It’s time to dust off your conflicts of interest policy

In 2018, ASIC launched a crusade against poor financial advice.  ASIC looked at how some of Australia’s larger banking and financial services institutions dealt with conflicts of interest between selling their in-house products and looking after a client’s best interest.  These issues were also raised by the Banking Royal Commission, and many of the larger banking institutions subsequently offloaded their advice divisions.

Despite this “crusade” being 7 years ago, ASIC remains focused on how licensees deal with and manage conflicts of interest. In fact, it recently confirmed that it will be looking to update ASIC Regulatory Guide 181 Licensing: Managing conflicts of interest, in 2025. Conflicts of interest are still firmly in ASIC’s sights, and as such, licensees need to be on top of their obligations when it comes to conflicts.

While many specific provisions in Chapter 7 of the Corporations Act 2001(“the Act”) address conflicts of interest (such as conflicted remuneration provisions), the key overarching obligation for all AFS licensees sits in section 912A of the Act: to have in place adequate arrangements for the management of conflicts of interest.

What is a conflict of interest?

Firstly, let’s address what a conflict of interest is.  In ASIC’s view, conflicts of interest are circumstances where some or all of the interests of people (clients) to whom a licensee (or representative) provides financial services are inconsistent with or diverge from some or all of the interests of the licensee or its representatives.

Before you can determine whether you have a conflict of interest, you first have to identify what your interests (as a licensee or representative) are and what the interests of others (that is, the clients) are.  This is often the hardest part.

Once you’ve identified the different interests present in your business model, you can then determine whether those interests are aligned or whether they diverge or conflict.

If you do identify a conflict of interest, don’t panic – this doesn’t necessarily mean that you have breached the law.

Conflicts are not necessarily bad

Conflicts of interests always seems to have negative connotations to them.  However, this is not always the case.  We all have them.  Consciously or unconsciously we spend some of our working day trying to manage them.

For example, who hasn’t woken up after a big night and thought, should I go to work today or should I call in sick?  For some, managing  conflicts of interest could be  where they recommend a client enter into an ongoing fee arrangement with them.

Whilst this is common practice in the financial advice industry, it is a conflict of interest, as by recommending the client enter into an ongoing fee arrangement, it may be perceived that the licensee is putting its own interests above the interests of the client.

As such, it is critical that licensees have in place effective policies and procedures to ensure that the conflict is appropriately managed (for example, whilst an ASIC expectation – as set out in Info Sheet 286 – receiving a client’s written consent before entering into an OFA is an easy way to manage this particular conflict of interest).

Why is conflicts management so important?

So, if it’s the management of the conflict of interest that matters, rather than the business model, what should licensees do if they identify a conflict of interest?

First, all licensees have an obligation to adequately manage any conflicts of interest that may arise from the financial services they provide.

The three mechanisms that ASIC expects licensees to use when managing conflicts of interest are:

• control conflicts of interest – by assessing the conflict and implementing appropriate controls
• avoid conflicts of interest – where the potential consequences to the licensee and its clients are sufficiently serious that the only way to manage the conflict is to avoid it
• disclose conflicts of interest – in a way that is timely, prominent, specific and meaningful.

Second, licensees have an obligation to treat their clients fairly.  ASIC generally expects this to mean that:

• licensees do not unfairly put their interests above those of their clients
• licensees do not unfairly put the interests of some clients ahead of others
• licensees do not use client information to advance their own interests.

Third, individual advisers have their own obligations (outside of those of the licensee) to reduce the risk that conflicts of interest lead to poor consumer outcomes through inappropriate advice.  These obligations include:

• the prohibition on giving or receiving remuneration that can influence the financial product advice provided by advisers (which are soon to be augmented, in relation to insurance commissions, by the need to obtain client consent)
• the requirement that advisers act in the client’s best interest and give personal advice that is appropriate
• where a conflict exists between the adviser and the client, the requirement that the client’s interest take priority.

Tips for managing conflicts of interest

So, if ASIC’s decision to revamp RG 181 has you thinking of dusting off and reviewing the management of your conflicts of interests, you may want to consider the following tips:

1. Don’t assume you don’t have conflicts of interest: it is normal (and expected) that licensees will have conflicts of interest. However, it is how you manage those conflicts which is what’s important.
2. Get a conflicts management policy: conflicts management is not just about having a conflicts of interest register.  Make sure you have a policy in place that is tailored to your business and helps you identify and manage conflicts of interest.
3. Examine common areas that may give rise to conflicts:

• remuneration of staff
• internal structures
• licensee’s interests
• associations and relationships, including referral arrangements.
  4. Ensure that conflicts arrangements are implemented and maintained. For example, ensure the arrangements are approved by senior management, regularly monitored and reviewed and overseen by a person with responsibility for their implementation, reviewing and updating.
  5. For advice businesses – ensure you have robust monitoring and supervision policies in place to ensure that any personal advice provided is in the client’s best interests, appropriate and prioritises the interests of the client.
  6. Make sure your arrangements for managing conflicts of interest extend to your representatives, including corporate authorised representatives. This involves you having sufficient oversight of their business to identify possible conflicts, as well as you setting out minimum standards and processes with which representatives must comply.

And for those of you wondering what decision the person who had the big night made, they decided that their interest of keeping their job took priority and so they dutifully headed off to work – albeit with a fairly big headache.

If you are looking to review your conflicts of interest policy, Holley Nethercote can assist. If you do not have a policy, we also have a regularly updated conflicts of interest policy template available on our HN Hub.

We can also provide you and your staff with best interest duty training that is tailored to your business.

Author: Originally written by Jesse Vermiglio in 2018, updated by Josh Wigney in 2025

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