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Employing someone with a conviction or bankruptcy can jeopardise compliance with an Australian Financial Services (AFS) licensee’s obligations.

ASIC can ban any person it considers to not be of ‘good fame and character’. It can suspend an AFS licence if a significant representative of a licensee is banned, or if ASIC believes the licensee will not comply with the general licence obligations.

This means that employees with a history of bankruptcy or conviction can expose a licensee for two reasons:

  • They may not be of good fame and character; and
  • They may be motivated to breach the financial services laws or behave dishonestly.

Where an employee has a conviction, the licensee should consider the nature of the offence. Convictions involving dishonesty are likely to affect the person’s good fame and character. They also call into question the individual’s ability or willingness to comply with the financial services laws. Other types of convictions are less likely to present a problem, but each case must be assessed on its merits.

Undischarged bankrupts also create problems for licensees because they have additional conflicts of interest. Even the best person can be motivated to behave dishonestly if they find themselves in difficult circumstances. Undischarged bankrupts could be tempted to misappropriate client funds, so they shouldn’t be employed in any role that requires them to handle money or that gives them an opportunity or ability to misappropriate client monies.

Undischarged bankrupts also cannot act as directors, responsible managers, company secretaries, or be involved in the management of a company. Only once the bankruptcy is discharged, can they fulfil these roles. However, they can be employed in another capacity while still bankrupt.

This can get complicated, so do seek legal advice if you’re unsure. We’d be happy to help.

Author: Sónia Cruz

September, 2017

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