Obtaining your own Australian financial services (AFS) licence or varying an existing AFS licence can be a complex process. But before you begin, you need to consider some key questions.
Holding your own AFS licence is an important step for any financial services business. It can provide you with independence, allow you to reach larger markets and provide your clients with a greater sense of security. But do you need one?
Chances are that if you are reading this guide, then you have already made the decision to obtain an AFS licence. If you are in the business of providing financial services in Australia, then unless an exemption applies, you will need an AFS licence.
There are, however, a number of circumstances where you are not required to hold an AFS licence. Examples include where you are an authorised representative of a licensee, you only provide financial services to related bodies corporate or you are an offshore regulated entity that only provides services to wholesale clients in Australia.
If you are not sure whether you need an AFS licence, then it is best to speak to a specialist and get some advice.
Key Questions:
– Do you need an AFSL?
– What authorisations do you require?
– Do you have people with the right experience?
– What financial requirements will you need to meet?
– Do you need a retail or wholesale licence?
– What are the steps involved in the process?
– How long will it take?
Every AFS licence is different, and not every licensee is authorised to provide all the financial services it is possible to provide. Some licensees, like independent experts, may only need a very limited AFS licence, whilst fund managers generally require licences with a number of authorisations.
Determining what authorisations you require will also determine the responsible managers you need to nominate, so this step is critical in the process.
Do you need a licence to issue a financial product, or arrange for the issue of a financial product or arrange for another person to acquire a financial product? Will you be providing general or personal financial product advice? There are subtle differences in the authorisations that you can apply for, and ultimately obtaining the wrong authorisations will mean you could be providing financial services without a licence — even if you have one!
Do you have the right people with the right experience?
Any application rises and falls on the experience and knowledge of the nominated responsible managers.
A responsible manager is a person who is responsible for the day-to-day decision-making about the financial services provided by an AFS licensee. This does not mean that they actually have to be providing the services, but they have to be responsible for the supervision of those that do provide the services.
A responsible manager is not necessarily a company officer and vice versa. You do not have to be a company director or officer to be appointed as a responsible manager.
As a rule of thumb, you will need to appoint at least two responsible managers. However, for sole traders one will be sufficient.
Those responsible managers nominated will need to meet one of five options specified by ASIC. Generally, this means that they will need to hold an undergraduate or postgraduate qualification relevant to the financial services they are responsible for, along with 3 years’ experience out of the last five in providing the services for which they are being nominated.
What are the financial requirements?
All AFS licensees (other than those regulated by APRA) must be solvent and have positive net assets. In addition, licensees must prove they have, or have access to, sufficient financial resources to meet their anticipated cash flow expenses.
For particular licensees, such as responsible entities, IDPS operators, wholesale fund trustees, custodial and depository service providers and retail OTC derivative issuers, additional capital adequacy requirements apply.
You will need to budget for these requirements and provide balance sheets, cash flow statements and other financial information to ASIC as part of the application process.
Do you need a retail or wholesale licence?
A fundamental question before you make an application for an AFS licence is whether you will be providing services to retail clients or wholesale clients or both.
Providing services to retail clients means that you must hold professional indemnity insurance, become a member of an external dispute resolution scheme and comply with additional training obligations where you are providing advice to those retail clients.
Steps involved in the process
- Preparing the application: Collect the material required, including financial statements, proofs, and police checks for responsible managers. Lodge the application online through ASIC’s form FS01.
- ASIC review:ASIC will initially review if the application contains fundamental components. Further reviews might require additional proofs.
- ASIC requisitions: If additional information is needed, applicants have 10 days to respond.
- **Letter of offer:** If ASIC approves, a letter of offer with draft licence conditions is issued.
How long will it take?
The process usually takes 3–4 months. If you need to find personnel with the requisite experience, this could extend the timeline.
How can CNM Legal help?
– Provide a legal opinion on authorisations needed.
– Assess and advise on responsible managers’ qualifications.
– Guide through financial requirements.
– Prepare tailored proofs for ASIC.
– Help respond to ASIC requisitions.
Give us a call for more information about obtaining an AFS licence.
CNM Legal +61 7 3324 2960 +61 408 014 274
cmee@cnmlegal.com.au
Visit us on the web at www.cnmlegal.com.au
