How many licences are enough?

Many financial services businesses offer services through a number of different entities, sometimes supported by a service company – but this does not necessarily mean each of the entities needs to hold its own Australian Financial Services (AFS) licence, according to Senior Lawyer at The Fold, Jaime Lumsden Kelly.

“Essentially, there are two options,” Ms Lumsden Kelly says. “Certainly one of those options is for each entity providing a financial service to hold its own licence. This can make it easier to sell parts of the business, but it will multiply compliance tasks.”

The other option is for one entity to hold the licence and appoint the other entities that service clients as authorised representatives (AR)s. The service company shouldn’t need an AFS licence as it doesn’t provide financial services to clients.

“The thing to consider with this option is which company should hold the licence,” Ms Lumsden Kelly says. “A holding company that does not itself provide financial services may be a good choice, but it’s not the only alternative. When making a decision, you need to be mindful of the fact that the entity that holds the licence will need to undertake monthly cash flow forecasts. They also need to obtain all the authorisations needed for all the financial services offered throughout the group.”

Licensing arrangements like these can complicate the issue of  which employees need to be appointed as authorised representatives .  “The thing to remember is that the only employees who need to be formally appointed are employees of companies who are unrelated to the AFS licensee,” Ms Lumsden Kelly says. “Employees of the AFS licensee, (even if they are seconded to work for an affiliated but unrelated company) or employees of companies related to the AFS licensee do not need to be formally appointed.”

A company will be ‘related’ to an AFS licensee if the licensee owns more than 50 per cent of its issued share capital; it owns more than 50 per cent of the licensee’s issued share capital; or a third company owns more than 50 per cent of the issued share capital of both the company and the licensee. But confusingly, companies owned by the same individuals are not ‘related’.

“This can be a complicated area, so when in doubt, seek legal advice,” Ms Lumsden Kelly says.

For information about how The Fold can help in this area, see its Licensing webpage  or its AFS and Credit Licensee Manuals.