Limited AFS licensees: Complying with your licensing obligations

As a limited Australian financial services (AFS) licensee, you must comply with a number of ongoing licensing obligations. This information sheet (INFO 229) sets out the licensing obligations that apply to a limited AFS licensee.

General licensing obligations

As a limited AFS licensee, you must comply with most of the same general licensing obligations as other AFS licensees. The only exceptions are the transitional competence requirements that apply for some limited AFS licensees and the exemption from the obligation to lodge audited accounts explained below: see ongoing financial reporting.

The general obligations included in the list below are set out in section 912A(1) of the Corporations Act 2001 (Corporations Act) and require you to:

  • do all things necessary to ensure that the financial services covered by your limited AFS licence are provided efficiently, honestly and fairly (see section 912A(1)(a))
  • have adequate arrangements in place for managing conflicts of interest (see section 912A(1)(aa))
  • comply with the conditions on your limited AFS licence (see section 912A(1)(b))
  • comply with the financial services laws (this includes all of the laws summarised in this information sheet, among others) (see section 912A(1)(c))
  • take reasonable steps to ensure that your representatives comply with the financial services laws (see section 912A(1)(ca))
  • have adequate financial, technological and human resources to provide the financial services covered by your limited AFS licence and to carry out supervisory arrangements (see section 912A(1)(d))
  • ensure that your representatives are adequately trained and competent to provide the financial services covered by your limited AFS licence (see section 912A(1)(f))
  • have a dispute resolution system if you provide financial services to retail clients (see section 912A(1)(g))
  • establish and maintain adequate risk management systems (see section 912A(1)(h))
  • meet the knowledge and competence standards set out in Table 1 below (see section 912A(1)(e)).

While you would have demonstrated that you are able to comply with these obligations when you applied for your limited AFS licence, you must also ensure that you comply with them on an ongoing basis.

Table 1: Knowledge and competence standards for limited AFS licensees

Type of limited AFS licensee

Knowledge/competence obligation

You applied for a limited AFS licence between 1 July 2013 and 30 June 2016 and you are:

  • an individual limited AFS licensee who is a ‘recognised accountant’ (i.e. certain accountants who are members of CPA Australia, Chartered Accountants Australia and New Zealand, or the Institute of Public Accountants), or
  • a corporation or partnership limited AFS licensee.

You must:

  • if you are:
    • an individual – maintain knowledge of the financial services covered by your   licence (see section 912A(1)(ea)), or
    • a corporation or partnership – ensure that each recognised accountant who supervises   and has responsibility for the provision of financial services under the licence has and maintains knowledge of the financial services covered by the licence (see section 912A(1)(eb))
  • be able to demonstrate, at our request (or, from 1 July 2019, at all times), that you have the competence and experience required to provide those financial services.

You applied for a limited AFS licence after 30 June 2016

You must maintain the competence to provide the financial services covered by your licence from the time your limited AFS licence is granted: see section 912A(1)(e).

For a description of what we look for when we assess compliance with the general licensing obligations, see Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104).

Stay within the scope of your limited AFS licence authorisations

It is your responsibility to ensure that you only provide those financial services that are within the scope of your limited AFS licence.

The scope of your limited AFS licence depends on the type of:

  • financial services you may provide (e.g. financial product advice on specific products versus class of product advice, and personal advice versus general advice)
  • financial product(s) for which you may provide the financial service (e.g. self-managed superannuation funds (SMSFs), life insurance or simple managed investment schemes)
  • clients you may provide those services to (i.e. retail or wholesale clients).

See Information Sheet 227 What can limited AFS licensees do? (INFO 227) for more detailed guidance on the scope and possible authorisations under a limited AFS licence.

Referrals

You can refer your clients to other AFS licensees who are authorised to provide broader kinds of advice that you may be unable to give. In this case, you should take all of the following steps (see regulations 7.6.01(e)–(ea) of the Corporations Regulations 2001):

  • let your client know that the AFS licensee or representative can provide the type of financial service or services they require
  • give your client the contact details of the AFS licensee or representative (rather than arranging for contact to occur yourself)
  • unless the AFS licensee or representative is related to you (e.g. it is a related company or you are its representative), disclose any benefits or commissions that you or your associates might receive as a result of the referral or any subsequent services provided to the client.

Information Sheet 216 AFS licensing requirements for accountants who provide SMSF services (INFO 216) explains in more detail how you can refer clients to other AFS licensees.

Training, education and ethics

Training and competence

You must ensure that all individuals who give financial product advice to retail clients under your limited AFS licence meet the training and competence requirements that are set out in Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146).

If you are an individual who holds a limited AFS licence and you provide financial product advice to retail clients, you must also meet the training and competence requirements set out in RG 146.

Ensuring these requirements are met will help you comply with your general licensing obligations to:

  • maintain the competence to provide the financial services covered by your licence
  • ensure that your representatives are adequately trained and competent to provide those financial services.

You would have demonstrated that you are able to comply with these obligations when you applied for your limited AFS licence, but you must also ensure that you comply with them on an ongoing basis.

Financial adviser education, training and ethical standards (due to commence from 1 January 2019)

The Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 introduces new education, training and ethical standards for financial advisers. These standards will be phased in from 1 January 2019. They will apply to all persons who provide personal advice (including class of product advice) to retail clients on more complex products.

In the case of a limited AFS licensee, these more complex products are superannuation (including SMSFs), securities, managed investment schemes and life insurance.

To meet the education, training and ethical standards, the requirements must be met by the relevant compliance date: see Table 2 below. The relevant compliance date will differ in most instances depending on whether the adviser is:

  • an ‘existing provider’ (i.e. generally any individual who had the relevant authorisations (or was similarly authorised in a foreign country) at any time between 1 January 2016 and 1 January 2019 and was not banned, disqualified or suspended), or
  • a ‘new adviser’ (i.e. an adviser who does not meet the definition of ‘existing provider’).

Table 2: Requirements and compliance dates for new advisers and existing providers

Requirement

Compliance date for new advisers

Compliance date for existing providers

Have an approved bachelor or higher degree, or equivalent approved qualification

1 January 2019

1 January 2024

Complete one year of supervised work and training

1 January 2019

Not applicable

Comply with the code of ethics and be covered by a compliance scheme that enforces that compliance

1 January 2020

1 January 2020

Pass an exam

1 January 2019

1 January 2021

Meet continuing professional development requirements

1 January 2019

1 January 2019

The Financial Adviser Standards and Ethics Authority will be responsible for setting the mandatory educational and training requirements, developing and setting the exam, and creating the code of ethics that financial advisers will be required to adhere to.

From 1 January 2019, only individuals who are authorised to provide personal advice to retail clients on these more complex products will be permitted to refer to themselves as a ‘financial adviser’ or a ‘financial planner’. See Section B of RG 175 for further information, including information about how this applies to existing advisers.

Financial advisers register

The financial advisers register is a register of people who provide personal advice to retail clients on more complex products. In the case of a limited AFS licensee, these products are superannuation (including SMSFs), securities, managed investment schemes and life insurance.

The financial advisers register contains details about each financial adviser, such as where they have worked, their qualifications, training, memberships of professional bodies, and what products they can advise on. While ASIC maintains the register, licensees must provide most of the information that goes on the register.

Who must be listed on the financial advisers register?

You must ensure that every individual – who under your limited AFS licence is authorised to provide personal advice (including class of product advice) to retail clients on the more complex products – is on the register. To do this, you must lodge a notice with ASIC setting out information about each of these individuals within 30 business days of the individual being authorised to provide that advice on your behalf: see section 922D.

That includes you (if you are an individual who holds a limited AFS licence), and will also include directors, employees or other natural person representatives (such as individual authorised representatives) who are authorised to provide personal advice to retail clients on these products under your limited AFS licence.

We have provided information about the notification process and answers to some frequently asked questions on the financial advisers register section of our website.

Dispute resolution

If you provide financial services to retail clients, you must have a dispute resolution system in place that consists of:

  • internal dispute resolution (IDR) procedures that meet certain prescribed standards
  • membership of one or more ASIC-approved external dispute resolution (EDR) schemes (see section 912A(2)).

If these requirements apply, you would have had to certify that your IDR procedures comply with ASIC’s requirements when you applied for your limited AFS licence. You would have also provided us with proof of your membership of an ASIC-approved EDR scheme, as well as details of who has responsibility for dealing with the EDR scheme.

Your IDR procedures and EDR scheme membership must be maintained on an ongoing basis.

See Regulatory Guide 165 Licensing: Internal and external dispute resolution (RG 165) for more information on our expectations regarding:

  • IDR procedures (Section B and Appendix 1 of RG 165)
  • EDR scheme membership (Section C of RG 165).

Compensation and insurance arrangements

If you provide financial services to retail clients, you must have arrangements in place to compensate those clients for any losses they suffer as a result of you or your representatives breaching the obligations in Chapter 7 of the Corporations Act. Generally, these compensation arrangements will take the form of professional indemnity (PI) insurance.

When you applied for your limited AFS licence, you would have confirmed that you had adequate PI insurance or a process to ensure that you would have that insurance by the time your limited AFS licence took effect. You must ensure that you maintain this PI insurance on an ongoing basis.

For more information on our expectations regarding compensation and insurance arrangements, see Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126).

Breach reporting

As a limited AFS licensee, you must notify us in writing of any ‘significant’ breach (or likely breach) of:

  • your general licensing obligations (see section 912A)
  • the requirements regarding compensation and insurance arrangements (see section 912B)
  • the financial services laws (this includes all of the obligations summarised in this information sheet, among others) (see section 912D).

You must notify us in writing as soon as practicable (and within 10 business days of becoming aware of the breach or likely breach). You should email either completed Form FS80 Notification by an AFS licensee of a significant breach of a licensee’s obligations or a written report to fsr.breach.reporting@asic.gov.au.

For more information on your obligations to report breaches, including guidance on which types of breaches must be reported and how to assess whether a breach is ‘significant’, see Regulatory Guide 78 Breach reporting by AFS licensees (RG 78).

Financial requirements

As a limited AFS licensee, we impose financial requirements on you to ensure that:

  • you have sufficient financial resources to conduct your financial services business in compliance with the Corporations Act (including carrying out supervisory arrangements)
  • there is a financial buffer that decreases the risk of a disorderly or non-compliant wind-up if the business fails
  • there are incentives for your owners to comply through risk of financial loss.

Assuming you do not hold client money or property and do not transact with your clients as principal, you will need to meet the ‘base level financial requirements’ set out in Regulatory Guide 166 Licensing: Financial requirements (RG 166). This means that you must:

  • be solvent at all times
  • have sufficient resources to meet your anticipated cash flow expenses.

For more information on these financial requirements, see RG 166.

Ongoing financial reporting

As a limited AFS licensee, your ongoing financial reporting obligations depend on whether you handle client money in connection with financial product advice or services, as illustrated in Table 3 below.

Table 3: Ongoing financial reporting requirements

If you do not handle any client money

If you do handle client money

  • You may lodge an annual compliance certificate through Form FS76 Limited Australian financial services licensee annual compliance certificate, rather than undertake an annual audit.
  • You must still lodge financial statements (as required by sections 989B(1) and 989B(2)). This means that you must lodge Form FS70 Australian financial services licensee profit and loss statement and balance sheet within the required timeframe.
  • You must lodge an auditor’s report in Form FS71 Auditor’s report for AFS licensee.
  • You must lodge financial statements (as required by sections 989B(1) and 989B(2)). This means that you must lodge Form FS70 Australian financial services licensee profit and loss statement and balance sheet within the required timeframe.

Advertising financial services

You must not make false or misleading statements or engage in misleading or deceptive conduct when offering or providing your financial services. For example, any advertisements for your financial advice services (including your website) should not create unrealistic expectations about what the service can achieve.

For more information on how we expect you to comply with your legal obligations when promoting your financial services, see Regulatory Guide 234 Advertising financial products and advice services (including credit): Good practice guidance (RG 234).

Where can I get more information?

  • Limited AFS licensees – check whether you are a limited AFS licensee or a representative of a limited AFS licensee
  • RG 78 Breach reporting by AFS licensees
  • RG 104 Licensing: Meeting the general obligations
  • RG 126 Compensation and insurance arrangements for AFS licensees
  • RG 146 Licensing: Training of financial product advisers
  • RG 165 Licensing: Internal and external dispute resolution
  • RG 166 Licensing: Financial requirements
  • RG 175 Licensing: Financial product advisers—Conduct and disclosure
  • RG 234 Advertising financial products and advice services (including credit): Good practice guidance
  • INFO 205 Advice on self-managed superannuation funds: Disclosure of risks
  • INFO 206 Advice on self-managed superannuation funds: Disclosure of costs
  • INFO 216 AFS licensing requirements for accountants who provide SMSF services
  • INFO 227 What can limited AFS licensees do?, which explains the scope of the activities you can carry out under your limited AFS licence
  • INFO 228 Limited AFS licensees: Advice conduct and disclosure obligations, which explains what you need to do when you provide advice to retail clients (especially advice about SMSFs)
  • Limited AFS licensees: Quick guide – download a ‘quick guide’, which highlights some of the main obligations that apply when giving advice to retail clients under a limited AFS licence

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.

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Last updated: 15/12/2017 08:44