The Fold Legal head of licensing Sonia Cruz said ASIC tends to reject around 30 per cent of all AFS licence applications and 24 per cent of credit licence applications.
“In 2017–2018, ASIC approved just 40 per cent of all Australian financial services licence (AFSL) applications and 49 per cent of credit licence applications,” Ms Cruz said.
Ms Cruz warned that recommendations from the ASIC Enforcement Review Taskforce will further impact the future assessment of licence applications.
“If these recommendations are adopted, ASIC may be able to refuse a licence application if it’s not satisfied that the entities or persons controlling the licensee are fit and proper, cancel a licence if the licensee fails to commence business within six months, or cancel a licence application if it’s false or misleading in a material way,” she warned.
Under the recommendations, applicants, she said, would also be required to explicitly confirm that there have been no material changes to the information they gave in their application before their licence is granted.
They will also need to align the assessment requirements for AFS and credit licence applications so that the highest standard applies or align the consequences for making false or misleading statements in documents it’s provided with.
Ms Cruz said there are some common reasons why ASIC tends to reject licence applications, which firms should be across if they want to avoid becoming a statistic.
One of the common reasons it will reject a licensing application, she said, is because it was missing information.
Ms Cruz reminded firms that a complete application must include all core proofs and supporting documents outlined in ASIC’s Regulatory Guide 2 or 204, whichever is applicable, and any other information required for ASIC to conduct a detailed assessment.
“You must include all the information in the format prescribed in the guide. When putting the information together, remember it’s your chance to make a good first impression on ASIC, so make it count,” she said.
Another area where firms can trip up, she said, is when they’re not clear about what services they intend on providing.
“You need to be crystal clear about what products and services you will provide and how they are regulated. When reviewing your application, ASIC needs to be reasonably satisfied that you will comply with your obligations under the Corporations Act or the NCCP Act,” she explained.
“So, you need to show ASIC that you understand the law and what it means to your business.”
For example, she said, if the advisers under the licence intend to advise on warrants, then the application must be clear about what type of warrants and how they’re legally categorised.
“This is because warrants can legally be securities, derivatives or managed investment schemes. If it looks like you have misunderstood the regulated nature of your products or services, you will not inspire faith in ASIC,” she said.
The responsible managers appointed for the licence also need to collectively demonstrate that they have the relevant qualifications and experience for all the product authorisations that the firm is seeking a licence for.
“If they can’t then they’re not the right people to be your responsible managers,” she said.
ASIC also wants to know how you’re going to manage your business and embed your compliance arrangements, Ms Cruz said.
“They may want to see that your processes and policies are well documented. For example, ASIC may ask to see procedures that document how you will manage representatives, training, compliance, risk, disputes and your compensation arrangements,” she said.
Firms should also ensure that if ASIC does ask for information that they respond in a timely and adequate manner.
“For example, applicants usually have 10 business days to supply additional proofs. If you don’t provide the information or ask for an extension, your licence application may be rejected,” she said.
15 years too late
Far to many advisers are looking to establish their own AFSL because they do not wish to adhere to the compliance processes of the better AFSL licensees. Having an AFSL where the adviser and the compliance process is one and the same is the next vertical integration risk. Less licenses more vigour from back office surveilance is what is needed
ASIC don’t even reference check these applicants from last place they were authorised and compliance of their practice like a licensee checks when you change groups.
And yet the sole director/founder/authorised representative of a licensee who failed to:
(a) manage conflicts of interest
(b) ensure its representatives complied with financial services laws
(c) properly monitor and supervise its representatives including by failing to conduct audits, and
(d) adequately manage its internal dispute resolution process
and had ASIC cancel their AFSL – is now operating under another AFSL!