If you’re thinking of applying for a limited Australian financial services licence (AFSL) and have been keeping an eye on the industry media, you’ll know that nearly half the applications received by the Australian Securities and Investments Commission (ASIC) have been rejected.
So, why is the rejection rate so high, and what can you do to ensure your application is successful?
Let’s look at some of the key problem areas and some tips on how to tackle them.
Responsible managers
If you are obtaining your own licence, you will need to nominate at least one person (preferably more) to be a responsible manager. Those applying for the limited licence are also likely to be providing advice. You need to be aware that different requirements apply in your capacity as a responsible manager and in your capacity as an adviser.
Your responsible managers need to be people who are directly responsible for day-to-day business decisions around your licensed services, and they
must be able to demonstrate that they have sufficient time available to manage that responsibility.
The key document you need to familiarise yourself with regarding responsible managers is Regulatory Guide 105 (RG105). It sets out, among other things, minimum training and experience requirements. RG105 allows you to meet these requirements in a number of ways. An extract from RG105 is shown in the table.
Other key requirements from ASIC in the application include:
- Background checks, such as a bankruptcy check, police check, reference check and credit check
- Two business references (one of which needs to be from an external source) that confirm the responsible manager has the experience to take on this role, and is of good fame and character.
Level of Licensing
Making the decision to have a limited licence is not the only licensing choice you need to make. You also need to determine what level of licensing you want. Different levels of licensing are available, depending on the advice you wish to provide. You will need to select from the following options on your limited licence application:
- 9.1 – Provide financial product advice
- – Self-managed super funds (SMSFs)
- – A person’s existing holding in a super product
- 9.2 – Arranging (issue, apply for, acquire, vary or dispose) – SMSF set up
- 9.3 – Arranging (apply for, acquire, vary or dispose) – SMSF set up
- 9.4 – Class of product advice
- – Basic deposit products
- – Life
- – Simple managed investments
- – Securities
- – Superannuation
- – General insurance.
Given the experience exemption will no longer be available after 1 July, 2016, you need to consider whether you should apply for the licence in its fullest capacity (ie tick all the possible options), even if you don’t want to cover all advice areas initially. That said, you will need to complete additional training
if you want to select all the licensing options.
With time fast running out to meet the training requirements, you need to weigh up if you have the time and desire to complete the additional training by March 1, 2016, particularly if it is in an advice area you are unlikely to use.
Initial training
As mentioned above, your responsible managers will need to provide ASIC with proof they have met the minimum training requirements, detailed in RG105. It then becomes the responsible manager’s duty to ensure Regulatory Guide 146 (RG146) training requirements have been met for themselves and anyone else who is authorised
and providing advice under the licence.
While there are several options to meet your RG105 education requirements, including one that takes your accounting qualifications into account, that flexibility and choice does not exist to meet your RG146 requirements. Given many of you will need to meet both requirements, as you will be the responsible manager and the person providing advice, our recommendation is to select the option that will cover both requirements.
The application form
The application form itself is not overly complicated. However, once you take the supporting documents (or proofs, as they are often called) into account, it can become quite a lengthy process. The proofs ASIC is looking for include documented plans or processes to manage:
- Compliance
- Risk management
- The people advising under your licence
- Financial resources
- IT resources
- How you plan to deal with clients.
The application process is certainly different to what accountants have done in the past. And given it is a one-off exercise, you should consider using consultants or experts to assist you. They could end up saving you considerable time, effort and stress in the long run, and ensure your application has a much greater chance of success.
