Australian Financial Services Licence (AFSL) Compliance

An Australian Financial Services Licence (AFSL) is a legal licence provided by the Australian Securities and Investments Commission (ASIC). Many Financial Services businesses, including Financial Advisers, are required to have an AFSL, depending on the type of financial products or services they provide.

This article will help you understand the ins and outs of AFSLs, including how to secure one, what it means to be a licensee and what your obligations are. You’ll also be subject to certain regulatory requirements demanding a high level of compliance.

Complii provides an end-to-end, integrated platform that helps compliance officers, brokers and advisers automate and manage operations in a compliant manner.

The Complii Group also includes MIntegrity, its consulting business unit. With a powerful combination of software and expert services, the MIntegrity team is here to support your financial services business from licence application to ongoing compliance obligations.

What is an AFSL?

An AFSL entitles licensees to perform certain tasks for, with and on behalf of financial clients, including:

Providing financial advice

Offering financial products

Providing custodial or depository services

Operating a registered scheme

No organisation can legally sell, advertise or deal in financial products or services without an AFSL. You must have this licence from the day you start your business. You offer a financial service or product if you:

  • Provide any kind of financial advice, including product-specific recommendations to clients or the general public.
  • Deal in or make a market for any financial product, including buying/selling shares on a client’s behalf or regularly quoting prices for buying/selling financial products.
  • Provide custodial or depository services.
  • Provide services for crowdfunding, superannuation trustees, claims handling and settling, etc.
  • Operate the business and/or conduct the affairs of a corporate collective investment vehicle (CCIV).

Note that ASIC provides specific definitions for “financial product” and “financial service” in multiple resources, including regulatory guides, the Corporations Act 2001 and the Corporations Regulations 2001. Depending on your unique circumstances, your organisation may be exempt from the requirement to hold an AFS licence; alternatively, you may be allowed to operate under a limited licence or provide services as an authorised representative of an AFS licensee. If in doubt, always seek legal advice.

If you act on behalf of an AFS licensee, as a Corporate Authorised Representative (CAR), you will have the same obligations, including compliance with relevant laws and regulations as the AFSL holder; however, CAR and AFSL processes are separate.

ASIC considers the licensing process a “point-in-time assessment” of the organisation, not its owners, employees or offerings. That means ASIC doesn’t endorse any AFS licensee, guarantee its service quality or state that clients won’t incur losses. The commission encourages consumers to check the ASIC Connect Professional Registers to ensure companies or individuals hold an AFSL.

How to get an AFS Licence?

To obtain this licence, your company must complete an AFSL application and meet basic standards of operation in the Australian financial services industry. ASIC will  need to be comfortable that you’re capable and competent in performing the type of business specified in your application and that you have sufficient resources to provide those services. It’s your responsibility to maintain these standards throughout the lifetime of your AFS licence. An AFSL application fee is payable and varies depending on the types of clients you serve, products you offer and complexity of your licence.

AFSL compliance obligations and requirements

To obtain an AFSL licence, you’ll need to meet several requirements. ASIC uses this “checklist” as part of its role as regulator of the financial services industry. The goal is to maintain and improve the financial system’s performance for market participants and consumers alike, promoting confident and informed participation while taking necessary steps to enforce the law.

To do this, ASIC ensures all AFSL applicants can meet requirements in three basic categories:

Competency

You must be capable of clearly and correctly performing the kind of business you’re applying for, including any special services.

Resources

You must be capable of supporting your business and clients through your products, services or other offerings. This includes financial, technological and human resources.

Compliance

Your entire business must comply with obligations including training, conflicts management,  insurance, dispute resolution and more.

Although particular requirements depend on your business and the specifics of your application, there are “general obligations” you must follow from the day your AFSL licence is issued. ASIC considers these to be flexible principles and does not give prescriptive guidance on how to apply them; instead, the Corporations Act places that responsibility on individual licensees. For additional guidance see ASIC RG104.

ASIC defines the general obligation for AFS licensees as being “to provide efficient, honest, and fair financial services.” AFS licensees must comply with conditions found in both their AFS licence and the Corporations Act 2001.

Examples of general obligations include:

  • Doing everything necessary to deliver your licensed financial services efficiently, honestly and fairly.
  • Having adequate arrangements for conflicts of interest.
  • Complying with financial services laws and taking reasonable action to ensure your representatives do the same.
  • Maintaining the competence required to provide your financial service or product.
  • Ensuring appropriate training for representatives, employees and other team members.
  • Establishing and maintaining adequate risk management systems.
  • Having a dispute resolution system in place for retail clients.

Note that some obligations will not apply if you’re regulated by the Australian Prudential Regulation Authority (APRA).

Responsible Managers

Responsible managers (RMs) are the people that the licensee relies on to prove to ASIC that it can competently operate a financial services business.  They are required to make significant day-to-day decisions for the licensed operations and play an important role in ensuring that licensees operate in accordance with their obligations and regulatory requirements in Australia.

Competencies for RMs are listed in ASIC’s RG 105.

The application process

Your specific obligations and authorisations will depend on your AFSL application.

To begin, you’ll need to read three ASIC documents:

These resources provide an overview of the application process, required information and proof documents, instructions and more.

Next, you can scroll through the sample application, which includes all possible questions. Your finalised application may not include all of these questions, but will generally cover:

  • Background details for the applying individual or entity.
  • Contact information.
  • Types of financial service(s) requested for authorisation.
  • Details on products and product advice if relevant.
  • Net assets, gross revenue and number of current employees.

Another important aspect of your AFSL application is organisational competence. ASIC says an applicant must prove that it has at least one responsible manager, meaning a natural person with the necessary competence to provide the services authorised by the AFS licence. This part of the application asks for details including:

  • The responsible manager’s background information.
  • Their role in the organisation.
  • The services they’ll be responsible for.
  • The experience they have.
  • How they demonstrate their knowledge and skills.

Licence management

It’s your responsibility to uphold the licence requirements over time, even as your company and the market change. If ASIC has reason to believe you aren’t compliant, it may take administrative actions such as suspending or cancelling your licence or imposing additional conditions. That’s why “Compliance Arrangements” and “Risk Management” have their own sections in the AFSL application. This includes complying with the conditions of your license and with each relevant financial services law.

Regulatory compliance for AFSL holders

There’s a lot to know about regulatory compliance, particularly as its definition and requirements can shift depending on the specifics of your company. As such, it’s important to establish a clear, complete understanding of the basics before tackling the intricacies of risk assessment, regulatory change management and other compliance activities.

Australian Financial Services License (AFSL) holders face daily challenges in establishing internal controls, aligning policies with compliance requirements and streamlining risk management.

Organisations like the Australian Securities and Investments Commission (ASIC), the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Financial Complaints Authority (AFCA) establish, review and enforce different standards across the industry. While their requirements have slightly different focuses, each regulation may be approached differently and is subject to change. AFSL holders must identify and follow compliance standards coming from every direction or risk disciplinary action. Such outcomes can include licence cancellation or conditions, hefty fines and even prison time for individuals.

Of course, compliance responsibilities aren’t just about avoiding penalties. As a bank, stockbroker, financial adviser, capital market participant or any other financial services provider, you’re uniquely positioned to create incredible value for your clients, supporting the money goals that empower and enrich their entire lives. Compliance ensures that you’re doing this fairly, accurately and transparently, giving you the guidelines you need to protect yourself from risk and your clients from potentially disastrous misunderstandings or issues.

Regulatory compliance management is both a challenge and an opportunity. From data protection to honest communication, you must follow the right rules at the right times to uphold your responsibilities as a financial operator.

The value of regulatory compliance management

If regulatory compliance is both a process and an outcome, regulatory compliance management is the balance between the two. It focuses on practical steps and requirements for success, often lending itself to more specific tools, solutions and recommendations. It’s the “management” that makes all the difference — and also where you’ll likely put most of your time and resources.

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