The Australian Securities and Investments Commission (ASIC) is proposing significant updates to Regulatory Guide 181: Managing Conflicts of Interest (RG 181), which sets out the regulator’s general approach to compliance with the statutory conflicts management obligation under section 921A(1)(aa) of the Corporations Act (921A obligation) and how Australian Financial Services Licence (AFSL) holders can control, avoid and disclose conflicts of interest.
The proposed changes would substantially broaden ASIC’s approach to the scope of these obligations, requiring AFSL holders to carefully review and potentially update their policies relating to the management of conflicts.
ASIC has, through releasing Consultation Paper 385 (CP 385) in July, invited industry feedback on the proposed changes, with consultation closing on 5 September 2025.
Guidance for preparing a submission
AFSL holders intending to submit feedback on the proposed changes should review CP 385, the draft RG 181 and the summary below, noting the apparent expansion of ASIC’s approach to the 912A obligation.
Submissions could potentially ask ASIC to clarify:
- who it considers to be the ‘affected parties’ referenced in draft RG 181.69 to whom relevant conflicts should be disclosed
- the basis on which duty-duty conflicts correctly fall within the scope of the 912A obligation (noting that section 912A(1)(aa) only references ‘conflicts of interest’).
CP 385 indicates that ASIC intends to release the updated RG 181 in December 2025. We suggest AFSL holders consider planning a detailed review of their conflicts management related policies promptly after the update is published.
What is RG 181?
RG 181 sets out ASIC’s interpretation of section 912A(1)(aa) of the Corporations Act 2001 (Cth) (Corporations Act), which requires AFSL holders to have adequate arrangements in place for managing conflicts of interest that may arise from their own activities or those of their representatives when providing financial services as part of their financial services business.
ASIC is now proposing to substantially widen its approach to the scope of this obligation, relative to its approach in the current RG 181, which was first issued in 2004.
If adopted, the expansion will require AFSL holders to carefully review their policies relating to managing conflicts (which may include a significant number of policies), and if necessary, update them.
Notable aspects of the draft RG 181
We have identified several aspects of the draft RG 181 which AFSL holders should be aware of:
- no definition of ‘conflict of interest’: Section C of the draft RG 181 (RG 181.28 – RG 181.33) explains examples of conflicts of interest, but does not provide a clear definition. This contrasts with the current RG 181, which references conflicts between the interests of an AFSL holder and those of persons to whom an AFSL provider provides financial services. Instead of a definition of ‘conflict of interest’, the draft RG 181 references a significant number of examples of conflicts, including duty/duty conflicts, fiduciary conflicts and conflicts of interest between third parties, as being relevant to an AFSL holder’s conflicts management obligation. This appears to be an expansion of the scope of the 912A obligation, relative to the position taken by ASIC in the current RG 181
- no definition leads to expansion of ‘conflicts’: RG 181.34 contains a table illustrating various types of conflicts across financial services. These include the following:
- conflicts with clients or members – some of the examples include ‘a fund charging fees to borrowers (such as loan origination or default fees) that are retained by the fund manager, rather than for the benefit of the fund’. Importantly, the draft RG 181 states that “Disclosure to clients or other affected parties is a mechanism that can be used to manage conflicts of interest”, and ‘[disclosure] should allow affected parties to understand and consider the impact of a disclosed conflict before making an informed decision]’. These statements suggest that ASIC appears to accept that typical methods of managing conflicts of interest in a fiduciary and commercial context may form part of a series of steps by which an AFSL holder may discharge the 912A obligation.
- conflicts between clients, members or classes of persons – examples here include conflicts of duties. The statutory obligation in section 912A(1)(aa) requires AFSL holders to manage ‘conflicts of interest’, however, it does not in its literal terms extend to managing conflicts of duty. The draft RG 181 appears to expand the scope of the statutory obligation, potentially very substantially, relative to the position taken by ASIC in the current RG 181 which in contrast, only references ‘conflicts of interest’
- structural conflicts – examples cited include misaligned incentives giving rise to conflicts of interest via vertically integrated product issuers and manufacturers and the influence of related entities. These are further examples of the conflicts noted under the ‘conflicts with clients or members’ and ‘individual conflicts’ sections, in the context of conglomerate organisations. Our comments on those apply equally to these conflicts
- proprietary conflicts – the examples cited here include a financial institution having a conflict between its proprietary interests and the interests of its clients and counterparties in a market transaction. There is a question as to when and how disclosure must take place to those affected parties
- conflicts relating to duties – many of these are examples of duty/duty conflicts. Our comment regarding the examples of structural conflicts above applies equally in relation to those conflicts
- third-party conflicts – these examples relate to duty-duty conflicts of a counterparty of an AFSL holder. It appears that ASIC is saying that those managing these conflicts in so far as they relate to the AFSL holder’s business, fall within the scope of the AFSL holder’s 912A obligation. This is a more expansive approach to RG 181 than ASIC has taken in the current regulation
- individual conflicts – these examples are more conventional duty/interest conflicts between individuals. It is perhaps not surprising that ASIC considers that those conflicts fall within the scope of the 912A obligation.
If you have any questions regarding ASIC’s proposed updates or what your obligations are as an AFSL holder, please contact us here.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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