Conflicts of interest
An AFS licence holder has additional responsibilities in relation to conflicts of interest. If you would like to read the policy statement, refer to RG181 on the ASIC website.
Effectively your obligations are to manage, avoid and disclose situations of conflict of interest within your organisation. These situations apply to both retail and wholesale clients therefore it is important that you have in place appropriate methods of identifying and evaluating their impact on clients.
Examples of conflicts of interest
In our view the most likely situations where conflicts of interest will arise are, where a broker:
- Acts under a binding arrangement
- Is reliant on an insurer(s) for commission as their sole or principle method of income (including over-riders for volume business)
- Has representatives whose income is solely derived from or contingent upon commission or volume business
- Has arrangements in place for premium funding
- Refers clients to other service providers such as risk management services
How to manage conflicts of interest
In our view, the most effective methods of dealing with conflicts of interest are to utilise the Financial Services Guide (FSG), SOA and Letters of Appointment. These three documents are the basis of your client relationships. To assist you we recommend the following action following your evaluation:
- Amend your FSGs
- Amend your SoAs and Letters of Appointment
- Counsel your staff and stress the importance of how to identify and orally provide information on conflicts of interest. This should then tie back into written confirmation via the SoA or Letter of Appointment (in wholesale situations)
- Within your procedural manuals write a principle statement on how the organisation will deal with conflicts of interest situations
- Implement as part of your FSRA regime a conflicts of interest register for breaches
- Utilise the monthly reporting by staff to continuously monitor that conflicts of interest are being avoided where possible or managed and disclosed to clients where necessary.
- In your compliance meetings put a permanent item on the agenda to ensure the Compliance Officer and Responsible Managers are constantly monitoring the situation.
It is very important that you continue to operate as transparently as possible. Given the current investigation by ASIC into this area we urge you to critically evaluate your services and then decide on a firm method of action and stick to it.