What is an Authorised Representative?
“What’s in a name?”
A fair bit when it comes to the term ‘representative’ under our Australian Financial Services licensing regime.
The Act defines the term ‘representative’ as including Authorised Representatives, employees and directors of an AFSL holder or of its related bodies corporate, or anyone acting on behalf of the Licensee. It is a broad net, and its purpose is to place responsibility on a Licensee for all financial services provided under its licence, no matter who the person is providing the services. A Licensee is required to take reasonable steps to ensure that its ‘representatives’ comply with the financial services laws and are adequately trained etc.
In the same way that all ducks are birds, but not all birds are ducks, all Authorised Representatives are ‘representatives’ but not all representatives are Authorised Representatives.
So, what makes a person an Authorised Representative?
A licensee can authorise a person to operate under its licence by giving that person a notice in writing under s916A of the Corporations Act 2001 (Act). The notice will authorise the person to conduct some or all of the financial services that the licence holder is authorised to provide. Typically, Authorised Representatives are running separate businesses to that of the Licensee. They are not employees or related to the Licensee, but the Licensee is happy to have them come ‘under the umbrella’ of its licence.
The Licensee is required to place all Authorised Representatives on ASIC’s Authorised Representatives Register (AR Register) so that the public at large can look up the register to see which Licensee the representative is acting on behalf of. A company can be an Authorised Representative (referred to as a Corporate Authorised Representative) and can sub-authorise individuals to operate under the Licence holders license, if it has the consent of the Licensee to do so. Individuals who are authorised in this way become Authorised Representatives of the Licensee and must also be placed on the AR Register.
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So, if you go onto the AR Register you will see company names and individuals’ names. The AR Register has been around since the start of the FSR regime. The Financial Adviser Register (FAR) is a more recent register and all financial advisers who provide advice to retail clients, whether Employee Representatives or Authorised Representatives, must be on that register.
“A rose by any other name would smell as sweet”
There are some important differences between Authorised Representatives and other representatives.
- When an Employee Representative provides a financial service, the ‘providing entity’ under the Act is the Licensee.
- When an Authorised Representative provides the service, the ‘providing entity’ is the Authorised Representative.
The content requirements for the FSG and SOA differ slightly in relation to the disclosures that need to be made depending on whether the providing entity is the licensee or an Authorised Representative.
To introduce another complexity in terminology, the best interests obligations brought about by the FOFA reforms are on the “provider” of the advice. This is the individual adviser who provides the advice, irrespective of whether that individual is an Employee Representative or an Authorised Representative.
So, if an adviser is an employee of a Licensee, the Licensee will be the ‘providing entity’ and the ‘provider’ will be the Employee Representative. In the case of an Authorised Representative, the individual adviser will be both the ‘providing entity’ and the ‘provider’ of the advice.
So what? You may ask. The rub comes with the possible civil penalty action that could flow from a breach of the best interests’ obligations. Whilst the best interests’ obligations are on the ‘provider’, the Civil Penalty regime is directed at the ‘providing entity’. If an Employee Representative breaches the obligations, it is the Licensee that is directly in the firing line for civil penalties. Whereas, if the providing entity is an Authorised Representative, it is the Authorised Representative.
The Licensee is still exposed to the potential for civil penalties where the Authorised Representative has breached; not for the Authorised Representative’s breach, but for its own possible breach in having failed to take reasonable steps to ensure that its representatives (which you will recall includes Authorised Representatives – all ducks are birds) comply with the best interests obligations.
There can be cultural tensions that arise from the unhappy intersection of the concepts of operating one’s own financial services business but doing so in a ‘representative’ capacity. You can’t be both a principal and a representative at the same time. This is why, an Authorised Representative can’t generally be authorised to ‘issue’ a financial product. An independent mindset can conflict with the reality that the financial services are being provided on behalf of the Licensee. The Licensee dictates policies and procedures that may not suit the Authorised Representatives business and the relationship can also have consequences for remuneration flows and entitlements.
I have seen many situations where the relationships between Licensees and Authorised Representatives have been productive and harmonious. I have seen many instances where they have not, and invariably those are the result of the factors mentioned in the preceding paragraph.
The take outs are that that if you are a Licensee thinking of appointing an Authorised Representative or you are considering becoming an Authorised Representative, as in any business relationship, proceed with caution.
Holley Nethercote has a team of experienced financial services and credit lawyers who can advise you on what your obligations are, either as a Licensee or as an Authorised Representative. We also have a Licensing Team who have helped many Authorised Representatives, particularly in the financial advisory space, become self-licensed by helping them apply for their own Australian Financial Services Licence with ASIC.
Contact us to speak to one of our lawyers or licensing team members to see what options are available to you.
Author: Grant Holley (Managing Partner)