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Monday 6 May 2013

13-097MR Licensees urged to review and improve recruitment of new advisers

ASIC today warned financial services licensees to ensure they have robust recruitment processes in place when appointing representatives who have worked for a business ASIC has taken action against.

The warning follows recent ASIC action against licensees, including financial advisers and securities dealers, with ASIC becoming aware many of their representatives have moved to new licensees.

‘More broadly, we are seeing significant industry restructuring at present and it is vital that recruitment standards are high in such an environment,’ ASIC Deputy Chairman Peter Kell said.

‘Generally, licensees have good compliance and governance standards and ensure representatives go through rigorous checking before taking them on. However, we want to make sure that all licensees are fully aware of the need to do this. The reputation of a firm can painstakingly be built over a number of years but seriously damaged overnight through poor representatives.

‘In many cases, representatives of licensees against which ASIC has taken action will be adequately trained and competent, and comply with the financial services law. However, where representatives have come from an environment in which there was a culture of poor compliance or poor quality advice, appointing licensees need to take extra care to satisfy themselves that representatives are properly trained and monitored to address early any issues that might arise.

‘ASIC urges all licensees to review their current approach to appointing representatives and make sure processes are robust.

‘Licensees must have in place adequate compliance and governance standards. This includes being responsible for the conduct of representatives they appoint.’

Licensees must:

  • ensure migrating representatives are competent and adequately trained. It is important that they are effectively screened and their background checked

  • have adequate supervisory arrangements in place to identify and address deficiencies quickly, and

  • have adequate financial, technological and human resources to supervise and monitor new representatives, especially in cases of business growth.

‘Monitoring and supervision are much more than audits and compliance checks. They are about proactively ensuring that advice is appropriate and clients are treated fairly,’ Mr Kell said.

‘ASIC is continuing to closely scrutinise licensees’ obligations to demonstrate adequate monitoring and supervision and will not hesitate to take action where we find those practices deficient.’

Mr Kell reminded licensees of ASIC’s new powers under FOFA. ‘The powers allow us to restrict or remove from the industry firms and individuals who might cause or contribute to investor losses,’ he said.

Aliom Pty Ltd

Sydney-based Aliom Pty Ltd (Aliom) is the latest securities dealers to downsize its business following ASIC’s crackdown on representatives migrating from one licensee to another.

Aliom promoted managed discretionary account platforms and a range of investment education and financial markets trading and modelling tools to investors via a network of 29 corporate and individual authorised representatives in Queensland, New South Wales, Victoria and Western Australia.

An ASIC review of Aliom’s operations in 2012 found it had failed to comply with conditions of its Australian financial services (AFS) licence, in particular:

  • supervision and monitoring of authorised representatives

  • breach assessment and reporting processes

  • advice provided in relation to managed discretionary accounts, and

  • publication of promotional and marketing materials by representatives.

As a result of the review, Aliom has revoked the majority of its representative authorisations. The former representatives included those who had moved from licensees against whom ASIC had taken action.

Aliom has also agreed to reduce the number of managed discretionary account platforms it offers and appoint an independent consultant to review its risk management and compliance.

ASIC acknowledges Aliom’s cooperation in the matter.


Other securities dealers ASIC has taken action against include Clearing & Settlement Services Pty Ltd (CSS) (refer: 13-068MR) and Halifax Investment Services Ltd (Halifax) (refer: 13-071MR).

ASIC’s recent action against licensees who provide financial advice includes AAA Financial Intelligence and AAA Shares (refer: 13-019MR), Morrison Carr Financial Services (refer: 12-183MR), and Australian Financial Services Pty Ltd (refer: 11-243MR).

ASIC’s Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104) describes what ASIC looks for when we assess compliance with most of the general obligations under s912A(1) of the Corporations Act 2001. Also relevant are Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146) and Regulatory Guide 166 Licensing: Financial requirements (RG 166).

The Future of Financial Advice reforms strengthens ASIC’s licensing and banning powers in relation to all licensees by giving ASIC powers to:

  • refuse to issue or cancel/suspend a licence where the licensee is likely to contravene their obligations instead of needing to establish that they will contravene or have contravened their obligations

  • ban individuals from providing financial services if they are likely to contravene a financial services law; and

  • ban individuals from providing financial services if they are not of good fame and character or not adequately trained or competent to provide financial services.

Last updated: 06/05/2013 12:00