management strategy as it helps the
    licensee stay abreast of regulatory developments and risk areas,
    helping it to achieve smoother sailing for its business
    activities.

  2. It can be an excellent opportunity (provided the course is
    interactive and some discussion is encouraged – on a confidential
    basis, of course) to calibrate your business against other AFS
    licensees in various areas of compliance risk, to share tips for
    managing such risk and to make connections with others in your
    industry. (For these reasons, it can also often be advantageous to
    bring your compliance manager to the RM training with you, whether
    or not they also wear an RM hat.)

  3. If you choose the right course, with experienced presenters who
    have worked with the financial services industry for some time, it
    can be a really enjoyable way to spend an afternoon and take a
    break from the busyness of everyday work while, at the same time,
    kicking goals for both yourself and your licensee.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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