An end to the Qoin-fusion: Can an authorised representative issue a financial product?

The Full Federal Court’s decision in ASIC v BPS Financial

In addition to the wintry chill some parts of Australia are currently experiencing, authorised representatives of AFSL holders may be feeling an additional chill down their spines as a result of the Full Federal Court’s recent judgment in ASIC v BPS Financial Pty Ltd [2025] FCAFC 74.

The judgment clarifies the law about authorised representatives, and makes some important new pronouncements on the exact scope of the financial services that authorised representatives are permitted to provide. We explore these clarifications and pronouncements below.

Background

The decision being appealed (ASIC v BPS Financial Pty Ltd [2024] FCA 457, which has been popularly referred to as the ‘Qoin case’) made waves in the world of AFSL authorisations by opening up the possibility that the authorised representative of an AFSL holder might be able to issue a financial product itself.

Before the primary judgment, the long-held wisdom in the industry was that, issuing is a ‘principal’ activity (rather than, for example, other types of dealing or providing financial product advice), and as such was a financial service that could not be provided by an authorised representative, but only by an entity holding their own AFSL.

No surprise, then, that excitement was caused by the statement in the primary judgment that ‘there is nothing in s 916A which imposes a limitation on a person not being able to be an authorised representative of an AFSL holder if they are also the product issuer’.

Although it had succeeded in proving that BPS had engaged in unlicensed conduct at other times, ASIC appealed this finding in relation to issuing by an authorised representative to the Full Federal Court.

The relevant financial services

The case involves the conduct of BPS in issuing ‘a facility for making non-cash payments using a digital currency or crypto-asset’ (the Qoin Product). It was common ground that the Qoin Product was a financial product, and that BPS was carrying on a financial services business (by issuing) in relation to the Qoin Product. As a result, BPS would need to hold an AFSL to issue the Qoin Product unless an exemption applied.

BPS relied on the exemption in section 911A(2)(a)(i) of the Corporations Act, which applies to a person who is a representative of an AFSL holder that is authorised to provide the relevant financial service.  Specifically, BPS argued that it was, at the relevant times, the authorised representative of PNI Financial Services Pty Ltd (PNI) who held an AFSL authorising it to issue financial products and provide general financial product advice about them.

ASIC argued, both in its appeal and at first instance, that BPS, as an authorised representative, could not issue a financial product in its own right. At first instance it made this argument relying largely on the use of the phrase ‘on behalf of’ in the legislation. The primary judge rejected this argument.

On appeal however, ASIC made the same argument but on a different foundation – that there was an ‘essential representative capacity requirement’ arising from the use of the word ‘representative’ in the legislation.

ASIC was successful in its appeal – the Court finding that BPS could not rely on the ‘representative’ exception from the requirement to hold an AFSL.

What an authorised representative must show

The Court held that BPS could only rely on the ‘representative’ exception if both of the following applied:

• First, BPS needed to be a ‘representative’ as defined in the legislation. This requirement was satisfied as BPS was an ‘authorised representative’ of PNI.
• Secondly, BPS must have provided the relevant financial service ‘in a representative capacity’. This requirement was not met.

Although the case at hand related only to the particular financial service of issuing, the wording used by the Court is more general. We would be surprised if decisions in the future did not apply this same test to all other relevant financial services.

In short, there is now a two-part test to act as an ‘authorised representative’. Firstly, you must show that you were in fact an ‘authorised representative’ (i.e., duly appointed by an AFSL holder). Secondly, you must show that the relevant acts were done ‘in a representative capacity’. In the words of the Court, not ‘every act of the authorised representative in providing the relevant financial service is provided in that capacity’. Whether a financial service is provided in a representative capacity is a factual question.

But what does it all mean?

Not much has been said previously about the concept of ‘representative capacity’, and the Court’s decision in this case does not provide an affirmative or exhaustive list of factors to determine if a person is acting in a ‘representative capacity’. In fact, the Court is clear that the ‘outcome of the appeal is peculiar to the facts’. In reaching its findings that BPS was not acting in a representative capacity it relied on the following five facts;

• The issuer developed the product before it had dealings with the authorising AFSL holder.
• The product was issued before the issuer had dealings with the authorising AFSL holder.
• There was ‘AFSL provisioning’ (being, where a financial services provider seeks out an AFSL holder to avoid the need to obtain an AFSL for itself).
• All relevant documents, including the FSG and PDS were prepared and/or issued by the issuer before it has dealings with the authorising AFSL holder.
• The relevant contractual relationship was between the issuer and users – the Full Court relied on the fact that BPS directly conferred contractual benefits on, and assumed contractual obligations to, users.

Any of these facts alone might not lead to a conclusion that an authorised representative is not acting in a representative capacity. We would be very concerned if a factor such as AFSL provisioning (see item 3 of the list above) was sufficient to deprive an authorised representative of the exemption from the need to hold an AFSL. However, it is worth considering, if you are an authorised representative, whether any of the factors above apply to you, and whether an argument could be made that you are acting in your own capacity rather than in a representative capacity of your authorising licensee.

What next?

The title of this article promised an answer to the question of whether an authorised representative issue a financial product?’. Our answer to that question is threefold:

• ASIC appears to have a strong view that the answer should be no. It argued that the Court should find that an authorised representative cannot in any circumstances issue a product.
• Technically, the possibility remains open. The Court found it unnecessary to decide whether an authorised representative can ever be an issuer of a financial product.
• In our view, it would be very difficult for an authorised representative to satisfy the requirement that it is acting ‘in a representative capacity’ of an AFSL holder while issuing a product. The five facts cited by the Court in deciding that BPS was not acting in a representative capacity of PNI are facts that could very well apply to many authorised representative arrangements.

The question of whether an authorised representative can issue may have been put to bed for now.  Those who do not hold an AFSL but would like to be involved in the issuing of a new product can rely on existing methods such as the intermediary authorisation (which is complicated, but well-tested). However, authorised representatives might now lose sleep over the question of whether they are acting in a representative capacity of their authorising licensees.

If you are an existing authorised representative or are contemplating entering into such an arrangement to issue a financial product, Hamilton Locke can help you understand how this judgment may affect your organisation.