Embarking on the path to success in the financial services sector involves a crucial understanding and acquisition of an AFS (Australian Financial Services) license. This article delves into the significance of the AFS license, along with its associated responsibilities and obligations. If you are planning to operate a financial services business, holding an AFS license is key to your success.
On this page:
The Necessity of AFS Licensing
AFS Responsibilities: Ensuring Compliance in Operations
AFS Financial Obligations: The Importance of Compliance
Risk Management Systems: Ensuring Business Safety
External Dispute Resolution (EDR): Safeguarding Client Interests
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I. The Necessity of AFS Licensing
Do you need an AFS license? To operate a financial services business, authorisation under an AFS license is typically required. This license empowers you and your representatives to offer various financial services to clients.
Financial services encompass:
Providing financial product advice to clients, such as recommending suitable financial products.
Dealing in financial products, including buying or selling stocks on behalf of clients or managing investment scheme interests.
Making a market for financial products, regularly quoting prices for buying or selling.
Operating a registered managed investment scheme, as mandated by the ASIC for schemes offered to retail clients.
Offering custodial or depository services, holding financial products or beneficial interests on trust.
Providing traditional trustee company services, like estate management functions.
Offering crowdfunding and superannuation trustee services.
Providing claims handling and settling services or operating the business and affairs of a corporate collective investment vehicle (CCIV).
Financial products include stocks, bonds, superannuation, interests in managed investment scheme, life insurance, general insurance, derivatives, and margin lending facilities.
Depending on circumstances, you may be exempt from AFS license requirements or provide services under a limited AFS license. Alternatively, you can opt to offer financial services as an authorised representative of an AFS licensee.
II. AFS Responsibilities: Ensuring Compliance in Operations
Upon obtaining an AFS license, you inherit a set of general responsibilities, including conduct and disclosure, provision of financial services, competence of responsible managers, training of financial advisers and authorised representatives, ensuring compliance with financial services laws, managing conflicts of interest and risk, adequacy of resources, and dispute resolution and compensation arrangements for retail clients.
Additionally, specific financial obligations apply, varying with the financial products and services offered. Detailed information on compliance with these obligations can be found in Regulatory Guide 104 Licensing: Meeting the General Obligations (RG 104).
III. AFS Financial Obligations: The Importance of Compliance
AFS licensees must fulfil certain financial obligations, which differ based on the financial products and services provided. Enhanced financial obligations apply to AFS licensees following changes made to net tangible asset and preparation of cash flow projections requirements.
AFS licensees impacted by these changes are:
Corporate directors of a corporate collective investment vehicle (CCIV)
Operators of investor-directed portfolio services
Custodial or depository services providers (including as a provider of incidental custody services)
Trustee company providing traditional services
Issuers of margin lending facilities
Foreign exchange dealers
Retail OTC derivative issuers
Refer to Regulatory Guide 166 Licensing: Financial Requirements (RG 166) for a comprehensive understanding of your financial obligations.
IV. Risk Management Systems: Ensuring Business Safety
As an AFS licensee, establishing effective risk management systems is paramount. RG 104 provides general guidance, while RG 259 outlines expectations for responsible entities' risk management systems at the business and scheme levels. It's also relevant for operators of managed discretionary accounts, investor-directed portfolio services, and unregistered schemes.
V. External Dispute Resolution (EDR): Safeguarding Client Interests
In the financial services arena, resolving disputes is crucial. The Australian Financial Complaints Authority (AFCA) serves as the single dispute resolution scheme for financial services. AFCA may be able to resolve complaints that a financial firm could not resolve by internal dispute resolution.
AFCA considers complaints that were previously handled by the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.
AFS licensees joining AFCA must notify ASIC within 10 business days. Failure to be an AFCA member is a breach of license obligations. Refer to ASIC Regulatory Guide 267 Oversight of the Australian Financial Complaints Authority (RG 267) for details on dispute resolution systems and mandatory AFCA membership.
VI. Notification of Changes: Ensuring Timely Updates
Finally, changes to your AFS license are required to notify ASICtimely. Whether changes involve details, appointment of financial advisers or representatives, auditor appointments, changes in control, or compliance of financial advisers with professional standards, timely notification is integral to ensuring compliant operations.
Ensure timely updates for changes in:
Details such as responsible managers, addresses, and contact information
Appointment or changes in details of financial advisers or authorised representatives
Ceasing a financial adviser or authorised representative
Appointment of an auditor
Change in control of the AFS licensee
Compliance (or non-compliance) of financial advisers with professional standards
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