Australian Financial Services Licensing 101Jun 12, 2023
Thinking about becoming self licensed? First, its important to understand what you are about to embark on!
In Australia, the provision of financial services is regulated by the Australian Securities and Investments Commission (ASIC). If you are considering becoming self-licensed, it is essential to understand the requirements and obligations associated with obtaining an Australian Financial Service License (AFSL). 3Lines is here to help you navigate the world of AFS licensing in Australia.
Understanding the AFS Licence
An AFSL is an essential requirement for anyone providing financial services in Australia. Under the licensing regime, there are numerous options for the various authorisations and types of financial products the licensee will be able to provide. We always recommend clients seek legal advice regarding the appropriate authorisations for the business, prior to commencing a licence application.
Types of Financial Services
The range of financial services that can be covered by an AFS license is broad and includes activities such as providing financial product advice, dealing in financial products, making a market for financial products, providing custodial or depository services, and operating a registered scheme.
The licence then sets out which products can be offered under each authorisation. These can include, but are not limited to:
- Deposit and payment products
- General and life insurance products
- Government debentures, stocks and bonds
- Managed investment schemes
- Margin lending facilities
- Retirement savings account products
- Securities superannuation
Applying for an AFS License
In order to obtain an AFS Licence, the applicant must undertake a rigorous AFSL application process that requires alignment to guidance set out in ASIC’s Regulatory Guides.
As mentioned above, the first step is to seek legal advice on the appropriate authorisations and products that are required.
Then it is time to commence the application process, which involves drafting Core Proof documents that provide detailed information about the applicant’s capabilities, resources, and competence to hold an AFSL.
Applicants applying for a retail licence will need to put in place professional indemnity insurance in order to cover potential liability arising from financial services activities. While still recommended, PI insurance is not mandatory for wholesale licensees.
Applicants should also be aware that upon submission of the application to ASIC, there is a licensing fee to pay. This must be paid prior to ASIC commencing its review of the application.
Every AFSL is required to have at least one nominated Responsible Manager (RM), who is required to have day to day oversight of the operations of the licence.
As part of the application process, the applicant must submit to ASIC, the nominated RMs and provide documentation as evidence of their skills and expertise to perform the role.
The role and responsibilities of the RM is further detailed in 3Lines' RM Bootcamp online program and in our blog post, What is a Responsible Manager?
Ongoing Licensee Obligations
Once the licence is granted by ASIC, the licensee must ensure ongoing compliance with the relevant regulatory obligations to ensure that the licensee provides its financial services efficiently, honestly and fairly.
There are various obligations set out in the Corporations Act and in ASIC’s Regulatory Guides. These obligations include, but are not limited to, General Obligations that all licensees must comply with, various disclosure obligations, including fee disclosure; and the Best Interest Duty obligations.
As a licensee, it can be a confusing and administrative process to know what to comply with and how to demonstrate compliance. 3Lines provides licensees with a one-stop shop solution, housing all of the ongoing licence obligations in one place. Visit www.3lines.com.au for more information.
Consequences of Not Complying
Failing to comply with regulatory obligations can have serious consequences at both the licensee and individual levels. Examples of consequences can include penalties and fines, entering into licence conditions or Enforceable Undertakings with ASIC, licence suspension or cancellation, reputational damage, and legal liabilities. In the worst cases it can lead to imprisonment. It is essential to establish robust compliance procedures to mitigate these risks.
Obtaining an AFSL is an exciting step forward for any business seeking to provide financial services in Australia. Compliance with licensing requirements is vital to protect consumers, maintain market integrity, and avoid legal and regulatory consequences. By understanding the licensing process and ongoing compliance obligations, licensees can navigate the regulatory landscape while building a positive reputation in the industry. 3Lines is here to support licensees on the journey to becoming self licensed and to work with clients to build a robust compliance framework once the licence is granted.
Tell me more!
3Lines' RM Bootcamp is a virtual set of 9 lessons, allowing you to self-pace without the worry of missing a beat or interfering with BAU. Our bite-size modules are practical and engaging, meaning you can use the lessons as a tangible guide as and when required.
Whether you're an RM, a licensee, or an adviser, this course is for you. We've designed it to be relevant to a wide audience and to guide your practice in working more efficiently and effectively.
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