Appointing a responsible manager: understanding key considerations
Understanding the regulatory requirements for the nomination of a responsible manager (RM) for an application for an Australian financial services (AFS) licensee is critical in streamlining the application process. The greatest delays we see in applications (or variations) generally revolve around a failure to nominate the right person for the job.
The following guidance addresses frequently encountered issues and provides some practical insights to avoid them.
- Lack of relevant experience
When nominating a person as an RM, it is trite to say that they must be able to demonstrate they have the appropriate skills and experience relevant to the authorisations for which they are being appointed.
But this fundamental matter can be overlooked in a critical misstep in the application process.
ASIC assesses each nominated RM’s experience against the specific authorisations sought. Experience working at a licensee does not necessarily confer on a person’s experience in every authorisation that licensee holds. For example, distribution personnel in a funds management organisation would rarely have any experience in undertaking back-office functions like custody.
Assessing a nominee RM’s background requires an interrogation into their everyday activities at the businesses where they have gained experience. - Lack of capacity
Before appointing an RM, it is important to assess a nominee’s capacity to perform an RM role given the nominee’s existing commitments. While ASIC allows an individual to hold multiple RM roles depending on the complexity associated with those roles and the depth of human resources at the licensees where they are already engaged, too many roles can raise concerns about a nominee RM’s ability to effectively fulfil their obligations in another RM role.
Ensuring your nominee has sufficient capacity from the outset can help avoid complications or delays in the application process. - Prior regulatory problems at other AFS licensees
If an RM has previously been involved with an AFS licensee that has experienced regulatory action — for example, where ASIC has suspended the licensee’s AFS licence, imposed additional conditions, or conducted a formal investigation — those circumstances are highly relevant to ASIC’s assessment of the individual in future licensing contexts.
While such a history does not automatically disqualify the person from continuing as an RM for their current licensee, it can significantly constrain their prospects of being accepted as an RM for new licence applications or variations. ASIC may treat prior compliance failures at another licensee as evidence bearing on the individual’s competence, diligence or judgment — matters central to a licensee’s organisational competence.
Although the ‘fit and proper person’ requirement formally applies only to officers and controllers, ASIC routinely considers these background issues under its licensing discretions, as part of determining whether the applicant organisation has the capacity to maintain competence. In practice, this means ASIC can decline to approve a new RM nomination if it considers that past regulatory problems at other licensees raise doubts about the person’s integrity or ability to ensure compliance — even if the individual is not statutorily classified as a ‘fit and proper person’. - Not meeting the respective option requirements under RG 105
When nominating an RM, it is essential to ensure that the individual satisfies the specific eligibility criteria for the option under which they are being nominated. We often see RMs appointed under an option that does not appropriately match their qualifications and experience.
For instance, to qualify under Option 3 of ASIC’s Regulatory Guide 105 (RG 105), an individual must hold both a relevant university degree and a relevant short industry course, not just one of these. In addition, they must have at least three years of relevant experience within the past five years. Without meeting all of these requirements, the individual will not satisfy the criteria for appointment under Option 3. - ‘Externality’
When choosing potential RMs for your AFS licence, it is important to consider whether your nominees have genuine involvement in your financial services business.
If all the nominated RMs are external consultants, with no real operational connection to the AFS licence business beyond their RM role, ASIC may view this as a lack of ‘skin in the game’.
To mitigate this concern, it is generally advisable to appoint at least one internal person as an RM (i.e. director or employee), even if only for a single authorisation. Having an internal RM helps demonstrate to ASIC that the licensee maintains active oversight, accountability, and involvement in its day-to-day financial services operations. - Overreliance on Option 5 responsible managers
When choosing RMs, difficulties often arise where all nominees are appointed under Option 5 of ASIC’s Regulatory Guide 105. Option 5 is intended as a fallback pathway, to be used only where an individual does not meet the experience or qualification requirements of Options 1 to 4.
Relying solely on Option 5 RMs can signal to ASIC that the licensee may lack sufficient depth of experience or formal qualifications within its management team. To strengthen an application and minimise regulatory concern, it is generally best practice to include at least one RM who qualifies under Options 1 to 4. Doing so demonstrates to ASIC that the business has recognised expertise and a well-rounded competency base across its RMs. - Nominating a responsible manager as a ‘key person’
A key person condition is more likely to be imposed on an AFS licence where the licensee nominates only one RM, or where the licensee is heavily reliant on the competence of a single individual. However, that decision does not rest with the licensee.
The decision to impose a key person condition — and to determine which individual will be designated as the key person — lies entirely within ASIC’s discretion. Licensees should therefore be aware that nominating an RM as a proposed key person does not guarantee ASIC will adopt that nomination or apply the condition in the same way. - Claiming exempt experience
An individual who has previously carried on business acting under exemptions in the Corporations Act may still rely on that experience when being nominated as an RM. Such unlicensed experience can be recognised by ASIC, provided it is directly relevant to the authorisations the individual is being appointed for on the AFS licence.
In other words, experience gained under exemptions can support an RM nomination, but only if it is applicable to the financial services or products in respect of which the RM has been nominated. - Not required to be a director or employee of AFS licensee
It is a common misconception that an RM must be a director or employee of the AFS licensee. ASIC does not require this, and it is entirely acceptable for a business to engage an external consultant to act as an RM on its AFS licence, provided that the individual meets the necessary competency requirements and maintains appropriate involvement in the AFS licensee’s operations. - Overlooking off-shore licensed experience
Experience gained in a licensed jurisdiction sufficiently equivalent to Australia’s, such as Singapore, Hong Kong, or the United Kingdom, can be relied upon when appointing an RM for an AFS licence. A common misconception is that ASIC only recognises Australian financial services experience. In reality, offshore experience in a sufficiently equivalent jurisdiction is considered relevant and can satisfy the competency requirements for an RM appointment, provided it aligns with the authorisations being sought.If you have any questions about your responsible manager matrix, then please email cmee@cnmlegal.com.au or jbauers@cnmlegal.com.au, or call 07 3211 4010.
This paper is produced as general information in summary for clients and should not be relied upon as a substitute for detailed legal advice or as a basis for formulating business or other decisions. CNM Legal asserts copyright over the contents of this document.