SAMPLE EXAM QUESTION – FINANCE LAW

Question 1 (30 marks)

a) As responsible managers what are they specifically responsible for and do

they have any ongoing requirements that they need to meet? (4 marks)

As responsible managers, they are directly responsible for significant day-to-day

decisions about the ongoing provision of financial services. As a group, they have
appropriate knowledge and skills for all of the financial services and products, and
individually, meet one of the five options for demonstrating appropriate knowledge
and skills. There is a requirement to have a least one responsible manager and it is
capped to a maximum of twenty at any one time.

b) In relation to their employee Fred, what type of supervision and monitoring

processes should they consider? (4 marks)

The measures for monitoring and supervision:

- Keep track of who their representatives are, their role or duties and details
pertaining to their authorisations
- Ensure that representatives act within the scope of the licensees authorisation
- Ensure that representative understand the licensees’ compliance arrangements
- Monitor representatives’ compliance, and
- How the licensee will respond to compliance failures.

Each licensee will have different processes in place, so in relation to their employee
Fred, they should consider by depending on:
- The nature of the authorisation granted to the representative
- Experience, and educational background of the representative
- The level of direct control the licensee has over the workplace of the
representative
- The geographic separation of the representative, and
- The level of risk associated with the activities being performed.

c) Paul knows that because they are providing advice to retail clients that he
needs to provide them with a Financial Services Guide. Advise Paul on the
content requirements and when the guide needs to be distributed. Ensure you
note any specific information from the facts provided above that may impact
on the content of Big Money’s guide. (6 marks)

On the content requirements of Financial Services Guide:

Essentially, the guide must be titled Financial Services Guide and be dated. It must
also include:
- Name and contact details of the licensee and where relevant, the Authorised
Representative details,
 - The scope of the licence and if there are any limitations with regard to the
services an Authorised Representative can provide.
- Remuneration and other benefits of all relevant parties
- Where the guide is being issued by an authorised representative, an
authorising statement that it has been approved by the licensee for distribution
is required.

As when the guide needs to be distributed:

Generally, providing entities must give a Financial Services Guide (FSG) to a client as
soon as practicable after it becomes apparent to the providing entity that a financial
service will be, or is likely to be, provided to that client and, in any event, must give a
FSG to the client before a financial service is provided.

d) Paul and Fred want you to provide them with an overview of the advisory
process including any duties that they must meet and how they can
demonstrate that they have met these (provide practical examples). Ensure
that your response takes into consideration the facts noted above. (12 marks)

Paul and Fred have a fiduciary relationship that is a relationship of trust where the
party who has superior knowledge of training owes a duty to act in the interests of the
party who does not have the same knowledge. They also must act in the best interests
of the client when providing personal advice to a retail client.

Section 961B(2) sets out a ‘safe harbour’ for complying with the best interests duty in
S961B(1). If Paul and Fred can show that they have taken the steps in S961B(2), they
are considered to have complied with the best interest duty. The safe harbour requires
to:
- identify the objectives, financial situation and needs of the client that were
disclosed by the client through instructions,
- identify,
- the subject matter of the advice sought by the client (whether explicitly or
implicitly),
- the objectives, financial situation and needs of the client that would reasonably
be considered relevant to advice sought on that subject matter (client’s
relevant circumstances),
- if it is reasonably apparent that information relating to the client’s relevant
circumstances is incomplete or inaccurate, make reasonable inquiries to obtain
complete and accurate information
- if it would be reasonable to consider recommending a financial product:
o conduct a reasonable investigation into the financial products that might
achieve the objectives and meet the needs of the client that would reasonably
be considered relevant to advice on that subject matter, and
o assess the information gathered in the investigation

Practical example: Insurance agent and client.

e) Outline to Paul and Ivy what if any responsibilities Big Money has in relation
to anti-money laundering. (4 marks)

Entities that are affected by the rues and laws are referred to as a reporting entity.
Each reporting entity is required to have an AML/CTF program that are risk based
and the scope of which is dependent on the type of service it provides.

In developing an AML/CTF program, a reporting entity will need to consider:

- The risk profile of its customers
- The AML/CTF risk of designated services provided
- The methods by which designated services are delivered
- Risk profiles of foreign jurisdictions dealt with
- Risks resulting from the provision of designated services through permanent
offices in foreign countries

There are three types of AML/CTF program:

- Standard, which applies to individual reporting entities (businesses)
- Joint, which applies to reporting entities which are members of a designated
business group
- Special, which only applies to holders of an Australian Financial Services
licence (AFS licence) offering a ‘designated service’.

The obligation can be categories into four key areas being:

1. The identification, mitigation and management of any risks associated with
money laundering or terrorism financing that the business might reasonably
face,
2. The identification and verification requirements,
3. The record keeping requirements, and
4. The reporting requirements.

Under the AML/CTF Act, all records pertaining to the client risk classification,
identification, the designated service provided and reports to AUSTRAC must be kept
for a minimum of seven years from when they were created.