This document discusses the legal implications and responsibilities for authorised representatives ("AR's") of Australian financial services license holders. It outlines the common law agency relationship between AR's and their licensee principals, as well as the contractual, fiduciary and legislative obligations this relationship creates. Specifically, it discusses the duties AR's owe their principals under both common law and the Corporations Act, how AR's can appoint sub-authorised representatives, rules around representing multiple licensees, and licensee liability for their AR's conduct.

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AILAAILA
Legal implications for AuthorisedLegal implications for Authorised
Representatives (“AR’s”)Representatives (“AR’s”)
Mikaela Reynoldson
Partner

2. Sydney Melbourne Brisbane Canberra Newcastle
Content for todayContent for today

Common law relating to agency

Fiduciary, contractual and legislative
obligations

Responsibilities imposed on the licensee

Statutory disclosure requirements

Client lists and some things to be aware of
with your appointment

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Law of AgencyLaw of Agency

Common law tradition – broker is usually
the agent of the insured but will be the
agent of the insurer if subject to a binder

AR’s are agents of the AFS licence holder

Authority to bind the licensee

Two forms - “Express” (in writing as
evidenced by your AR Agreement) or
“Implied” (evidenced by the actions and
behaviour of the parties)

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Common law duties imposed on AR’sCommon law duties imposed on AR’s

Exercise reasonable skill and care

Accurately follow instructions to the extent of
the authority given

Act bona fide in the interests of the licensee

Act promptly

Maintain professional skills and expertise

To keep accurate accounts and allow
inspection of relevant documents at all
reasonable times

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Legislative obligationsLegislative obligations

Chapter 7 of the Corporations Act (2001)

No need to hold an AFSL if providing a
service to a person who carries on a
financial services business and holds an
AFSL (s911A(2)

AR can only provide a financial service if
one of the following four obligations are
met:

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Legislative obligations continued – s911BLegislative obligations continued – s911B
 Principal holds an
AFSL covering
the provision of
the service
AR is an employee/director of that principal or a
related body company
s911B
(1)(a)
 Principal holds an
AFSL covering
the provision of
the service
AR is an AR of that principal and the principal is
an employee/director of another person or
company (2nd
principal)
s911B
(1)(b)
 Principal holds an
AFSL covering
the provision of
the service
Provider is an employee of an AR of the
principal and licence authorisation covers the
provision of the service and service is a basic
deposit product or facility for making non-cash
deposits
s911B
(1)(c)
 Provider has own
AFSL or is
exempt
s911B
(1)(d)
&(e)

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Sub-authorisation – s916BSub-authorisation – s916B

An AR can appoint other individuals to
provide financial services on behalf of the
licensee

Must be in writing

Licensee must consent and keep copy of
that consent for 5 years

Can’t sub-authorise a second layer

Revocation in writing by licensee or AR at
any time

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Acting for 2+ licenseesActing for 2+ licensees

Permitted by s916C

Both licensees’ must consent e.g if
authorised by AMP & AFM, both must
agree in writing

Licensee CAN’T be AR for another
licensee unless one of the licensee’s is an
underwriter and a binder is in place
(s916E)

Definition of binder – s761A

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To whom is the duty owed in the case of a binder?To whom is the duty owed in the case of a binder?

Authorised Licensee acting under a binder
reverses the duty – now owed to insurer
not the client

AR as agent of the Authorised Licensee
similarly has a reversal of owed duty

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Holding out and ASIC NotificationHolding out and ASIC Notification

The Act prohibits you from holding out that
you have an AFS licence unless you
actually do. (s911C(a)

Notification to ASIC

- Appointment – 15 business days

- Revocation – 10 business days

- content of notification is prescribed

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Responsibilities on Licensee before andResponsibilities on Licensee before and
after appointmentafter appointment

- Verify identity and ASIC number of AR

- Appropriate background checks (police and
credit checking)

- Copy of authorisation to be provided to any
one who requests it FREE and within 10
business days

- Training (RG 146)

- Monitoring and supervision depending on
nature, scale and complexity of the business

-

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Liability of Licensee for conduct of ARLiability of Licensee for conduct of AR

- Joint and several liability for loss or
damage suffered by the client

- even if AR acted outside actual authority

- Corporations Act (Part 7.6 Div 6)
imposes liability even if common law does
not

- no unconscionable conduct (s991A)

- misleading and deceptive conduct
(s1041H) even if not intentional

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Fiduciary obligationsFiduciary obligations

- arise because of agency relationship
between AR and the principal

- must put interests of principal above
your own where you act on their behalf in
the exercise of a power that affects their
interests – WHY?

- Equity won’t permit you to benefit from a
situation where your self-interest conflicts
with your duty.

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Remedies for breach of dutyRemedies for breach of duty

Account of profits

Constructive trust created

AR agreement may be voidable

May be barred from receiving
commission/fee

Negligence action for breach of duty
resulting in damages award

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Disclosure DocumentationDisclosure Documentation

AR’s need to provide FSG to retail clients

Content specified by s942C

What is a retail client? (s761G)

If provide personal advice, must make
reasonable enquiries and consider the person’s
“objectives, financial situation and needs”
(s766B(3)

Advice to be “fit for purpose”

RG 175 – factors to determine whether advice
personal or general

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Ownership of the clientOwnership of the client

Depends on Agreement – usually belongs to
principal unless reversed by agreement

Be sure that agreement specifies that
principal cannot directly contact your client
unless:

- required by law

- necessary to resolve a dispute

- client no longer yours
AND that the client remains yours on termination of
the agreement

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Other things to considerOther things to consider

- Make sure the AFSL covers your product;

- Regularly check the ASIC website to ensure no banning
orders, disqualifications or personal undertakings;

- Ensure termination clause is clear about process for return
of material;

- Always check content of FSG or marketing material with the
licensee before publication;

- Ensure your ASIC allocated number appears on all
marketing material;

- Ensure training is provided in accordance with RG 146 and
keep a Training Register;

- If principal offers PI cover, request permission to nominate
insurer and limits