The time for accountants to obtain a limited Australian Financial Services Licence, or limited licence, is trickling away and ASIC is encouraging accountants to take action now rather than delay their application until the end of the transition period.
With only 16 months to the deadline, ASIC has received a mere one per cent of the total expected applications from accountants. This was only slightly up on the 1 July 2014 figure, amounting to 43 applications received in the last eight months.
Of the total 105 applications received, only 44 have been granted. While some of those 105 are still under consideration at ASIC, it is known that a number of applications have been returned to the applicants due to insufficient information or material deficiencies.
ASIC has not provided details about the range of reasons for rejecting the applications, but has identified:
- Inadequate professional indemnity insurance – likely accountants with insurance that does not cover regulated financial advice in respect of the financial products the accountant proposes to offer, or which includes exclusions not allowed under ASIC’s Regulatory Guide 126;
- Lack of understanding of training requirements – accountants advising under a limited licence must undertake RG146 Tier 1 training. What is less widely understood is that the course needs to cover all the financial products the accountant wishes to advise on, and not just SMSFs. For example, an accountant proposing to provide a full personal advice service in respect of SMSFs, and strategic advice on life and general insurance, needs to undertake RG146 Tier 1 training in respect of SMSFs, superannuation, and life and general insurance;
- Confusion about the entity in whose name the licence will be held, including providing documents such as financial reports for the incorrect entity;
- Lack of knowledge of compliance obligations, or lack of preparation of compliance policies and procedures; and
- Insufficient understanding of the limited advice services permitted under the new regime.
Accountants who hold a limited licence can only provide full tailored advice in respect of SMSFs, and in respect of contributions and pensions under a superannuation fund. The new ‘class of product’ advice category will allow accountants to provide strategic advice on non-SMSF super structures and funds, securities, basic deposit products, simple managed investment schemes, and general and life insurance. No specific product recommendations can be made under the class of product exemption, and the only financial product an accountant can arrange under a limited licence is an interest in an SMSF.
ASIC regards the giving of financial advice to individuals as a heavily-regulated, high-risk activity, and so it is crucial that accountants can demonstrate they understand what advice they can and cannot give, as well as understanding they cannot facilitate a client’s acquisition of a non-SMSF financial product. Accountants who do not appear to appreciate the limits on their activities are more likely to have their application refused.
The time left to come to grips with the new regulation is dwindling away very fast. Accountants who propose to obtain a limited licence and who are not already across the requirements of that licence, and what they need to do to prepare, need to action this immediately to ensure they can demonstrate a firm grasp of their compliance obligations to ASIC.
ASIC is already urging accountants to “get their skates on”, and it really is in the best interests of the accountants who haven’t started to prepare to do so. Leaving applications until late in the transition period increases the risk of a rushed application, of under-preparing, and of making errors in the application process and subsequent requisitions from ASIC.
Considering ASIC was originally expecting up to 10,000 applications for a licence before the transition period, the longer the majority of accountants take to apply, the greater the risk ASIC will experience a rush at the end of the transition period. With ASIC making no undertakings to accountants who have lodged, but not had their licence granted, as at 1 July 2016 this may leave the unlucky applicants in limbo and unable to service SMSF clients for a period of time.
Where accountants' licences have been rejected late in the transition period due to avoidable errors, unfortunately applicants won’t have time to undertake the correct training and/or resubmit their application. So it is important to prepare, and know exactly what should be included.
To minimise this risk, accountants should prepare soon, and prepare well, including:
- Being clear about what authorisations are required for the services they want to provide – accountants who are uncertain after reading the available guidance should seek advice;
- Having the nominated Responsible Managers for the practice complete all the RG146 Tier 1 training required for the financial products for which the practice is applying to be authorised;
- Checking the adequacy of the practice’s professional indemnity insurance and consulting a specialist broker familiar with the requirements of ASIC’s Regulatory Guide 126 if unsure;
- Ensuring the financial information submitted to ASIC is correct and relates to the entity applying for the licence;
- Becoming familiar with the ongoing AFS licence obligations. The application will ask how the accountant proposes to comply, and so the compliance procedures should be in place before applying.
Preparation for licensing takes longer than the application process. Rushing the application or applying before being fully prepared increases the risk of a poor-quality application and rejection by ASIC.
Jaime Lumsden Kelly, senior lawyer, The Fold Legal