Margin lending -getting or varying AFS licence
This information sheet (INFO 100) is for issuers and advisers of margin lending facilities, who intend to apply for either a new Australian financial services (AFS) licence or a variation to an existing AFS licence. It explains:
- what are the requirements for margin lending facilities
- how to apply for an AFS licence or variation
- how will ASIC assess applications for margin lending facilities.
What are the requirements for margin lending facilities?
Issuers and advisers of margin lending facilities must comply with the licensing, conduct and disclosure requirements set down in the Corporations Legislation Amendment (Financial Modernisation) Act 2009 (Modernisation Act).
The Modernisation Act, among other things, makes margin lending facilities a financial product and requires that issuers and advisers of margin lending facilities hold an AFS licence authorising them to provide these facilities.
All licensing, conduct and disclosure requirements apply to providers and financial advisers in relation to margin lending facilities. Margin lending facilities are regulated in the same way as other financial products.
The Modernisation Act also imposes responsible lending requirements on issuers of margin lending facilities and clarifies responsibility for providing notification of margin calls.
How to apply for an AFS licence or variation
Before you apply for an AFS licence or variation to an existing AFS licence, make sure you have read ASIC’s guidance and prepared the documents you will need for your application.
Step 1: Read ASIC’s guidance
Our regulatory guides, pro forma and sample online application will help you comply with the requirements.
Table 2: ASIC guidance for margin lending facilities
|Preparing your licence application||
|Meeting your licensing, conduct and disclosure obligations||
Step 2: Decide on the authorisation(s) you need
Look at the features of your margin lending facility and work out whether you need to select:
- a standard margin lending facility authorisation
- a non-standard margin lending facility authorisation, or
A non-standard margin lending facility is where interests in marketable securities are transferred as part of the margin loan, such as in a stock lending arrangement.
If you are a financial planner providing advice only on margin lending facilities, you will most likely not be issuing margin lending facilities.
In your application, if you select ‘Deal in a financial product’ and then ‘Issue, apply for, acquire, vary or dispose of a financial product’ in relation to margin lending, you will be asked to answer a series of questions about margin lending facilities (Section C10 of the application).
Step 3: Ensure you have responsible managers who can demonstrate the required competencies
You must nominate those responsible managers who have the competencies to be granted the authorisation for margin lending facilities. If you are varying your AFS licence and intend to nominate additional responsible managers to meet the competencies of the new authorisation you will first need to complete Form FS20 Change of details for an Australian financial services licence.
Step 4: Check your professional indemnity insurance
Before authorising you to provide margin lending facilities, we need to be satisfied that your professional indemnity insurance does not effectively exclude cover for margin lending facilities. You should check this with your insurance provider before lodging your application.
Step 5: Prepare your application and proofs
Before lodging your application for an AFS licence or a variation to an existing AFS licence, read Section E of Regulatory Guide 2 AFS Licensing Kit: Part 2—Preparing your AFS licence or variation application (RG 2), which explains how to submit your application and accompanying proofs.
RG 2 describes the core proofs you must submit with your application and any additional non-core proofs we may request as part of our assessment.
At a minimum, you must lodge an ‘A5 Business Description’ core proof and a ‘B1 Organisational Competence’ core proof, which includes a ‘Table of Organisational Competence’.
Table 3: Preparing your proofs
|A5 Business Description||You must provide enough information in the A5 Business Description core proof for us to understand how your business works and the relevance of the licence authorisations you have selected (including any new authorisations).
The matters that may be addressed in these documented processes or measures include:
RG 2 explains the level of detail and information which must be included in the A5 Business Description core proof.
|B1 Organisational Competence
(see RG 2 and RG 105)
|You must provide enough information in the B1 Organisational Competence core proof for us to assess whether you meet the organisational competence requirements for the financial services and products for which you are applying.
This core proof includes a ‘Table of Organisational Competence’ and, if applicable, a ‘Submission on a Responsible Manager’s Competence’.
In preparing this information for margin lending facilities, you must:
Step 6: Lodge your application and pay the lodgement fee
You can apply online for an AFS licence with an authorisation to provide margin lending facilities.
Existing AFS licensees can apply for a variation to their licence to include authorisation to provide margin lending facilities by lodging a Form FS03 Application to vary the authorisation conditions and other conditions.
How will ASIC assess applications for margin lending facilities?
We will assess applications for new AFS licences or variations to existing AFS licences for margin lending facilities in the same manner and against the same criteria as we do for other financial services as set out RG 1–RG 3, RG 105 and RG 166.
This is Information Sheet 100 (INFO 100), reissued in August 2013. Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.