No conflict rule: A reminder for AFSL holders

On 30 July 2025, the Australian Securities and Investments Commission (“ASIC”) released its proposed updates to the Regulatory Guide 181, ‘Licencing: Managing conflicts of interest’ (“RG 181”), which was issued in 2004.  The purpose of RG 181 was to set out the general approach taken by ASIC to compliance with section 912A(1)(aa) of the Corporations Act 2001 (Cth).  This is the statutory obligation requiring holders of an Australian Financial Services Licence (“AFSL”) to have adequate arrangements for the management of conflicts of interest that may arise in the provision of providing financial services within their financial services business (“statutory obligation”).

The proposed update to RG 181 presents a timely opportunity to remind AFSL holders that, depending on the circumstances, the fiduciary duty to avoid conflicts may operate in addition to the statutory obligation.  This should be taken into account when formulating arrangements for conflict management, whether a conflicts of interest can be managed or must be avoided.

Can AFSL holders be fiduciaries?

The relationship between an AFSL holder and client is not a recognised category that attracts fiduciary duties.  However, fiduciary duties may still be imposed based on the particular facts and circumstances necessitating such a determination.[1]  Whether a relationship is fiduciary in nature is typically determined by one of two approaches. First, the court may evaluate the critical features of the relationship, including trust, confidence, and vulnerability, which, while not conclusive, indicate the presence of a fiduciary relationship.[2]  Second, the court may analogise the relationship to previously decided cases and recognised fiduciary categories.[3]  

Some providers of financial services have attracted fiduciary duties.  In Australian jurisprudence, despite not being recognised as a traditional category, financial advisers are “well recognised categories” of fiduciaries to which fiduciary obligations apply absent contractual or other modifications.[4]  This is because financial advisers often present themselves as financial experts, thereby engaging in a course of conduct that transcends mere salesmanship,[5] and commit to acting in their clients’ interests in providing personalised financial advice.[6]  Beyond personalised financial and corporate advice,[7] investment managers who exercise discretionary control over their clients’ assets for investment purposes are fiduciaries in relation to the execution of the relevant scheme or mandates.[8]  Alternatively, investment managers, along with stockbrokers and custodians, may fall within established categories of agent or trustee for clients.

Can you prevent fiduciary duties?

It is well-known that fiduciary duties must align with and adhere to the contractual terms that govern a relationship.[9]  This allows the parties to define the nature of their relationship and obligations in a way to limit the scope of any fiduciary duty,[10] except for permitting fraudulent or dishonest conduct.[11]  However, the effectiveness of a broad contractual exclusion to prevent fiduciary duties is unclear.

In South Sydney District Rugby League Football Club Ltd v News Ltd,[12] Finn J observed that “parties cannot by the mere device of labelling, no matter how genuinely intentioned, either confer a particular legal character on a relationship that it does not possess or deny it a character that it does possess... Save where an express labelling provision is shown to be a sham, the provision itself (as a manifestation of the parties’ intent) must be given its proper weight in relation to the rest of their agreement and such other relevant circumstances as evidence the true character of their relationship”.  On the other hand, in ASIC v Citigroup Global Markets Australia Pty Limited (ACN 113 114 832) (No. 4),[13] Jacobson J gave effect to a term which sought to limit the capacity of a party, including as a fiduciary.

Nevertheless, fiduciary obligations may pre-exist the contractual arrangement by analysing the course of conduct between the parties to determine whether a party has made an undertaking which affects a person’s interest in a legal or practical manner, whether such undertaking is explicit or implicit.[14]

Key takeaways

1. Fiduciary duties and AFSL holders

Fiduciary duties do not apply to all holders of an AFSL.  However, it may apply to the provision of some financial services where the underlying circumstances are analogous to existing fiduciary categories or the client relationship is fiduciary in character.

2. Preventing fiduciary duties

It remains unsettled law whether broad contractual exclusions can prevent fiduciary duties, particularly where the circumstances and obligations underlying the relationship indicate otherwise.  However, the parties may narrow the scope of fiduciary duties by contractual agreement.

3. Managing or avoiding conflicts

AFSL holders must carefully review their arrangement for conflict management to account for both statutory and fiduciary obligations.  If the fiduciary duty to avoid conflict applies, some conflicts of interest must be avoided entirely regardless of its impact to the client.