Licensing Essentials: The Good, the Bad and the Ugly

As ASIC expands its regulatory reach across new entities and industries, more businesses will be required to hold an Australian Financial Services or Credit licence or obtain additional authorisations, than ever before.

But what goes into obtaining a licence, and is it really as impossible as it seems?

With more than two decades of experience in helping financial services businesses manage their licensing and regulatory challenges, we’ve seen it all – and we’re distilling it down in this licensing essentials series.

This series covers the good, the bad and the ugly of Australian Credit and Financial Services licensing regimes. We explore the licence application process and share with you the tips and traps we’ve learnt to navigate through the challenges of the licensing regime.

To kick off the series, we take a step back and explore what an Australian Financial Services or Credit licence is, when you need one, and tips for preparing your licence application.

Australian Credit or Financial Services Licence: When do I need a licence?

If you want to carry on a financial services business in Australia, you must hold an Australian Financial Services licence (AFSL) or be appointed as an authorised representative of an existing licensee, unless an exemption applies.

Similarly, if your organisation engages in credit activities, you will need to have an Australian credit licence (ACL), unless you are exempt or authorised to engage in those activities as a credit representative of a credit licensee.

A Licence is a privilege, one that comes with great responsibility. Before applying for a licence, you need to know why you are applying and be able to convince ASIC that you can handle the responsibilities of a licence.

AFSLs and ACLs are issued by ASIC after a detailed assessment, and licence holders are subject to a range of conditions, including complying with financial services and credit laws, organisational competence, reporting and disclosure.

If you intend on applying for an AFSL or ACL, the first step is to determine if indeed you do need a Licence and, if so, what type. Once this is certain, consider what information you’ll need to prepare the licence application.

Demonstrating organisational competency

Regardless of whether you are applying for an AFSL or an ACL, 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. This will be covered in more detail in our licensing essentials series, so keep an eye out, there’s more to come.

Licence applicants are assessed on their ability to comply with the laws associated with their licence, whether these be financial services or credit laws, and how they meet the general obligations associated with these licences.

Aside from organisational competency, AFS Licensees also need to demonstrate 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; and
• Adequate risk management systems.

The key components of Licence Applications

There are five parts to an AFS Licence Application:

1. An Online Application – referred to as the ASIC FS01 Form.
2. Core Proofs – these include a Business Description, People Proofs for each Responsible Manager, an Organisational Competence Proof and Financial Statements and Financial Resources Procedures.
3. Fit and Proper Persons Proofs – The licence applicant’s ‘officers’ and the ‘officers’ of its controller are required to demonstrate they are fit and proper. See our recent article on this topic.
4. Complex Product Proofs – Only required for complex products such as derivatives, foreign exchange, custody, responsible entities, CCIV, crowd sourced funding etc. This is an additional proof designed to demonstrate the licence applicant’s capacity to provide services in relation to these more complex products.
5. Additional Proofs – in certain circumstances, additional proofs are required. For example, when key business activities are outsourced, the licence applicant’s procedures for managing outsourcing are required. Additionally, ASIC may ask to see further documents pertaining to the licence applicant’s arrangements for its representatives, training, resource adequacy, product research, dispute resolution, compliance, risk management or compensation arrangements.

These documents are all lodged together for ASIC to assess. An Application Fee ranging from $2,233 to $11,305 including GST is payable to ASIC at this time.

The Australian Credit Licence Application consists of one online application (ASIC CL01 Form) which requires you to:

• Identify each individual involved in managing the credit business (fit and proper people);
• Nominate each Responsible Manager whose knowledge and skills you will be relying on to demonstrate that your business is competent to engage in credit activities; and
• Provide details of your compliance arrangements with the general conduct obligations.

A business description detailing how you operate must also be submitted with an online application. You will also need to supply fit and proper persons proofs about the ‘officers’ of the controller.

The online application, business description and other supporting documents are lodged together to commence the application assessment process. An Application Fee ranging from $1,798 to $4,624 including GST is payable to ASIC at this time. The fee depends on the authorisations sought and whether the applicant is an individual or a body corporate.

ASIC: The Regulatory Authority

Before ASIC comes knocking on your door, they will review each licence application with a calm, considered and authoritative lens.

Upon receiving the application, ASIC assesses:

• The risk associated with the business;
• The complexity of the proposed services and products; and
• The market in which the licence applicant proposes to operate.

Depending on the outcome of this assessment, ASIC may ask for some further information or documentation.

The key things ASIC looks for are whether:

• The nominated Responsible Managers have the qualifications and experience to support the relevant authorisations. The success of the application is often dependent on whether the nominated Responsible Manager satisfies ASIC’s criteria;
• The people involved in managing and controlling the business are fit and proper; and
• The applicant has the appropriate business systems in place to manage the provision of those services.

Once ASIC is satisfied with these matters, it issues a draft licence. This needs to be carefully checked to ensure that the necessary authorisations have been provided and that no inappropriate conditions have been imposed.

The last step before ASIC grants the licence is to provide the final requirements which will depend on the type of licence that you are applying for and can include providing details about professional indemnity insurance and membership with AFCA.

For more information, contact Sónia Cruz, Jaime Lumsden or Jessica Smith.