According to Australian legislation, companies offering specific financial services must get an Australian Financial Services Licence (AFSL). Five things to think about before applying for an AFSL are listed in this article.
These are:
- the function of the Australian Securities and Investment Commission (ASIC);
- the AFSL application procedure;
- the general responsibilities of an AFSL holder;
- the consequences of operating in financial services without an AFSL; and
- the exceptions to the AFSL requirement.
#What Qualifies as a Financial Service?
Financial services are extensively defined by legislation, encompassing a number of services related to finance and financial products, such as:
- giving financial advice;
- conducting financial product issuance or distribution;
- creating a market for financial goods;
- offering crowdfunding services; and
- offering superannuation trustee services.
You should find out if the type of business you run falls under the financial services category. Certain firms, like credit providers, may be exempt.
#Five Things to Think About When Submitting an AFSL Application
#1. ASIC's Function
All AFSL holders are subject to regulation by ASIC, an Australian regulatory body.
When you apply for an AFSL, ASIC evaluates your suitability. If it is convinced that you won't violate specific requirements and restrictions, it will provide you an AFSL.
In addition, you must fulfill all legal requirements and be a fit and proper individual. ASIC may take your prior compliance history into account when determining your suitability. ASIC may also take into account any suspensions or cancellations of these licenses. In some situations, ASIC is required by law to reject an application. This includes situations in which the application is found to be materially false or misleading by ASIC's examination.
Even after an AFSL is approved, ASIC has the authority to revoke, suspend, or apply conditions to the AFSL if it thinks it is required. This includes any violations of the AFSL's terms or duties by the AFSL holder. ASIC may conduct audits of the AFSL holder's operations to this degree. Therefore, an AFSL holder must notify ASIC right away if it believes it has violated or is likely to violate an AFSL requirement or condition.
#2. Making an AFSL application
ASIC's e-Licensing technology is typically used to complete an AFSL application online. The application must contain precise and comprehensive information. After submitting the original application, you should send any supporting documentation as soon as possible. ASIC may reject the application or ask for more details if it is incomplete.
ASIC will take into account whether you
- possess the requisite financial resources,
- are capable of conducting the planned financial services business, and
- fulfill the other requirements related to the AFSL.
These additional responsibilities consist of:
- establishing a dispute resolution process to handle any disagreements,
- having sufficient insurance plans in place, and
- providing training for any reps or staff.
A successful application will demonstrate the applicant's ability to abide by the terms and responsibilities of an AFSL.
#3. AFSL Holder Responsibilities
If you receive an AFSL, you are required to adhere to all of its terms at all times.
Additionally, you have to abide by the general legal obligations of an AFSL holder, which include:
- maintaining the competence to provide those financial services and making sure all representatives and employees are properly trained;
- managing conflicts of interest arising from the financial services in an effective and adequate manner;
- adhering to all license requirements and any applicable financial services laws; and
- providing financial services in an efficient, honest, and fair manner.
Additionally, an AFSL holder is required to keep an eye on the employees' and representatives' ability to provide financial services.
#4. Penalties
Failure to comply with the terms and duties under or related to an AFSL may result in both civil and criminal sanctions. The legislation makes a distinction between the kinds of violations that carry criminal or civil consequences. Additionally, the penalty differs based on whether the AFSL holder is a business or an individual.
Assume, for instance, that you are a person who has violated an AFSL requirement.
If there is a civil punishment for the violation, you can have to pay fines:
- up to $1.1 million (starting on July 1, 2020);
- three times the benefit you received; or
- the harm the breach prevented.
If a business violates a civil penalty, you can have to pay fines of up to:
- $11.1 million (as of July 1, 2020);
- 10% of the annual turnover for the 12-month period ending at the end of the month when the breach occurred or started; or
- three times the benefit received or harm avoided from the breach. The fine, however, is limited to $55.5 million of the yearly income.
#5. Exemptions
The most important thing to think about is whether your financial services company needs to get an AFSL. A knowledgeable attorney can advise whether you need one, despite the fact that it can seem like you do. For example, you might not require a separate license if you represent someone who has an AFSL. Other exclusions exist as well.
#Important Lessons
An Australian Financial Service Licence, or AFSL, may be required for anyone wishing to conduct any financial services-related activity. However, you should think about how ASIC will regulate you, the application procedure, the basic responsibilities of an AFSL holder, the consequences of not having an AFSL, and whether you are exempt from the requirement before submitting an application.
