Australian Financial Services License (AFSL)

In Australia, providing financial services requires an Australian Financial Services Licence (AFSL). This licence is issued and regulated by the Australian Securities and Investments Commission (ASIC). The AFSL regime is designed to protect consumers by ensuring that financial service providers operate competently, honestly, and fairly.

What constitutes a financial service?

A financial service, broadly speaking, includes providing financial product advice, dealing in a financial product, operating a registered managed investment scheme, providing custodial or depository services, and providing traditional trustee company services. Financial products encompass a wide range, including securities, derivatives, insurance, managed investment schemes, superannuation, and basic banking products.

Who needs an AFSL?

Any entity (individual, partnership, or company) that carries on a financial services business in Australia needs an AFSL. There are limited exemptions, but these are narrowly defined. For example, a representative authorised by an AFSL holder to act on their behalf does not need their own licence.

Applying for an AFSL

The application process for an AFSL is rigorous and involves demonstrating to ASIC that the applicant meets certain requirements. Key areas ASIC assesses include:

• Competence: Applicants must demonstrate that they, and their key personnel, have the necessary skills, knowledge, and experience to provide the financial services they intend to offer. This often involves possessing relevant qualifications and industry experience.
• Financial Resources: Applicants must have adequate financial resources to operate their business and meet their obligations to clients. This includes maintaining sufficient working capital and professional indemnity insurance.
• Organisational Structure: Applicants must establish a clear and effective organisational structure with robust risk management systems and compliance procedures.
• Compliance Arrangements: Applicants must demonstrate that they have appropriate compliance arrangements in place to ensure they comply with their obligations under the Corporations Act and other relevant laws. This includes establishing procedures for handling complaints, managing conflicts of interest, and ensuring that advice is appropriate for clients’ individual circumstances.

Obligations of AFSL Holders

Once granted, an AFSL holder is subject to ongoing obligations, including:

• Complying with the Corporations Act and other relevant laws.
• Maintaining adequate financial resources.
• Operating efficiently, honestly and fairly.
• Having adequate risk management systems in place.
• Complying with ASIC’s regulatory guidance.
• Reporting obligations to ASIC.

Consequences of Non-Compliance

Failure to comply with AFSL obligations can result in serious consequences, including fines, licence suspension or cancellation, and even criminal prosecution.

Importance of Seeking Advice

Navigating the AFSL regime can be complex. Therefore, it’s strongly recommended that anyone considering applying for an AFSL seeks professional legal and compliance advice. This will ensure that they understand their obligations and are well-prepared to meet ASIC’s requirements.