Frequently Asked Questions
Answer:
Yes. The means by which the advice is given is irrelevant. If you provide a recommendation or express an opinion, intended to influence a person in making a decision in relation to a financial product or a class of financial products, and you have considered one or more of their objectives, financial situation or needs, or a reasonable person would expect you to have done so, then it will be personal advice.
Answer:
'I recommend that you apply for $1.5m term life cover.'
This is personal advice because it is a recommendation intended to influence a person in making a decision about a class of financial product (term life insurance). It is personal because to arrive at the figure, the adviser has considered the client’s circumstances.
In RG 175, ASIC states that they will take into account all circumstances when considering whether advice is personal advice or general advice (RG 175.49). The following factors will be considered when determining whether advice is General or Personal:
- Did you offer to provide personal advice (e.g. in any material given to the client before the advice was provided)?
- Do you have an existing relationship with the client where personal advice is regularly provided to the client?
- Did the client request personal advice (including requesting advice as to what decision they should make)?
- Did you request information about the client’s relevant personal circumstances? For example, did you complete a Financial Planning Questionnaire or otherwise ask about their personal circumstances?
- Was the advice directed towards a named client or readily identifiable client?
- Does the advice contain, or was it accompanied by, a general advice warning?
- Does the advice appear on its face to be tailored to the client’s relevant personal circumstances (e.g. does it refer to information or assumptions specific to the client)?
Answer:
No. Regardless of whether or not you intended to provide personal advice, ‘financial product advice’ is deemed to be personal advice when you have taken into consideration at least one aspect of the person’s personal circumstances, needs/objectives, or it is reasonable for a person to believe you have taken into consideration at least one of those aspects (regardless of whether you did or did not).
Answer:
If an Ongoing Fee Arrangement exists, you must deliver the services as agreed with the client.
If an Ongoing Fee Arrangement doesn’t exist, you do not have a legal obligation to provide further advice/services.
Answer:
You do not require a licence to act as an executor.
Section 911A(2)(f)(viii) states that a person is exempt from the requirements to hold a licence if they are acting ‘as a personal representative of a deceased person….’. Accordingly, if the accountant is acting as a personal representative of the deceased (for example, acting as an executor), a licence is not required.
Before you agree to act as an executor, check your professional indemnity insurance policy to ensure the activities are covered.
Answer:
Identifying, classifying, and keeping up-to-date records of exactly who your clients are, will assist you with the ongoing operations of your business and compliance with your licensing conditions, more than you would initially imagine.
AFS licensees can have authorisations for retail clients, wholesale clients, or both.
Retail client authorisations add a number of additional obligations as a licensee – PI insurance, internal dispute resolution, EDRS membership, conflicted remuneration prohibitions and disclosure document requirements. When personal advice is provided to retail clients, Professional Standards and other obligations, including best interests obligations, apply. It is important to know how this affects your business, licence conditions, and the additional requirements at the application stage.
Answer:
A PI insurance policy must have an adequate amount of cover overall. To be adequate, the limit of indemnity should cover a reasonable estimate of retail client’s potential losses.
As a minimum, ASIC considers a limit of $2 million is adequate. This minimum should increase in line with revenue from retail clients, up to a maximum of $20 million. While this is a minimum, it is for the licensee to determine adequate cover.
PI cover may need to increase if it is required to cover wholesale claims as well. PI cover may also need to increase if the products recommended are higher risk products which may generate higher volumes of claims.
Certain groups of licensees are required to hold specific PI insurance as a condition of their AFS licence. These include:
- responsible entities of managed investment schemes (ASIC Pro Forma 209);
- investor directed portfolio service operators (Regulatory Guide 148);
- managed discretionary account service operators (ASIC Corporations (Managed Discretionary Account Services) Instrument 2016/968 and Regulatory Guide 179);
- licensees who are market participants will need to consider the market integrity rules (Regulatory Guide 214 and 215).
Contractual requirements
If you have entered contracts with third parties, including clients, these could specify what amounts of PI insurance you must hold.
Professional Associations
If you are a member of a professional association, you should review your association’s rules and standards for any recommended or required minimum PI insurance. Some associations also provide a limited liability scheme which may allow a lower level of PI insurance to be held by individual firms or practices.
Answer:
Nominated Responsible Managers will need to have the appropriate education and experience to expand the scope of an existing licence (both for Limited and full licences). Any application to expand the scope of your licence may require additional education and experience requirements in line with ASIC’s options 1-5, as set out in Regulatory Guide 105.
If you are relying on one Responsible Manager (RM) to have the education and experience required for the new authorisations, ASIC may require the RM to be listed as a key person on your licence. This will oblige you to have a plan in place to address the possibility of the key person leaving the business. You may also be required to reflect the relevant requirements of the RM in their employment contract.
Your staff or sub-authorised representatives who are authorised to provide financial product advice will need to have appropriate training (as set out in ASIC Regulatory Guide 146) to be able to advise on the new product types under the expanded licence.
Certain authorisations, such as the ability to provide a Managed Discretionary Account (MDA) service. will impose significant additional obligations. You will need to have procedures in place to meet these, at the time you apply to expand your licence.
You should consider whether your existing PI insurance will cover the expanded products, and if an increase in the amount of cover is required.
Depending on the additional authorisations sought, the licensed entity may have additional financial obligations, including liquidity and capital requirements.
Answer:
No. Licensees are generally required to keep records and documents for up to 7 years. It does not matter whether the records relate to wholesale or retail clients.
ASIC has clearly stated that records may be kept electronically. For example, ASIC pro forma PF 209 states that copies of FSGs, SOAs and material relating to personal advice must be kept in material, electronic or other form.
Answer:
Before you even think of starting the application process, you need to be 100% sure that the authorisations you seek on your AFSL cover all of the business activities you will undertake that fall under ASIC’s licensing regime.
Your AFSL application will also require suitable Responsible Managers who can demonstrate that they have the required level of skills and experience in the authorisations requested on the AFSL, to demonstrate that your company is competent in providing those financial services under an AFSL.
If you have all of the above, you may be ready to commence the application process for an AFSL. However, the tricky part isn’t over yet!
You will need to collate the material required to lodge an application with ASIC (core proof documents) and have them prepared, ready for lodgement. This includes the following:
- If you are applying using a company, a document detailing the fit and proper persons of the company and also its controlling entity along with police and bankruptcy checks and statement of personal information from:
- each responsible manager, director and secretary and senior manager of the applicant; and
- each director, secretary and senior manager controlling entity of the applicant.
- Business Description: This is a detailed overview of your business, including the types of financial services and products your will provide, anticipated growth, your sources of business income, typical client types, service delivery location and models, and organisational chart.
TIP: a detailed transaction example will bring together this whole proof document, resulting in an easier assessment for ASIC.
- Table of Organisational Expertise: This is a critical document that details the relevant knowledge, experience and skills of each of your nominated responsible managers.
- Supporting Documents for Each Responsible Manager: These documents substantiate the competence and good fame and character of each Responsible Manager and includes:
- a statement of personal information;
- copies of qualifications;
- two relevant business references attesting to the financial services experience of the Responsible Manager (less than 12 months old); and
- copies of a national criminal history check and a bankruptcy check also less than 12 months old.
- Financial Resources Proof: A description of your processes for ensuring ongoing compliance with the financial requirements. Financial statements that include a statement of financial position and financial performance; and cash flow projections that demonstrate your ability to meet the cash needs requirement.
- Depending on the authorisations being applied for, additional non-core proofs need to be prepared (eg Compliance Arrangements, Program for Monitoring, Supervision and Training of Representatives and Risk Management System Statement where you intend to be a financial planner).
ASIC’s online application process is continually being updated as you respond to questions. Note that many questions are worded as statements asking you if systems, documents or processes are in place. There is a sample of the online AFSL application that is quite useful to help you understand how the process works, and to get a sense of some of the questions being asked.
Once you lodge your AFSL application and submit the required documents to ASIC, you will need to allow for somewhere in the vicinity of 5 to 8 months for the whole process to reach a conclusion.
But this time is not wasted. There will always be something for you to do!
As part of the assessment process, you will receive requests for additional information to be provided. Generally, these requests are in the form of further documents called non-core proof documents, or questions from an ASIC analyst looking to gain a deeper understanding of your business, processes, procedures, activities, etc.
Other things for you to think of which you will need to obtain before a final AFSL is issued (if you seek a retail client authorisation) include, but are not limited to:
Further items of note to put on your ever-growing list include:
- making sure your retail client disclosure documents, if required, are accurate, up-to-date, and compliant;
- maintaining the adequacy of your financial, technological and human resources; and
- having processes and procedures in place for compliance, managing conflicts of interest, risk management, and training and competence of your representatives and authorised representatives.
Have a read of a more comprehensive guide as to how you will need to meet the general obligations for holding an AFSL here.
Answer:
Typically, the application process is through an online application where information about the applicant and proposed authorisations need to be provided. The applicant is required to attest that they have all of the systems and processes in place, and is ready to commence business.
Some supporting documentation about the licensee and key personnel (Responsible Manager(s)) also need to be prepared and submitted with the application. The supporting documentation and Responsible Managers warrant further discussion and is explained in more detail in our AFSL Series Fact Sheets.
Answer:
If you decide to obtain an AFSL, you need to understand its associated obligations. When you buy your first family pet, just how much credence do you give to the additional costs, responsibilities, and obligations that come with it?!
Let’s have a look at some of the obligations imposed upon AFSL holders, and while we do, remember that you will need rigid, and continually tested and updated processes and procedures as evidence of your compliance with the obligations.
The key obligations are detailed in section 912A of the Corporations Act, and are also discussed in ASIC Regulatory Guide 104 (Licensing: Meeting the general obligations):
- Do all things necessary to ensure that the financial services covered by your licence are provided efficiently, honestly and fairly;
- Have adequate arrangements in place for managing conflicts of interest;
- Comply with the conditions on your licence;
- Comply with the financial services laws;
- Take reasonable steps to ensure that your representatives comply with the financial services laws;
- Where not regulated by APRA, have adequate financial, technological and human resources to provide the financial services covered by your licence and to carry out supervisory arrangements;
- Maintain the competence to provide the financial services covered by your licence (this is through the Responsible Managers);
- Ensure that your representatives are adequately trained and competent to provide those financial services;
- If you provide financial services to retail clients, have a dispute resolution system which includes being a member of an ASIC-approved external dispute resolution scheme; and
- Where not regulated by APRA, establish and maintain adequate risk management systems.
Other key obligations include:
- Maintaining appropriate professional indemnity insurance (if you have retail client authorisations);
- Appointing an ASIC-registered company auditor; and
- Maintaining minimum financial obligations, including having sufficient resources to meet your anticipated cash flow requirements.
Answer:
You are able to take over the accounting and administration of an SMSF client without the need to be licensed (Regulation 7.1.29(3)(a)).
Answer:
Crowdsourcing
Crowdsourced equity funding is a type of investment-based crowdsourced funding that involves a company offering its ordinary shares to investors through an online platform in return for a relatively small cash investment.
It is akin to a 'low-doc' IPO and has limits on how much money can be raised under it.
P2P lending
Peer-to-peer (or marketplace) lending is an arrangement through which investors invest money with the operator and which is then lent by the operator to borrowers (either consumers or businesses).
Such arrangements involve the use of an online platform on which loan requests are made. The loan requests are then matched against offers to invest. Investors either select the loans they wish to invest in or they are matched with loans that meet specified criteria.
In some arrangements, investors may also be exposed to a loan or a pool of loans. Multiple investors may also fund a single loan.
Answer:
Before being appointed as a Responsible Manager (RM), you, in conjunction with any fellow RMs, must collectively have the appropriate knowledge and skills for all of the licensee’s financial services and products.
Once appointed ASIC Regulatory Guide (RG) 105 requires a licensee to maintain and update the knowledge and skills of its RMs.
The appropriate knowledge and skills to maintain are those that relate to the relevant financial services and products provided by the licensee. This, importantly, includes the regulatory environment applicable to these products and services.
As an RM, you should keep a professional development plan setting out how you are going to maintain your knowledge and skills. Activities to maintain your regulatory knowledge may include:
- quarterly attendance at the licensee’s compliance committee meeting which includes regulatory update provided by an appropriately qualified compliance committee member;
- annual attendance at RM training run by a compliance provider or law firm;
- reading regulatory updates relevant to the products and services for which you are responsible.
Activities to maintain your knowledge and skills in financial services and products relevant to your licensee include:
- attendance at industry association events;
- reading industry association publications; and
- if you are RG 146 compliant, ongoing training designed to meet your RG 146 obligations.
Answer:
Responsible Managers of ACLs are required to undertake 20 hours of CPD per year. The following activities may be counted towards CPD:
- attendance at relevant professional seminars or conferences;
- preparation time for presenting at relevant professional seminars or conferences;
- publication of journal articles relevant to the credit industry;
- viewing DVDs of recent (within the last year) professional seminars or conferences (up to a maximum of 10 hours per year); and
- completion of online tutorials and/or quizzes on recent (within the last year) regulatory, technical or professional developments in the industry.
Responsible Managers of licensees who provide mortgage broking services are required to have completed a Certificate IV in Financial Services (Finance/Mortgage Broking). A mortgage broking service is credit assistance provided in relation to a credit product where the credit is secured by real property.
Representatives who provide mortgage broking services will also be required to have completed a Certificate IV in Financial Services (Finance/Mortgage Broking).
ASIC considers it appropriate that those representatives providing mortgage broking services should also undertake 20 hours of CPD per year. For other representatives, between 10 and 30 hours of CPD per year is standard.
Answer:
Now that your company has been granted an AFSL, it is prudent to have agreements in place with the officers and employees.
These may range from a specially tailored Responsible Manager agreement at one end of the scale to a less sophisticated employment agreement with the receptionist at the other. All should include confidentiality provisions and some may contain non-compete clauses. The key persons set out on the AFSL are usually critical to the approval of the licence and so it is important to retain these officers with sensible but enforceable agreements.
Where your business intends to act as an introducing broker for another licensee, close scrutiny of a proposed IB agreement is always wise.
Terms and conditions of trade, a privacy policy, staff policies (such as use of the internet, sexual harassment, anti-bullying, etc.), and an AML/CTF policy are all likely to be required.
You may decide to lease or buy premises from which to operate. It is essential that those arrangements be at least reviewed by a lawyer with appropriate experience. Third party supplier agreements should also be reviewed.
Answer:
Advisers are not automatically appointed to the Financial Adviser Register (FAR) when you obtain your AFSL. The AFS licensee must manually add each adviser to the FAR by contacting ASIC. If you are not sure whether your advisers have been appointed to the FAR, you can access the register on ASIC Connect.
Responsible Managers are appointed by the AFS licensee to demonstrate the organisational competence of the licensee to provide financial services. Their details are listed on a non-public register with ASIC. Where there is only one Responsible Manager demonstrating the competence of the licensee for a particular financial service or financial product, the Responsible Manager may also be listed on the AFSL as a Key Person.
If Responsible Managers are also advisers providing personal advice, they will need to be listed on the FAR.
Note that advisers who are appointed as authorised representatives will also need to be entered onto the Authorised Representatives Register.
Answer:
If you carry on a business of providing general advice to clients, this falls under the definition of a financial service. As such, employees who provide general advice must be authorised by you. This authorisation could form part of their employment agreement.
If your authorised representatives only provide general advice, they do not need to be registered on the Financial Advisers Register (FAR).
Answer:
You require a licence if you are carrying on a business of providing a financial service in Australia.
Whether or not you will require authorisation under a licence to act under a Power of Attorney will depend on what you are being asked to do and the context. For example, if it is part of your business to provide a financial service, such as dealing with financial products on behalf of another, under a Power of Attorney, you will require a licence unless an exemption applies.
If you are unsure about whether you require a licence, we recommend you seek legal advice.
Answer:
All reporting entities must create and maintain complete and accurate records of the services it provides to customers, and store them securely in a form that allows them to be retrieved and audited (either electronically or in hard copy).
As a reporting entity, you will need to comply with the following record keeping requirements:
In addition to fulfilling record keeping obligations, maintaining the above records will also assist you to comply with other AML/CTF obligations, including:
- assessing the effectiveness of your Program and your ML/TF risk assessment;
- assessing the effectiveness of your customer identification and verification procedures;
- reconstructing customer transactions;
- identifying and evaluating potential suspicious matters;
- assessing the effectiveness of your compliance with the obligation to report suspicious matters, threshold transactions and international funds transfer instruction reports;
- managing your business’ ML/TF risks; and
- satisfying any court orders, notices or inquiries from AUSTRAC or any other parties or agencies which require the disclosure of information which relates to your AML/CTF compliance.
All reporting entities must also comply with the Privacy Act.
Answer:
The process to apply for an Australian Credit Licence involves an online application which is submitted to ASIC along with supporting documentation about the applicant, the fit and proper persons and responsible managers.
The process is fully online where the applicant is required to attach the supporting documents to the application prior to submission.
In the online application, the applicant is required to attest that they have all of the required compliance systems and arrangements in place.
Depending on the authorisations being applied for, ASIC may request further information about the proposed business model or the experience of the responsible manager(s). ASIC may also request copies of important documents such as the compliance plan, responsible lending policy or hardship policy.