ASIC has long held the view that many digital assets businesses are already providing financial services without an AFS licence. That position was confirmed in INFO Sheet 225, but ASIC has also issued a class no action letter to help provide a pathway to licensing for digital asset businesses that currently need to hold an:
- AFS Licence in relation to financial services in respect of digital assets that are financial products
- Australian Markets Licence for operating a financial market where one or more digital assets are financial products
- Australian Clearing and Settlement Facility Licence for operating a clearing and settlement facility where one or more digital assets are financial products.
A class no action letter is ASIC’s statement that it does not intend to take regulatory action over a particular state of affairs or conduct. However, it is not a guarantee that ASIC will not take action in the future, it is not intended to affect the rights of third parties to take action, and it may be withdrawn at any time.
If you should be holding an AFS licence currently, then in order to fall within the class no action letter, you must:
- apply for that licence by 30 June 2026. Timeframes also apply to the market and clearing and settlement facility licences
- provide financial services prior to 31 December 2025.
If you are not providing financial services yet, but plan to do so, and do not want to be delayed by at least 12 months, you need to plan to provide those financial services as soon as possible.
You also need to start planning your AFS licence application, as it can take time to source Responsible Managers and prepare and lodge the application. The AFS licence application should be complete and contain all the information and supporting documents required by ASIC in order for you to rely on the no action letter (see our licensing tips below). If ASIC refuses the licence application because it is incomplete, you will lose the benefit of the no action letter (unless you have time to re-apply before 30 June 2026).
What is the scope of the no action letter?
The no action letter only applies if you are providing financial services in respect of digital assets where one or more of those digital assets is a financial product. It does not apply if you are providing a financial product that is not a digital asset but relates to digital assets.
A digital asset can be almost any financial product, but some of the most common ones are:
- interests in a managed investment scheme
- securities (e.g. shares or debentures)
- derivatives
- non-cash payment facility
- a facility for making a financial investment.
Most importantly, ASIC has taken the view in INFO Sheet 225 that most non-yielding stablecoins are likely to be a non-cash payment facility, meaning many businesses doing anything with stablecoins will be providing financial services and need an AFS licence.
You cannot rely on the class no action position for:
- crypto lending/earn products (facilities under which a person lends digital assets to others or pays a return to customers from the use of digital assets)
- non-cash payment facilities, other than stablecoins, where a digital asset is used to make a payment
- derivatives (other than wrapped tokens) in relation to digital assets.
If you are providing any of these type of financial services without a licence, you should seek advice immediately on what action to take now.
For a markets licence or clearing and settlement facility licence, you can rely on the no action letter provided that by 30 June 2026 you have:
- notified ASIC in writing of your intention to apply for the licence (in relation to the digital assets) and lodged an application within 12 months of making the written notification
- attended a licensing pre-meeting with ASIC in relation to the proposed application.
Special conditions apply to foreign entities looking to rely on the no action letter.
Digital assets licensing tips
Before applying for an AFS licence, consider:
- what licence authorisations you will require
- your organisational competency and who will your Responsible Managers be
- the people involved in managing and controlling the business. ASIC cannot grant a licence unless they are fit and proper.
Licence Authorisations
Know what financial product authorisations you will need before you apply for the licence. ASIC does not grant a licence that covers all financial services, and you will need to show ASIC why the authorisations are required to provide those financial services.
In identifying the financial products, you will need to assess both the digital assets, and any associated arrangements you offer to customers to determine which financial product(s) authorisations you need. ASIC has determined that stablecoins, wrapped tokens, tokenised securities and digital asset wallets are likely to be a financial product. If you need advice on this, we can help you.
The process involved in applying for a licence is the same for all financial services. You may be asked additional questions or need to produce certain information for some types of financial services.
Demonstrating organisational competency – Responsible Managers
ASIC will want to know that you have the organisational competency needed for the services you intend to provide. ASIC assesses an applicant’s organisational competency through the knowledge and skills of your Responsible Managers, so you need to choose your Responsible Managers carefully.
There are five prescribed pathways to be a Responsible Manager (see our previous article for more details about who should be a Responsible Manager). These pathways look at qualifications, financial services experience in the products and services the licensee will hold, an understanding of the technology relating to the digital assets you will offer, and an understanding of the regulatory requirements of an AFS licensee.
The good news is that ASIC has adopted a more facilitative approach and will consider unregulated experience for satisfying Option 5 of ASIC’s prescribed pathways for Responsible Managers. This will be assessed on a case-by-case basis. This could involve one Responsible Manager overseeing the regulatory aspects of the business whilst the other oversees operational business decisions in relation to the digital assets, where the second Responsible Manager may have unregulated digital asset experience.
Fit and proper persons
The licence applicant’s ‘officers’, and the ‘officers’ of its controller, are required to demonstrate they are fit and proper. This requires you to obtain criminal history checks for Australian officers and criminal history and bankruptcy checks for overseas officers. These checks can take time to obtain, especially for other countries, and you cannot lodge a licence application without this information. Our article, Licensing Essentials: Fit and Proper Persons addresses this topic.
AFS Licensees also need to demonstrate in the licence application that they have:
- documented business systems, i.e. policies and procedures, for all aspects of their business
- sufficient financial resources to carry on the proposed business
- adequate risk management systems.
Additional requirements for licence applications covering retail clients
Professional Indemnity Insurance
Unless exempt, an AFS licensee must hold professional indemnity insurance to provide financial services to retail clients. ASIC will request information about your insurance at the time they issue a draft licence.
The professional indemnity insurance policy must meet ASIC’s requirements, which are set out in ASIC Regulatory Guide 126: Compensation and insurance arrangements for AFS licensees. ASIC considers that a PI insurance policy must be for a minimum of at least $2 million for any one claim and in the aggregate. There are different requirements for some financial services, so check before applying. It can be difficult to source PI insurance and can take time. Start this process early as you will not be granted a licence until you have PI insurance.
AFCA membership
You are required to have an internal dispute resolution process when dealing with retail clients and you are also required to maintain membership with an external dispute resolution scheme, which in Australia is the Australian Financial Complaints Authority (AFCA). ASIC will only issue the AFS licence once you are a member of AFCA.
Other financial services
If your licence will cover custodial and depository services, then you will need to provide ASIC with the pro forma or standard agreement used to cover the custodial or depository services the applicant will provide. You cannot lodge a licence application without supplying this to ASIC. Note that under Treasury’s proposed reforms for digital assets, the holding of a digital asset that is a financial product will not be a custodial or depository service, but at present it is.
The consequences of inaction
Businesses that fail to apply for a licence by 30 June 2026 will need to cease providing any financial services relating to digital assets. If you choose to do this permanently, you can make a notification to ASIC to obtain the benefit of the no action letter. If, however, after 30 June you need to apply for a licence, you will no longer have the benefit of the class no action letter and will not be able to provide any financial services until an AFS Licence has been granted. This can take time, as ASIC’s published service standards for assessing and granting a licence are three to nine months.
The 30 June 2026 deadline is not far away. Businesses need to commence their applications now. This allows for the complexity of digital asset licensing applications, and the time required to have appropriate Responsible Managers and lodge a full and complete licence application,
Reach out if you would like to discuss any of the points raised in this article and what it may mean for your business, or how we can help get your licence application started.
How we can help
Hamilton Locke provides expert legal advice to the digital asset sector. Here are some of the ways we can help:
- Advise on whether you need an AFS Licence and what licence authorisations are required.
- Undertake Responsible Manager assessments to advise whether they will satisfy ASIC’s requirements to support an AFS Licence application.
- Provide assistance with the AFS Licence application, preparing supporting documents or reviewing the documents you prepare and then liaison with ASIC and providing technical and legal advice throughout the process.
- Our suite of compliance tools and templates to help you build your operational policies and procedures and help you to demonstrate that you have a compliance and risk program. This is available via our eStore.
- Delivering Responsible Manager Masterclasses. These are one-day courses for Responsible Managers and Compliance Professionals to support their professional development. We run these as public courses throughout the year, or we can be engaged to run a private in-house session.
- Our colleagues at Source can provide ongoing compliance support.
For more information, please contact Jaime Lumsden or Sónia Cruz.
