The Securities Commission has recently released its 'QFE Adviser Business Statement Guide' (Guide). The Guide is essential for any entity considering whether to become a Qualifying Financial Entity (QFE). Download your copy here.
What is the guide?
As the name suggests, the Guide sets out how to prepare an Adviser Business Statement (ABS) - an ABS must be prepared and provided to the Commission before an entity is approved for QFE status. The Guide also sets out some basic information to help entities determine whether to become a QFE, including advantages and disadvantages.
What is an ABS?
The ABS will be the Commission's key source of information, allowing them to assess the entity's capacity to take responsibility for the conduct of its financial advisers, whether it can be granted QFE status and, if so, what terms and conditions to impose on the QFE, and how to structure its ongoing monitoring and supervision.
The ABS is more than a compliance document. It must detail the entity's business model, and its ongoing governance and compliance arrangements. This ABS will be a 'living document', QFE status will require an entity to keep its ABS up to date and reflect changes as their business evolves.
An ABS's length and complexity will vary according to the entity's business and the extent to which the entity's policies and procedures are already documented elsewhere. It should be comprehensive enough to help the entity's governing body review and oversee its adviser business. Detailed procedures should be covered in separate manuals, which the ABS can cross-reference.
The ABS will be treated as a confidential document, unless the entity elects otherwise. The Commission will not release it to the public without the consent of the entity.
What information has to be included in the ABS?
The ABS can be divided into segments that represent the operational structure of the entity's business. However, the document as a whole, or each segment, must clearly identify two parts:
Part 1 must describe the advisory business. This provides a context for Part 2. The Commission expects Part 1 of the ABS to detail, at a minimum:
- Structure, key relationships, and entity level conflicts of interest.
- The products and services provided, focusing on retail products and services with greatest consumer risk.
- An outline of the entity's customers (including retail wholesale split and targeted market segments).
- A profile of the entity's advisers, and in particular those who deal with category 1 products.
- An explanation of the delivery channels for products and services.
Part 2 must describe the governance and compliance arrangements. It should explain how the business will take frontline compliance responsibility for the professional conduct and competence of all of its advisers. The key principles to be addressed in Part 2 of the ABS include:
- A comparison, on an 'if not, why not' basis, of the QFE's conduct and competence requirements against those in the Authorised Financial Advisor Code of Professional Conduct.
- Governance and compliance arrangements in respect of:
- People - covering recruitment, knowledge, skills and competence, supervision, performance management and rewards.
- Processes. - covering marketing, information for customers, suitability of product recommendations, customer servicing, complaints and compensation, systems and record keeping
- Professionalism - covering governance, culture, and compliance.
What is the timing and process for approval?
Start preparing your ABS now. The Commission will begin accepting ABSs for review in February 2010.
The approval process is likely to take some months as the Commission will issue queries regarding your ABS. The Commission may request interviews with senior management and conduct on-site visits.
Entities wishing to be approved as a QFE before the commencement of the relevant sections of the Financial Advisers Act 2008 in December 2010 must:
- Submit their ABS to the Commission for review before 30 July 2010.
- Resolve any of the Commission's queries by 1 October 2010 at the latest.
Compiling an ABS will be a challenging task. We are happy to assist you and to help you determine how this will affect your business.
© DLA Phillips Fox
DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.