Licensing Essentials: Responsible Managers for Carbon Financial Services

You need to meet your Environmental, Social, and Corporate Governance (ESG) targets, but do you know your obligations when it comes to Carbon Financial Services?

One way that businesses look to achieve ESG targets is by offsetting their carbon output. Offsetting involves purchasing carbon credits, with one carbon credit being equivalent to one tonne of carbon dioxide emissions. This is achieved by purchasing regulated emissions units, like Australian Carbon Credit Units (ACCU), regulated International Emission Units (IEU), or emissions units that comply with a voluntary standard.

ACCUs and IEUs have been regulated financial products under the Corporations Act since 2015, however, voluntary emissions are not regulated financial products. This means that those who want to advise on or deal in these products typically need to hold an Australian Financial Services Licence (AFSL), unless an exemption applies. For example, a licence is not required to provide advice on, or deal in, carbon abatement contracts. All carbon derivatives (even of a voluntary carbon credit) are financial products and will also generally need a licence.

There are several ways to structure an offering of ACCUs, IEUs, and related financial products that can result in different licensing treatments, so seeking advice is essential to understanding whether you need an AFSL to participate in carbon markets or to provide financial services in relation to carbon financial services.

If you do need an AFSL, the Australian Securities and Investments Commission (ASIC) expects a licence applicant to demonstrate that it is competent at an organisational level to provide all the financial services for which it will be licensed. This is done by appointing Responsible Managers with the knowledge and skills to manage the financial services.

Each Responsible Manager will need to individually meet the following to demonstrate that they have adequate organisational competency:

  • Appropriate knowledge – this relates to the training and qualifications of your Responsible Managers; and
  • Appropriate skills – this covers experience in all the financial services and products the Responsible Managers will provide.


Focus Area One – Responsible Manager Knowledge 

ASIC requires Responsible Managers to demonstrate sufficient knowledge of the financial products they are dealing in and advising on. One of the common ways of demonstrating this is by having a relevant tertiary qualification, diploma in financial services, or a specialist short course that is relevant to financial services. Additionally, those Responsible Managers who are demonstrating knowledge in providing advice to retail clients will also need to meet the RG 146 training requirements.

We are not presently aware of any available courses that meet the RG 146 training requirements for ACCUs and IEUs. However, ASIC is open to considering relevant knowledge gained from other RG 146 training courses that cover other financial products.


Focus Area Two – Responsible Manager Experience

As there has been limited adoption of carbon financial services, Responsible Managers may have difficulty demonstrating to ASIC that they have the requisite experience.

However, ASIC will consider a broader range of experience, such as Responsible Managers having:

  • Knowledge about ACCUs and EIUs and the features of the carbon markets in which they are traded;
  • Experience under the carbon pricing mechanism, carbon farming initiative, other Australian environmental markets or overseas carbon markets;
  • Experience dealing and trading in unregulated emission units and markets; and
  • Experience in the types of financial services that are to be provided either for carbon units or other financial services.

Alternatively, for carbon derivatives, relevant experience in commodities derivatives may help to demonstrate that a Responsible Manager’s experience is akin to carbon financial services.

Building a compelling case on the relevant experience held by a Responsible Manager will be critical to ASIC’s assessment of your licence application and ultimately whether they will accept that the licence applicant has the necessary organisational competency to provide carbon financial services.


How do I prepare?

Seek advice about whether you need an AFSL for the products or services you are proposing to provide relating to ACCUs or EIUs.

It is important to source one or more Responsible Managers that will be able to support the licence authorisations that you will need. ASIC suggests that two Responsible Managers should be nominated, but in practice, this isn’t always possible. Remember that where only one Responsible Manager is competent, ASIC is highly likely to impose a “Key Person” condition on the licence.

If you do not have a person internal to the business to facilitate the Responsible Manager role, you may be able to source an external person to be the Responsible Manager. For risk management and succession planning purposes, the external Responsible Manager should have internal staff shadow them so that eventually there will be sufficient competency within the business and internal persons can replace the external consultant as Responsible Managers.

Alternatively, if your business model allows, you can operate as an authorised representative of a licensee that has the right authorisations so that you can gain the relevant experience to then apply for your own AFSL.

Applying for an AFSL relating to carbon can be more involved and it is important to be well-prepared. Be aware of what is required before seeking a licence and engage the correct support network to present ASIC with a strong licence application.

Reach out to us if you would like to discuss licensing or Carbon Financial Services.

For more information, please contact Sónia Cruz, Jaime Lumsden, Erik Setio or Nicholas Pavouris.



Executive Director – Licensing

Senior Associate