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A comprehensive guide to the new licensing regime

By Daniel Butler
16 September 2015 — 13 minute read

With the deadline looming, here is an overview of the main issues and decisions accountants need to consider in the lead-up to the end of the accountant's exemption.

I have presented many seminars around Australia on whether an accountant requires an Australian Financial Services Licence (‘Licence’) after 30 June 2016. The interest and feedback gathered from this round of seminars has been very insightful.

While the actual number of limited licences that have been issued to date by ASIC is still relatively low compared to what was expected, there are many advisers I came across during my travels who are some way through the process of either applying for a licence or seeking to become an authorised representative of an existing licence holder.

I have also been advising a number of accounting firms on the strategy which may best work with their firm and their main options. Indeed, quite a number of our accounting firm clients intend to continue to operate without a licence providing the services they have for many years.

The following is a brief overview of some of the main issues and decisions for accountants to consider. All references below are to the Commonwealth Corporations Act 2001 ('CA') and the Commonwealth Corporations Regulations 2001 ('Regs') unless stated otherwise.

Recognised accountant's exemption

Broadly, the current recognised accountant’s exemption authorises a recognised accountant to provide advice in relation to the acquisition and disposal of an interest in an SMSF without the need to hold a Licence (reg 7.1.29A of the Regs which ceases on 30 June 2016). A recognised accountant is a member of The Chartered Accountants Australia and New Zealand (formerly known as The Institute of Chartered Accountants in Australia), Certified Practising Accountants and Institute of Public Accountants.

Thus, accountants will not be able to rely on an exemption from advising in relation to the acquisition and disposal of an interest in an SMSF or superannuation from mid-2016 unless they have a Licence.

When is a Licence required?

This raises the question of when does an accountant require a licence? We therefore briefly analyse the legislative basis below of when a licence is required.

- A person who carries on a financial services business must hold a Licence covering the provision of financial services (s 911A(1)).

- A person provides a financial service under s 766A(1) if they:

a. provide financial product (‘FP’) advice (s 766B); or

b. deal in an FP (s 766C).sz

- An FP, under s 763A(1), is broadly a facility through which a person does one or more of the following:

a. makes a financial investment (s 763B);

b. manages financial risk (s 763C).

- FP advice, under s 766B(1), means a recommendation or a statement of opinion that:

a. is intended to influence a person in making a decision in relation to a particular FP or class of FPs; or

b. could reasonably be regarded as intended to have such an influence.

As you can see from the above, the provision of FP advice or dealing in an FP invokes the requirement to be licensed. Dealing in an FP includes acquiring, disposing of or varying an FP. It is quite easy for an accountant to be involved with the dealing of a FP, eg, where they assist with the rolling over of superannuation balances from a public offer superannuation fund to an SMSF.

Also, many accountants now use documentation supply services when setting up, say, a new SMSF that also sets up a bank or cash deposit account. These accountants could be ‘dealing’ in an FP and would be contravening the Corporations Act unless the accountant is licensed or makes appropriate adjustments to their business operations and provides appropriate disclosures and disclaimers.

What can an accountant without a Licence do after 30 June 2016?

From mid-2016, accountants without a licence will need to ensure that they comply with the Corporations Act or risk being subject to a range of penalties and legal ramifications. The main exemptions accountants can rely on include:

- Factual advice

- Taxation advice

- Traditional accounting services, e.g. preparing financial statements, auditing or valuing a business

- Broad asset allocation advice

- Advice which does not involve a financial service (often referred to as ‘execution only services’)

Many accountants without a licence are comfortable moving forward and sticking to the above exemptions. We now analyse each of the above in more detail.

Factual advice

An accountant can provide objective and factual information that is not intended to influence a person’s decision on an FP without needing to hold a Licence as such advice is not FP advice. ASIC regulatory guides 36 and 244 provide details on what factual advice and FP advice is.

An accountant can, for example, advise a client that reg 4.09 of the Commonwealth Superannuation Industry (Supervision) Regulations 1994 (‘SISR’) requires an SMSF to have an investment strategy. The accountant would need to be careful, however, on what further advice is provided in regards to finalising such a strategy.

An accountant who provides a template investment strategy to a client which, for example, states that insurance has been considered but is not needed may be at risk. Let’s assume, for instance, that the accountant established an SMSF for a mum and dad client and this mum and dad couple rolled their super out of a large industry superannuation fund that provided insurance on death and disablement. Now assume the dad passes away. The wife may allege that the accountant provided FP advice in recommending they establish an SMSF, that they then rollover their super moneys to the SMSF, that they dispose of their insurance cover in the industry fund and that the mum and dad both accepted the accountant’s recommendation not to effect any insurance in the SMSF. Thus, the mum is now suing the accountant for damages reflecting the loss of insurance cover costs and interest.

Thus, accountants need to carefully assess these types of risks since not having a Licence will expose them and their professional indemnity insurance.

Taxation advice

Advice given by a registered tax agent (within the meaning of the Commonwealth Tax Agent Services Act 2009) (‘TASA’), which is given in the ordinary course of activities as such an agent and that is reasonably regarded as a necessary part of those activities, is also excluded under s 766B(5)(c) and reg 7.1.29(4).

Many accountants are surprised to learn that TASA only provides authority for a registered tax agent to provide advice on Commonwealth tax law but not state or territory laws such as stamp duty, land tax and payroll tax. Such advice therefore falls under legal advice which should be provided by a lawyer in the jurisdiction.

Accountants need to be careful how they phrase their advice, especially if it is in writing. An accountant who does not have a Licence can, for instance, discuss what a member’s concessional contribution cap for FY2016 is and that a member may be entitled to a tax deduction for super if they satisfy the appropriate tests in the Commonwealth Income Tax Assessment Act 1997 (‘ITAA 1997’). However, they should not simply recommend a member to contribute $30,000 to superannuation as that is likely to be construed as FP advice. Further, the accountant providing such tax advice should issue a disclaimer that he or she does not offer FP advice nor do they have a Licence.

This may result in some practical difficulties since many recognised accountants who do not wish to obtain a Licence may not realise that they are providing FP advice when they are advising their clients on their superannuation strategies. This is one risk area for accountants who may inadvertently provide FP advice without realising it. Care in providing verbal and written advice will minimise this risk.

Note that financial planners can now provide certain tax advice under TASA and have their own status as ‘registered tax (financial) advisers’. The Tax Practitioners Board recently confirmed that for the financial year that ended on 30 June 2015, 16,329 registrations of ‘registered tax (financial) advisers’ were recorded. However, as noted below, many accounting firms are registered under TASA as tax agents and their ‘associated’ FP entity may therefore not become registered as a ‘registered tax (financial) adviser’.

Traditional accounting services

Accountants can continue to provide a range of traditional accounting services that are best suited to be handled by an accountant under Reg 7.1.29. These services include advice in respect of:

- Business planning, e.g. establishment, running or sale of a business, including the best structure and set up such structure;

- Compliance, e.g. compliance with the CA and Regs, e.g. a company must lodge an annual statement;

- Financing the acquisition of assets;

-Insurance, e.g. general risk management advice on insurance

- Share valuations and due dilligence 

- Tax issues

- Superannuation (subject to the recognised accountant’s exemption in Reg 7.1.29A which is to be phased out for SMSFs in mid-2016).

While this appears to cover a broad range of services that accountants can provide, any FP advice in relation to these services has to be reasonably necessary to the FP advice to be exempt from providing FP advice under Reg 7.1.29(1). By way of example, the setting up of a $2.00 company for the mum and the dad who are to become the directors and shareholders of that company is FP advice and potentially dealing in an FP, but would be exempt where this FP advice relates to an eligible accounting service such as advising the mum and the dad on business structures.

Broad asset allocation advice

A recommendation provided to a person about the allocation of the person’s funds that are available for investment among one or more of the following:

- Shares;

- Debentures;

- Debentures, stocks or bonds issued, or proposed to be issued, by a government;

- Deposit products;

- Managed investment products;

- Investment life insurance products;

- Superannuation products; or

-Other types of asset,

is deemed not to be financial service under Reg 7.1.33A.

This advice might, for instance, cover an accountant saying to a client that in general it is better for someone to have a diversified portfolio of investments via one or more of cash, shares, managed fund investments and property. However, an accountant would not be authorised under this Reg to say that no more than 50 per cent of your money should be invested in a particular asset class.

Advice which does not involve a financial service

An accountant who is told what to do and simply facilitates a client’s instructions via an execution only service of, say, setting up an SMSF is generally not providing a financial service. This is because the accountant may be able to provide a service that results in no influence or recommendation provided in accordance with s 766B. However, it may appear that an accountant is dealing in an FP where they, for instance, assist with the roll-over of superannuation monies from a public offer superannuation fund to an SMSF.

Naturally, such an accountant should also not receive any commissions or fees from the supply of FPs. A disclaimer setting out that the accountant has no Licence and does not provide FP advice should be issued.

Example — execution only services:

Jack is an accountant with no Licence who does not provide FP advice. A client comes to Jack and says he knows what he wants and instructs Jack to:

- Set up an SMSF;

- Assist to roll-over assets into the SMSF;

- Provide factual information about different super choices;

- Value SMSF assets;

- Advise on the SISA investment rules;

- Provide a pro-forma generic investment strategy; and

- Advise on a pension (transition to retirement income stream) strategy and prepare the documents.

The ‘Financial Advice and Regulations for the accounting profession’ (‘Accountants Guide’) published by CAANZ and CPA recommend that:

Where a member who is unlicensed is requested by a client to set up a SMSF, that is provide an execution only service, the member refers the client external resources first in order to assist the client to validate their decisions.

Such ‘external resources’ might include:

- ATO website

- CPA website

The adviser will still be legally at risk by undertaking some of the above matters if the client was to allege that they were provided FP advice and sue for damages, e.g. the investments substantially decreased in value or, as explained above, the client’s spouse was no longer covered by insurance in the SMSF and died or was rendered disabled. Even if such an accountant issued appropriate disclaimers, a vexatious litigant may sue and the accountant would need solid evidence by way of file records and correspondence that clearly evidenced what the accountant’s role was and scope of engagement.

The old saying, ‘if you want an adviser’s real opinion, don’t ask for it in writing’ may result in a client seizing on and selectively hearing the adviser state ‘yes, this can be done’, without picking up on the subsequent qualifications and disclaimers. It is imperative that accountants have sound records and file notes of conversations and write to clients confirming that the conversation was based on one of the exempt services that they are authorised to provide and did not constitute FP advice with an appropriate disclaimer unless they have a Licence. 

The main options for accountants

Do nothing

This is not a good option even if an accountant does not obtain a Licence. From June 2016, accountants need to ensure that their services will not give rise to any undue risk. This may result in curtailing execution only services to what is clearly not ‘dealing’ in an FP. A complete review of documentation and communications to clients should also be undertaken to ensure that no FP advice or financial services are provided as the firm does not have a Licence.

An accountant who does not obtain a Licence may wish to refer the client to an appropriate Licence holder and in doing so, should issue a written statement that sets out that they do not have a Licence and the appropriate disclaimers and confirm whether they obtain any commissions or fees from that referral in accordance with Reg 7.6.01(1)(e).

Obtain a Licence

An accountant has a range of options to consider in obtaining a Licence. The main options include:

- Obtain a Licence – this may place considerable responsibility and extra administration on a firm to maintain the relevant documentation and processes to provide advice in compliance with all applicable law and regulations.

- Become an authorised representative (‘AR’) of a Licence holder – there are many on offer and if you do choose to become an AR there are many factors in addition to cost that should be considered to ensure the Licence holder is suitable. The due diligence period associated with determining which Licence holder or dealer group is suitable can take considerable time.

- In obtaining a Licence or becoming an AR, a key factor to consider is that the Licence may be limited in its authorisation, e.g. superannuation/SMSF, or could include other authorisations, e.g. insurance, managed investment products, etc.

Many accountants who start on the journey like to consider the extra functionality they may need to provide a more rounded service. Extra authorisations could be added over time if say an accountant commences with a limited Licence and then seeks to extend their service offering.

Consider business structure

Accountants should give careful consideration to establishing a separate legal entity such as a separate company or other appropriate structure for their Licence and FP activities. This may allow the opportunity to ‘rebrand’ and communicate with clients about the separate and additional services that will be on offer.

Having a separate legal entity is also the best way to manage risk. This should assist in ensuring that the traditional accounting services are offered by one entity and the financial services by another entity with different letterheads, etc.

I know of numerous examples where the professional indemnity insurers have denied liability on the basis that it was not clear on which ‘side of the fence’ the advice was provided.

Example — who provided the advice?

In many cases, the accountant servicing the client is providing traditional accounting services, tax advice and FP advice. Typically, the accounting practice (as distinct from the related but separate FP entity) provides the traditional accounting services and tax advice including the preparation and lodgement of tax returns. Indeed, the accounting firm is usually registered with the Tax Practitioners Board under TASA. However, the FP advice should have been provided under the separate FP entity. Consider the situation where the accountant is providing traditional accounting services and FP advice in the same meeting, whether it is likely that the respective records of each of the accounting and FP entities reflects the discrete advice given by the accountant on behalf of each entity. Further, if tax advice is provided, was it provided under the accounting entity which is the registered tax agent or was it provided under the FP entity of the accountant on behalf of the FP entity and was that FP entity a ‘registered tax (financial) adviser’?

As you will no doubt understand from the above example, a vexatious litigant client could make allegations that the FP advice provided by the accounting firm was not Licensed or vice versa. It would then be up to the respective separate entities to defend themselves against such allegations, hopefully with sound records.


There are a number of key strategic decisions to make when obtaining a licence or deciding not to have one. DBA Lawyers is well placed to provide legal advice and assistance as needed.

Daniel Butler, director, DBA Lawyers 


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