ASIC updates guidance on managing conflicts of interest in financial services

ASIC has released an updated version of Regulatory Guide 181: AFS Licensing – Managing Conflicts of Interest (RG 181), replacing guidance that had remained largely unchanged since 2004. While the underlying statutory obligation has not been amended, the updated guide significantly clarifies how ASIC expects Australian financial services (AFS) licensees to identify and manage conflicts of interest in practice.

A clearer explanation of when the obligation applies

One of the most important changes is a clearer explanation of the scope of the conflicts management obligation. ASIC has refined the guidance to confirm that the obligation applies not only to conflicts arising squarely within a financial services business, but also to conflicts that arise between something inside the business and something outside it where that conflict could influence how financial services are provided.

The updated guide also provides clearer guidance on what is meant by conflicts occurring “wholly outside” a financial services business, which remain outside the scope of the obligation.

A move to an objective standard for identifying conflicts

Another significant change is the adoption of a more objective approach to identifying conflicts. The updated RG 181 focuses on whether a reasonable person would conclude that an actual or potential conflict of interest exists, rather than encouraging a purely subjective or perception-based assessment.

This is intended to simplify conflict identification and reduce reliance on reputational framing when determining what must be managed under the conflicts management obligation.

Expanded and modernised examples of conflicts

ASIC has expanded and updated the examples used to illustrate different types of conflicts of interest. The revised guidance includes more detailed examples of conflicts arising from:

• structural and vertical integration arrangements
• group structures and related-party relationships
• conflicts of duty, including competing duties owed within different parts of a business
• insurance and private markets business models

ASIC has also refined these examples to more clearly distinguish between the interests or relationships that give rise to a conflict and the consumer harm or misconduct that may occur if that conflict is not effectively managed.

Stronger guidance on what constitutes “adequate arrangements”

The updated RG 181 places greater emphasis on what ASIC expects to see in “adequate arrangements” for managing conflicts of interest. ASIC makes clear that disclosure alone will often be insufficient and that effective conflicts management requires a combination of controls, governance, monitoring and, in some cases, avoidance.

The guide reinforces that arrangements should be proportionate and risk-based, taking into account factors such as:

• the nature, scale and complexity of the business
• group and multinational structures
• the types and sophistication of clients

ASIC also confirms that some conflicts must be avoided entirely where they cannot be effectively managed.

Clearer guidance on materiality and consumer harm

RG 181 now provides clearer direction on assessing whether a conflict is material or serious. The revised guidance broadens the factors licensees should consider, including the potential for consumer harm and how the conflict interacts with other legal obligations, such as fiduciary duties or best interests duties.

This reflects ASIC’s increased focus on the practical consequences of conflicts rather than their theoretical existence.

A new catalogue of related legal obligations

Finally, the updated guide includes a new, non-exhaustive catalogue of legal obligations and regulatory information relevant to conflicts management. This catalogue is designed to help licensees understand how the conflicts management obligation operates alongside other duties under the Corporations Act and at general law.

The guidance also clarifies that, in some circumstances, conflicts may be authorised by the terms governing a legal relationship, such as a trust deed, depending on the nature of the obligation owed.

What this means for AFS licensees

AFS licensees should review their existing conflicts management frameworks in light of the updated guidance. In particular, licensees should consider whether their current policies, registers and governance processes demonstrate a genuinely effective approach to managing conflicts, rather than an over-reliance on disclosure.

If you require assistance reviewing or updating your conflicts management arrangements or meeting your AFS licensing obligations, please contact Chris Mee at cmee@cnmlegal.com.au or on 07 3211 4010.