Complying with your obligations if both credit licensee and AFS licensee

This is Information Sheet 134 (INFO 134).

This information sheet explains how to comply with your obligations if you are both:

• a credit licensee under the National Consumer Credit Protection Act 2009 (National Credit Act), and
• an Australian financial services (AFS) licensee under the Corporations Act 2001 (Corporations Act).

This information sheet explains when it may be possible for you to avoid duplicating processes in complying with both regimes. For detailed guidance on your obligations under both regimes, you will need to refer to our regulatory guides.

This information sheet explains:

• your obligations under the two regimes
• your conduct obligations
• your disclosure obligations
• where to get more information

Your obligations under the two regimes

To engage in credit activities and provide financial services, you must hold two separate licences: a credit licence and an AFS licence.

Note: See Regulatory Guide 204 Applying for and varying a credit licence (RG 204) and Regulatory Guide 1 AFS Licensing Kit: Part 1—Applying for and varying an AFS licence (RG 1).

The credit licensing and AFS licensing regimes impose broadly similar obligations on licensees. However, the two regimes also impose some distinct obligations.

It is important that you understand when your business involves credit activities, and when you are providing financial services.

Note: See Regulatory Guide 203 Do I need a credit licence? (RG 203) and Regulatory Guide 121 Doing financial services business in Australia (RG 121).

Your conduct obligations

If you are both a credit licensee and an AFS licensee (i.e. a dual licensee), you are subject to conduct obligations under both regimes. These include:

• general conduct obligations – that is, basic obligations that apply to you after you hold a licence, and for as long as you remain licensed, and
• specific conduct obligations – that is, obligations that are triggered when you undertake a particular activity. 

General conduct obligations

If you are a dual licensee, you must comply with the general conduct obligations in section 47 of the National Credit Act and section 912A of the Corporations Act.

While the obligations imposed by each regime are similar, in most cases, we have developed separate policy guidance for credit licensees and AFS licensees. You should therefore ensure that you are familiar with Regulatory Guide 205 Credit licensing: General conduct obligations (RG 205) and Regulatory Guide 104 AFS Licensing: Meeting the general obligations (RG 104).

Using similar systems and processes

The obligations under both regimes are broadly similar, and can generally be met through similar systems and processes. For example, credit licensees must keep a written plan that documents their compliance systems: section 47(1)(k) of the National Credit Act. We expect AFS licensees to do the same: see RG 104 at RG 104.25.

If it is more convenient for you to do so, you can develop a single plan that covers your compliance obligations under both regimes.

Complying with the ASIC protocol

Both credit licensees and AFS licensees must comply with the ASIC Reference checking and information sharing protocol (ASIC protocol).

Note: See section 47(1)(ea) of the National Credit Act and section 912A(1)(cb) of the Corporations Act.

If you are considering employing or authorising a representative to act as a financial adviser or mortgage broker on your behalf, you will need to comply with the ASIC protocol by requesting reference(s) about the representative from other AFS licensees and credit licensees.

Note: See Information Sheet 257 ASIC reference checking and information sharing protocol (INFO 257) for more details.

You will also need to comply with the ASIC protocol by providing a reference about your current or former representatives in response to requests from licensees who are considering employing or authorising those representatives as a mortgage broker or financial adviser. This includes instances where your representative acted for you in a capacity other than a mortgage broker or financial adviser.

Conflicts of interest

There is a key difference between the two regimes in the obligations relating to conflicts of interest.

Credit licensees must ensure that clients are not disadvantaged by any conflict of interest (s47(1)(b) of the National Credit Act) while AFS licensees must manage conflicts of interest (s912A(1)(aa) of the Corporations Act).

For more information about the different obligations, see RG 205 at RG 205.83–RG 205.89 and Regulatory Guide 181 Licensing: Managing conflicts of interest (RG 181).

Specific conduct obligations

Both regimes impose specific conduct obligations, which are triggered when licensees engage in certain activities. Specific conduct obligations include:

• recording your financial position
• keeping client money, and
• preparing advice and suggestions.

While there are some similarities between the two regimes, it is also important that you understand where the obligations differ.

Recording your financial position

Both regimes require licensees to keep accurate financial records for their business. These records must be kept in a way that allows them to be properly audited, and must show certain particulars specified in the legislation.

Note: See sections 88–89 of the National Credit Act and sections 988A–988B of the Corporations Act.

However, the law does not require records to relate exclusively to credit activities or financial services. If it is more convenient for you to do so, you may keep a single set of financial records to meet your obligations under both regimes.

Keeping client money

Both regimes require licensees to hold money received from or on behalf of clients separately from their other funds, unless it is money paid to the licensee as remuneration for the services they provide.

Note: See section 99 of the National Credit Act and section 981A–981B of the Corporations Act.

However, because you are required to segregate this money, you must have separate accounts for credit activities and for financial services.

Preparing advice and suggestions

Both regimes provide guidelines about the factors you need to consider when developing personal financial advice or a credit suggestion for a credit contract or consumer lease.

Note: See RG 203 for what constitutes a credit ‘suggestion’ and Regulatory Guide 36 Licensing: Financial product advice and dealing (RG 36) for more information about providing financial advice.

Under both regimes, licensees must make ‘reasonable inquiries’ into a client’s relevant personal circumstances, requirements and objectives before providing advice or a suggestion.

Note: See Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) for ‘reasonable inquiries’ in relation to credit.

If you are a dual licensee, you can make inquiries for both credit assistance and financial services in a single meeting or fact-finding process. Indeed, doing so may allow you to gain a more complete view of your client’s needs. However, when formulating advice or a suggestion, there are two separate and different processes and requirements of both must be met.

As a credit licensee you must:

• consider an explicit set of criteria, including whether the client will be able to meet the repayments (sections 115, 128, 138 and 151 of the National Credit Act and RG 209)
• if you are a mortgage broker – comply with obligations to act in your consumer's best interests when providing credit assistance and prioritise the consumer's interests in the event of a conflict (see sections 158LA and 158LB of the National Credit Act and Regulatory Guide 273 Mortgage brokers: Best interests duty (RG 273))
• if you have credit representatives who are mortgage brokers – take reasonable steps to ensure those representatives comply with the best interests duty and the conflict priority rule (sections 158LE(2) and 158LF(2) of the National Credit Act).

As an AFS licensee you must:

• act in the best interests of the client in relation to any advice given (section 961B of the Corporations Act)
• only provide advice to the client if it would be reasonable to conclude that the advice is appropriate to the client (section 961G of the Corporations Act)
• if it is reasonably apparent that information about the objectives, financial situation and needs of the client on which the advice is based is incomplete or inaccurate – warn the client that the advice is, or may be, based on incomplete or inaccurate information about the client’s relevant personal circumstances (section 961H of the Corporations Act)
• if there is conflict between your interests, or those of an associate of yours, and the client’s interests – give priority to the client’s interests when giving the advice (section 961J of the Corporations Act).

Your disclosure obligations

As a dual licensee, you are subject to disclosure obligations under both regimes, including requirements relating to:

• providing general information about your business
• documenting suggestions and advice, and
• providing a credit quote.

Note: Information Sheet 146 Responsible lending disclosure obligations: Overview for credit licensees and representatives (INFO 146) sets out your credit disclosure obligations under Chapter 3 of the National Credit Act and related regulations.

Providing general information about your business

Under both regimes, you must provide – around the time of first contact with your client – a document that includes basic information about your business, the services you provide, and the fees you charge.

An AFS licensee must provide a Financial Services Guide (FSG) and a credit licensee must provide a credit guide.

If you are a dual licensee, you may provide a single document covering all of the information relating to your financial and credit services: reg 7.7.08B of the Corporations Regulations 2001 (Corporations Regulations). If the same information is required in both the FSG and the credit guide, you only need to include it once in the single document.

Documenting suggestions and advice

Under both regimes, you must provide clients with documentation to accompany your advice or suggestion.

Credit licensees must give the client a credit proposal disclosure document at the same time as credit assistance is provided. This document summarises what the consequences will be if they take up a suggestion (e.g. by entering into a credit contract, or increasing the limit of a contract) in terms of:

• the fees they will pay (whether to the credit assistance provider, credit provider or third party), and
• what the credit assistance provider is likely to receive by way of remuneration as a result.

AFS licensees providing personal advice must provide clients with a Statement of Advice (SOA), either when the advice is given or as soon as practicable after the advice is given. The SOA must document:

• the advice, and the basis upon which the advice is being given, and
• information about any remuneration the licensee may receive in connection with the advice, and any conflicts of interest that could conceivably have influenced the advice.

If you are a dual licensee, you may combine the credit proposal disclosure document and the SOA in a single document. However, while the SOA may be given at the same time as, or as soon as practicable after, personal advice is given, no credit assistance may be given unless a credit proposal disclosure document is given at the same time.

Therefore, combining these two documents is likely to work best when the licensee:

• holds an initial fact-finding meeting, without providing any advice/suggestion
• goes away to formulate the advice/suggestion, and draft the required disclosure documents, and
• holds a second meeting, at which both the disclosure documents and oral advice/suggestion are given.

We recognise that there are other business models that do not involve face-to-face contact with clients. It may also be possible for these licensees to combine disclosure documents; we expect that they will develop their own processes to ensure that they comply with all of their obligations.

The unsuitability assessment

If you are required to undertake an assessment to determine whether credit will be ‘not unsuitable’ for a consumer, you must provide the consumer with a written copy of the assessment upon their request.

In RG 209, we explain that credit licensees should set out in the written assessment the features of the client’s personal circumstances that they took into account, and the extent to which they considered some of the key statutory factors (e.g. capacity to repay, substantial hardship).

While there is no requirement for the assessment to be given unless requested, if you would like to provide clients with a copy of the assessment, you may include the necessary information in a combined document with the SOA and credit proposal disclosure document.

Setting out the combined document

Despite their similarities in purpose, the SOA, credit proposal disclosure document and unsuitability assessment are all subject to slightly different content requirements. If you are combining them in a single document, you should ensure that the document contains all of the required content, and that each component is easily distinguishable from the other.

Providing a credit quote

The credit quote tells the consumer the estimated cost to them of using your services, if you charge the consumer a fee. Before you provide credit assistance, you must give a quote to a consumer, the consumer must have accepted the quote by signing and dating the quote and you must give the consumer a copy of the accepted quote.

If you are a dual licensee providing financial advice and credit assistance as part of a single planning service, we recognise that it may be difficult for you to identify what proportion of the overall fee can be attributed to the credit assistance, and provide this figure in a credit quote.

However, the law allows you to quote a maximum amount that will be payable by the consumer for both credit and other services you provide.

Note: See sections 114 and 137 of the National Credit Act.

Therefore, you may quote a single maximum payable fee that represents the combined cost of the financial advice and credit assistance services. If you do so, you should ensure that the quote clearly details the different services covered by the fee.

Where can I get more information?

You can call ASIC on 1300 300 630 or ask a question online.

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. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

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.