FSR: Your Questions Answered

I ama director of a dealer that will soon transition and have been offered a second directorship of a dealer that has transitioned and holds an Australian Financial Services Licence. Can I be a director of more than one AFSL holder?

Theissue in this question stems from the fact that section 910aof the post-FSRCorporations Actdefines a representative to include each director of an AFSL, so not only is the question “can I be a director”, but “because I am one, can I be a representative of more than one AFSL”?

There is no restriction that limits a person from being appointed a director of more than one AFSL under the post-FSRCorporations Act(“the Act”), if the director is merely acting in their capacity as a director. It is only when a person is appointed a director of more than one AFSL holder and is also engaged to provide financial services for more than one AFSL holder that the procedural requirements of such appointment, pursuant to the Act, must be followed.

Now, assuming that both of the AFSLs are unrelated, and provided that you are appointed as an authorised representative of both AFSLs and both consent to this, then a director may provide financial services for two unrelated AFSL holders.

This is the basic requirement of section 916cof the Act. In particular, 916cprovides: “One person can be the authorised representative of two or more financial services licensees, but only if … each of those licensees has consented to the person also being the authorised representative of each of the other licensees; or each of those licensees is a related body corporate of each of the other licensees”.

Relevant to note is that section 910aof the Act recognises that a director is a representative of an AFSL merely by being appointed as a director and therefore can provide financial services without the need to be an authorised representative.

Which means for completeness you should be aware that by virtue of section 911b(a) of the Act, coupled with the definition of representative, a person who is a director of two related AFSLs is not required to be appointed as an authorised representative of both AFSL holders pursuant to section 916c(1).

By the mere fact that the person is a director of both AFSLs (which are related body corporates) means that the person can provide financial services for both AFSLs in their capacity as a representative.

Therefore, the question is not whether a person can be appointed a director of two or more AFSLs, but rather whether the director wishes to provide financial services for each of them. If the director will not provide financial services for each (or more than one) of them, there is no problem. If the AFSLs are related body corporate, there is also no problem. But if the director provides financial services for two or more AFSLs that are not related, the director must go through the formal authorised representative appointment process.

We pose the question to you, however: do you want to be appointed a director of two unrelated AFSLs? When answering this question we suggest you bear in mind the cross liability provisions of the Act which rest on the licensee, namely the director, and the authorised representatives. Query whether or not it is wiser to accept appointment as a director of only one AFSL in which you do not provide financial services, and act as an authorised representative of the other AFSL but not be appointed as a director of that company.

We suggest that if you agree to be appointed a director of two unrelated AFSLs, whether or not to provide financial services for both, you should conduct a legal and compliance due diligence of the companies before you accept such appointment. The cross liability provisions of the post-FSR Act strongly suggest that you need to be made confident that the systems, checks and balances will highlight issues that need the attention of the directors, not only of their company but also the other company of which any of them are also directors.

Let’s look at this another way, if AFSL 1 shares directors with AFSL 2, it is possible under the Act for both AFSLs to have a liability issue for the actions of the common directors. You should ask yourself the question, what is in place to limit the potential of such a joint liability arising?

The Argyle Advocate is provided by the FSR group from Sydney law firmThe Argyle Partnership Lawyers .