Applying for an Australian Financial Services Licence (AFSL) is not for the faint-hearted and will require some crucial considerations and steps to successfully navigate the process.
First and foremost, be absolutely sure that obtaining an AFSL is the right move for you.
“Many firms come to us intending to self-licence simply because their current licensee doesn’t align with their practice,” Shelly Radford, managing director of 3Lines Consulting and 3Lines Legal, tells Professional Planner.
But she says this on its own is not enough to justify self-licensing. The decision requires an in-depth look at your business’ ability to manage compliance, meet regulatory obligations and sustain the ongoing costs and responsibilities of running an AFSL.
“There are other options – for example, investigating alternative licensees – that may address the misalignment without the significant commitment of self-licensing,” she adds.
Cheyenne Walker, managing director of Australian Independent Compliance Solutions, advises drawing up a pros and cons list at the start so you are clear on the “why”. “You must also be 100 per cent committed or you will lose your way to drive the process,” she says.
Walker also suggests conducting prior due diligence to see if you are likely to be successful, looking at areas such as your skills, experience, searches, compliance standards, responsible manager (RM) requirements, systems and processes.
“There’s no point in applying for something you don’t have the right skills or experience for and may not get,” she says.
Be prepared
Before you start, Avanzare Group managing director Jaime Johns says you should ensure you understand the notice period on your current AFSL and the conditions on the transfer deed for your outgoing AFSL. You should also determine whether you will be covered by professional indemnity insurance.
3Lines’ Radford says it’s also important to be realistic about timelines.
“We have seen processing times vary between three weeks to 12 months,” she says.
“The time depends on many factors such as the ASIC analyst assigned to the file, ASIC’s competing priorities, authorisations applied for, the complexity of the application…the list goes on. It’s almost impossible to predict processing times.”
Similarly, Radford notes one of the biggest hurdles applicants encounter is the unpredictable nature of ASIC’s requests for additional information.
“These requests, whether for more detailed compliance plans, updated financial projections or further explanations of risk management frameworks, are often given within tight deadlines and can significantly delay the application process,” Radford says.
“This unpredictability can catch applicants off guard, especially if they haven’t accounted for multiple rounds of additional information requests. To mitigate delays and frustration, it’s essential to prepare for these unexpected inquiries and have efficient systems in place to respond promptly.”
To be prepared, Walker says you’ll need to understand your current business and reasons why you want your own AFSL. You should also have a business plan and be clear on what you want to achieve. “This is important as there are questions in the application form on what the future business will look like.”
You will also need your client list and a list of all your product providers.
“You have to implement a dealer group agreement with all the product providers that your clients are invested in to transfer your clients to your new licence,” Walker says.
When it comes to your financial planning software, she warns you’d also be required to have an independent agreement.
“You normally lose the discounts of a bigger licensee and you have to customise your own templates,” she says.
Responsible managers challenges
A big challenge is finding the right RMs.
“ASIC’s strict requirements for qualifications and experience can make it difficult to find suitable candidates, especially for smaller or niche firms,” Radford says.
“A common pitfall is underestimating the availability of experienced professionals, as many are already committed to other roles.”
Walker attributes this shortage to liability and pay issues. In addition to having the right skills, she says it’s vital there’s also a cultural fit with your RMs as they will be operating daily in your business.
Radford stresses the importance of key person risk. “ASIC may impose conditions on an RM’s role, meaning if that person leaves or is unavailable, it could jeopardise your firm’s compliance with its AFSL conditions,” she says.
Johns advises having two, ideally three, RM’s on your application. She says you should also work out how you will manage the AFSL if an RM resigns.
Radford says training and retention of RMs are other ongoing challenges. “They must stay up to date with regulatory changes and losing an RM could disrupt compliance. Firms need to plan ahead, manage expectations and allocate resources for both recruitment and continuity to mitigate these risks and avoid delays or rejections in the application process.”
Other words from the wise
Walker cautions that ASIC will investigate and verify everything about you, so you need to be honest and truthful.
She adds that it’s vital to be available when ASIC starts requiring more information. “The quicker you can reply to ASIC, the better so your application doesn’t go back down to the bottom of their pile,” she says.
She also recommends having the documents in the right format to make it easier for ASIC. Another is to double-check all your experiences. “ASIC data matches everything and will question everything that’s slightly misaligned.”
She suggests putting everything you want upfront in your application. “It’s easier for ASIC to say no now than trying to vary a license later. It’s always good to start with your wish list,” she says.
Meanwhile, Johns believes you should invest in compliance systems early to ensure ongoing adherence to your obligations after obtaining the licence. “Better to start with the end in mind,” she says.
“Also, plan for post-licence compliance – securing an AFSL is just the beginning,” she says.
“Ongoing compliance and reporting obligations are critical to maintaining your licence. And, stay updated on regulatory changes. ASIC frequently updates its requirements and guidelines.”
