AFS licensees and fund managers take note: ASIC’s new approach to conflicts management
The Australian Securities and Investments Commission (ASIC) has launched a comprehensive review and proposed overhaul of its longstanding conflicts management regime. In this article, we explore the key proposed changes and their implications for Australian financial services (AFS) licensees and fund managers.
Need to know
- ASIC’s proposed updates to Regulatory Guide 181 Licensing: Managing conflicts of interest (RG 181) are a clear signal that conflict management frameworks must evolve, particularly in private credit.
- By sharpening its guidance and providing real-world examples, ASIC is pushing AFS licensees to take a more proactive, risk-based approach.
- For AFS licensees and fund managers, the message is clear: scrutiny is increasing, and structural or undisclosed conflicts will not be tolerated.
Background
On 30 July 2025, ASIC released consultation paper 385 (Consultation Paper) outlining their proposed revisions to RG 181.
RG 181 sets out ASIC’s approach to how AFS licensees can comply with their statutory obligation under the Corporations Act 2001 (Cth) (Act) to manage and disclose conflicts of interest. ASIC has also published a draft version of the revised RG 181, which contains the proposed amendments (Draft RG 181).
What is the conflicts management obligation?
AFS licensees have an obligation to maintain adequate arrangements for managing conflicts of interest (conflicts management obligation). In its current form, RG 181 provides general guidance to AFS licensees on how they can comply with their conflicts management obligation. However, ASIC acknowledges in the Consultation Paper that ‘the financial services landscape and regulatory framework has significantly evolved’ since RG 181 was published more than 20 years ago.
The proposed updates aim to ensure the guidance is ‘clear, up-to-date, and fit for purpose’, while incorporating insights gained from ASIC’s increased regulatory and surveillance activities.
What are the key changes?
The three key updates proposed in the Draft RG 181 are as follows:
- Clarification on the intended scope of the conflicts management obligation to cover all conflicts of interest related to the provision of financial services.
- ASIC provides examples of the various types of conflicts which may arise and introduces a (non-exhaustive) ‘roadmap’ to assist AFS licensees recognise and manage other overlapping legal obligations.
- Updated guidance on ‘adequate arrangements’ for managing conflicts to encourage a proportionate and risk-based approach for AFS licensees.
- This reflects recent Federal Court decisions which clarify what is required by AFS licensees to have 'adequate arrangements'[1].
- More practical guidance to ensure AFS licensees can adopt tailored conflict management policies to effectively manage conflicts appropriate to their size and activities.
What does it mean for fund managers?
ASIC has flagged that conflicts of interest remain 'a key risk in private markets', citing specific drivers of misconduct such as related party transactions and fee and distribution arrangements.
These updates to RG 181 form part of ASIC’s broader strategic focus on managing the dynamics between public and private capital markets, with a particular focus on retail and wholesale offerings of private credit and private market managed investment schemes[2].
Draft RG 181 provides examples of conflict scenarios (particularly relevant to private credit funds), such as:
- a fund charging fees to borrowers (such as loan origination or default fees) which are retained by the fund manager, rather than for the benefit of the fund;
- a fund charging excessive or unnecessary fees to members, not in their best financial interests;
- a fund providing preferential information and treatment to some investors over others;
- a fund lending to a related company on better terms than if the fund were lending to an unrelated company or investor in similar circumstances, not in the interests of investors;
- a fund relying on a third-party valuation of an unlisted asset, where the third-party valuation is conflicted due to an economic relationship with the issuer of the unlisted asset.
What are structural conflicts?
Another key focus in the Draft RG 181 is 'structural conflicts' or, in other words, misaligned incentives resulting from business structures may give rise to conflicts of interest. This type of conflict can arise as a result of:
- the influence of related entities;
- misaligned incentives between business units or intra-group structures in a conglomerate firm or financial institution; or
- vertical integration of product issuers, product manufacturers, product sales or advisory roles.
Examples of problematic structural conflicts include:
- a superannuation trustee or responsible entity owning a financial advice business that recommends owners' products to members;
- a financial institution providing a mortgage to a consumer, and encouraging the consumer to get home insurance from a related entity at a premium price that is not in the consumer's interests;
- an adviser encouraging clients to invest in inappropriate financial products from a related entity, then hedging against a client’s interests and directly seeking to generate revenue from expected client losses; and
- a director's duties to a financial services business being compromised by and conflicting with the duties they hold as a director of another intra-group company.
What happens next?
ASIC is inviting public submissions on the proposed changes, including feedback on compliance costs, competitive impacts, and broader benefits. Submissions are open until 5 September 2025.
Get in touch with our HW Funds team for assistance with your management of conflicts of interest.
This article was prepared with the assistance of Kurt Frampton, Law Graduate.
[1] Australian Securities and Investments Commission v Avestra Asset Management Limited (In Liq) [2017] FCA 497, as affirmed by the Federal Court in Australian Securities and Investments Commission v Westpac Banking Corporation (No 2)(2018) 357 ALR 240 at paragraph 2475.
[2] Australian Securities and Investments Commission, Australia’s Evolving Capital Markets: A Discussion Paper on the Dynamics Between Public and Private Markets (Discussion Paper, February 2025).
Contact
