The financial industry is a labyrinth of acronyms and technical jargon. Among these, AFSL is a common acronym that anyone interested in Australia’s financial services sector should know. At Rawlings Bolton, we are determined to help our clients understand these intricacies.
This article aims to demystify the AFSL, highlighting key elements about it, its requirements, costs, and potential advantages and disadvantages of operating under someone else’s licence.
What is an AFSL?
An Australian Financial Services Licence (AFSL) is a licence mandated by the Australian Securities and Investments Commission (ASIC). Owning an AFSL (or being appropriately authorised to operate under one) gives an individual or a company the ability to provide financial products and services in Australia. If you are a financial advisor providing investment strategies or you’re offering an opportunity to invest in a managed fund or investment scheme, you will require an AFSL.
When is an AFSL required?
Every business or individual providing a financial service or issuing a financial product in Australia must operate under an AFSL. This applies to:
- Providers of general or personal financial product advice.
- Businesses that sell interests in managed investment schemes, such as property trusts or equity funds.
- Superannuation providers.
- Those who deal in securities, including businesses that make a market for a financial product.
In a nutshell, if your operations concern buying, selling, issuing or advising on financial products, the AFSL is mandatory.
Wholesale vs retail clients
There is a notable difference between the scope and breadth of compliance arrangements for what the law defines as a ‘retail’ or ‘wholesale’ client.
Retail clients are afforded extra protections, which include:
- Access to regulated documents providing details about the financial advisor and the products they are being recommended.
- Comprehensive, documented advice recommending investment strategies and identifying potential risks in both accepting or not accepting the advised recommendations.
- Access to a regulated external dispute resolution service where the retail client believes the advice, or the product provider has not appropriately addressed their complaint or dispute.
While these measures are in place to protect the general public, it comes at an increased compliance burden, complexity and cost for the AFSL holder.
A wholesale client is not afforded these same protections. In exchange, a broader range of investment opportunities may be available, with the caveat of the investor doing their own due diligence and assessment of the appropriateness of the offer.
How to qualify for an AFSL?
Qualifying for an AFSL is subject to several conditions to ensure a high standard of professional integrity in the industry. Principles that ASIC demands include:
- Organisational competence: ASIC requires proof that you have sufficient resources to deliver the financial services you propose effectively. This encompasses a solid financial foundation, comprehensive technical systems, and an adept team.
- Responsible managers: You must appoint one or more responsible managers who have the requisite know-how of the laws and the right expertise to perform their role efficiently. For example, if you offer financial advice, a responsible manager with prior experience in advisory roles would be ideal.
- Risk management: Your enterprise should have robust mechanisms in place to identify, assess, report and manage risks associated with the provision of financial services. Appropriate governance arrangements include regular board and risk/compliance committee meetings, comprehensive risk management policy documentation and, importantly, clear mechanisms to report, log and rectify risks, issues and breaches of law in a timely manner.
- Compensation and insurance arrangements: Adequate provisions for compensating clients and holding professional indemnity insurance are mandatory.
What is the time frame and cost for obtaining an AFSL?
The journey from applying for an AFSL to acquiring it generally stretches across 3-6 months, but can be lengthier depending on ASIC’s assessment of the nature and complexity of your application.
As for costs, there are various elements to consider. ASIC application fees range from AUD 824 to AUD 3 487, depending on the types of financial services you intend to offer. However, extra costs could crop up for legal advice, compliance consulting, and the requisite insurances. Generally, it is reasonable to budget between AUD 20 000 – AUD 50 000 for the entire process.
Is using someone else’s AFSL a viable alternative?
Operating under another entity’s AFSL as an Authorised Representative can be a pragmatic way to navigate the complexities of obtaining your own AFSL. However, this decision comes with advantages and disadvantages.
Advantages
Unburdening from the licence process: Operating as an Authorised Representative can expedite entering the financial services market as you circumvent the typically complex and time-consuming process of procuring an AFSL.
Eased regulatory accountability: The responsibility of complying with ASIC’s regulatory requirements falls onto the actual AFSL holder, which can allow you to focus your efforts on your business.
Disadvantages
Dependency: While operating under another’s AFSL simplifies entry into the market, it could raise sustainability questions. Your operation becomes dependent on the continued validity of the other entity’s AFSL.
Identity constraints: Operating as an Authorised Representative may pose constraints on how you market and brand your business. You may face restrictions that hamper how much you’re able to control your business’s image in the public eye.
Professional advice is key
Moving through the maze of the financial sector’s requirements can be challenging and complex. Making sure you stay compliant and satisfy all the regulatory necessities is crucial. Whether you’re looking at applying for your own AFSL or choosing to become an Authorised Representative, be sure to work under expert guidance.
At Rawlings Bolton, we are prepared to guide and assist you in making the best decisions for your business’s continuity and growth.
Contact Stav Sotiriou today at [email protected] to discuss how our expertise in delivering tailored financial solutions can optimise your managed investment scheme.
