THE QUICK ANSWER:
Welcome to our “Common Questions Answered” section, designed to provide clarity and insights into the intricate world of Australian Financial Services licenses in Australia. As a trusted professional trustee in the industry, we understand that navigating these matters can be complex and overwhelming. In this section, we aim to address the most frequently asked questions and demystify various aspects of AFS licensing, Trustees for “hire” or for “rent”, and “renting” an AFSL.
WHAT IS AN AFSL?
AFSL stands for Australian Financial Services License. It is a license issued by the Australian Securities and Investments Commission (ASIC) that allows a company to carry on a financial services business in Australia.
WHO NEEDS TO HAVE AN AFSL?
AFSL stands for Australian Financial Services License. It is a license issued by the Australian Securities and Investments Commission (ASIC) that allows a company to provide financial services in Australia.
The license is required by any business that wants to provide financial services to Australian clients or deal in financial products such as securities, derivatives, and managed funds. This includes investment advice, financial planning, and the issuing of financial products.
HOW DO I OBTAIN AN AFSL?
To obtain an AFSL, a company must meet certain requirements, such as having adequate financial resources, competent staff, and appropriate risk management systems.
WHAT ARE THE REQUIREMENTS FOR OBTAINING AN AFSL?
To obtain an AFSL, there are a number of requirements that must be met, including:
- Meeting the competency standards: The applicant must demonstrate that they have the necessary skills, qualifications and experience to provide the financial services they intend to offer.
- Meeting the organisational competence requirements: The applicant must have adequate resources, systems, and processes in place to provide financial services in a compliant and effective manner.
- Meeting the financial requirements: The applicant must have sufficient financial resources to operate the business and meet its obligations to clients.
- Meeting the compliance requirements: The applicant must have a compliant risk management framework in place, and must demonstrate that they understand and comply with all relevant laws and regulations.
- Completing the AFSL application process: The applicant must complete and submit the AFSL application, which includes providing detailed information about the business and its proposed financial services.
- Meeting ongoing obligations: Once an AFSL is granted, the licensee must comply with extensive compliance, regulatory and reporting obligations which are monitored and strictly enforced by ASIC.
HOW LONG DOES IT TAKE TO GET AN AFSL?
Recent experience suggests that it is currently taking around 12 months. (October 2023).
WHAT ARE THE ONGOING OBLIGATIONS OF THE HOLDER OF A WHOLESALE AFSL?
The ongoing obligations of the holder of a wholesale Australian Financial Services Licence (AFSL) are less extensive than those of a retail AFSL holder, but there are some key differences.
Here are some of the ongoing obligations of a wholesale AFSL holder:
- Compliance with licensing conditions: Wholesale AFSL holders must comply with the conditions of their license, including the provision of financial services that are authorised under their license.
- Training and competence: Wholesale AFSL holders must ensure that they and their representatives are adequately trained and competent to provide the financial services that they are authorised to provide.
- Record-keeping: Wholesale AFSL holders must keep proper records of their financial services, client transactions, and complaints handling procedures.
- Risk management: Wholesale AFSL holders must have adequate risk management systems in place to identify and manage risks that may arise in their business operations.
- Reporting obligations: Wholesale AFSL holders must report various breaches to ASIC.
- Dispute resolution: Wholesale AFSL holders must have an internal dispute resolution (IDR) system in place to handle client complaints.
- Financial requirements: Wholesale AFSL holders must maintain adequate financial resources to carry out their financial services and meet their obligations to clients.
- Wholesale client assessment: Wholesale AFSL holders must ensure that their clients are wholesale clients and that they meet the requirements to be classified as such.
- It is important for wholesale AFSL holders to regularly review and update their compliance processes to ensure ongoing compliance with their obligations. Non-compliance can result in regulatory action and possible suspension or revocation of an AFSL.
WHAT ARE THE CONSEQUENCES OF NOT HAVING AN AFSL?
The consequences of requiring, but not having an AFSL can be severe and may include:
- Legal penalties: The Australian Securities and Investments Commission (ASIC) has the authority to take legal action against individuals or businesses that provide financial services without an AFSL. This may result in hefty fines or even imprisonment.
- Liability issues: If a person or business provides financial advice or services without an AFSL, they may be held liable for any losses or damages that their clients suffer as a result. This can lead to costly legal battles and damage to their reputation.
- Loss of trust: Clients may lose trust in a person or business that is not licensed to provide financial services. This can have a negative impact on their business and make it difficult to attract new clients.
- Inability to access certain markets: Some financial products and services require an AFSL to be sold or provided. Without an AFSL, a person or business may not be able to access these markets or offer these products to their clients.
- Limited ability to raise capital: Some investors may be hesitant to invest in a business that does not have an AFSL, which can limit their ability to raise capital.
In summary, the consequences of requiring, but not having an AFSL can be severe and may result in legal penalties, liability issues, loss of trust, limited access to markets, and limited ability to raise capital. It is important for individuals and businesses that provide financial services in Australia to ensure that they have the appropriate licenses and comply with all regulatory requirements.
CAN I OPERATE UNDER ANOTHER COMPANY’S AFSL?
If a person wants to provide financial services to clients in Australia, they must hold their own AFSL or be an authorised representative of an AFSL holder. An authorised representative is a person who is appointed by an AFSL holder (such as MARQ) to provide financial services on their behalf.
WHAT IS A TRUSTEE FOR HIRE
A trustee for hire is a professional trustee who is engaged by an investment manager or fund manager to act as the trustee for a managed investment scheme (Fund).
The trustee for hire is typically a corporate trustee that is independent of the fund manager and has the necessary expertise and experience to fulfill its duties as a trustee, including monitoring the activities of the investment manager or fund manager and ensuring that the Fund operates in compliance with the relevant laws, regulations, and ASIC policy.
A trustee for hire provides an additional layer of protection for investors and improves the overall governance of the scheme.
AFSL FOR HIRE
This term is a misnomer.
What is usually sought, is access to an AFSL to allow certain financial services to be undertaken.
Under Australian law, operating a managed investment scheme requires an AFSL, which is issued by the Australian Securities and Investments Commission (ASIC). Some investment managers or fund promoters who do not wish to go through the process of obtaining an AFSL themselves may opt to engage an AFS licensee to establish the fund and appoint the investment manager or fund promoter to operate it under that license pursuant to an authorised representative arrangement.
The use of such a service can be a cost-effective way for investment managers or fund promoters to enter the market quickly, without having to invest time and resources in obtaining their own AFSL. Even if an investment manager or fund promoter satisfies the strict and extensive skills, qualifications and experience tests set down by ASIC as preconditions to obtain an AFSL, it will usually take 9-12 months for the AFSL to be issued.
Further, it can add significant credibility if the fund has a trustee that is independent of the investment manager or fund promoter.
AFSL FOR RENT
This term is a misnomer.
What is usually sought, is access to an AFSL to allow certain financial services to be undertaken.
Under Australian law, operating a managed investment scheme requires an AFSL, which is issued by the Australian Securities and Investments Commission (ASIC). Some investment managers or fund promoters who do not wish to go through the process of obtaining an AFSL themselves may opt to engage an AFS licensee to establish the fund and appoint the investment manager or fund promoter to operate it under that license pursuant to an authorised representative arrangement.
The use of such a service can be a cost-effective way for investment managers or fund promoters to enter the market quickly, without having to invest time and resources in obtaining their own AFSL. Even if an investment manager or fund promoter satisfies the strict and extensive skills, qualifications and experience tests set down by ASIC as preconditions to obtain an AFSL, it will usually take 9-12 months for the AFSL to be issued.
Further, it can add significant credibility if the fund has a trustee that is independent of the investment manager or fund promoter.
