Regulated emissions units: Applying for or varying an AFS licence
information sheet – 156
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This is Information Sheet 156 (INFO 156). It is for anyone intending to apply for either a new Australian financial services (AFS) licence or a variation to an existing licence to authorise them to provide financial services in regulated emissions units and associated products.
Who must hold an AFS licence for regulated emissions units?
You must hold an AFS licence if you carry on a financial services business within, into, or from Australia that provides financial services in emissions units that are financial products (regulated emissions units), unless you are exempt.
In addition to this information sheet, you should read Regulatory Guide 236 Do I need an AFS licence to participate in carbon markets? (RG 236) to help you determine whether you need to hold an AFS licence to provide financial services for regulated emissions units and associated products.
Your financial services business in the carbon markets may also include financial services in products associated with regulated emissions units (e.g. derivatives over emissions units or managed investment schemes that aggregate carbon abatement activities). In this case, you will need an AFS licence with authorisations covering both regulated emissions units and the associated product. This information sheet also covers applying for or varying an AFS licence with these additional authorisations.
We encourage you to seek your own professional advice to find out how the Corporations Act 2001 (Corporations Act) and other applicable laws apply to you, as it is your responsibility to determine your obligations.
What are regulated emissions units?
Regulated emissions units include Australian carbon credit units (ACCUs), Safeguard Mechanism Credits (SMCs) and other types of eligible international emissions units (EIEUs). These are financial products under the Corporations Act.
ACCUs include Kyoto ACCUs and non-Kyoto ACCUs (see also RG 236.75–RG 236.79).
EIEUs include SMCs, and certain types of certified emission reductions (CERs), emission reduction units (ERUs) and removal units (RMUs) (see also RG 236.80–RG 236.95).
What are ‘financial services’ in regulated emission units?
Financial services in regulated emissions units include:
providing financial product advice on regulated emissions units
dealing in regulated emissions units
making a market in regulated emissions units, and
providing a custodial or depository service for regulated emissions units.
You may also be providing financial services in a financial product associated with emissions units if you:
advise, deal or make a market in derivatives over emissions units
enter into contracts to have another person conduct a carbon abatement activity for you, or
operate a registered and/or unregistered managed investment scheme involving emissions units or carbon abatement activities.
See RG 236.35–RG 236.65 for further guidance on financial services in regulated emissions units.
Each of these financial services may be provided to wholesale clients and/or retail clients: see RG 236.72–RG 236.74 for a description of the difference between a wholesale client and a retail client.
The scope of the authorisations required in your AFS licence
Your AFS licence will cover the range of financial services in the types of financial products we authorise you to provide. It will also specify whether you can provide these services to wholesale clients and/or retail clients.
The scope of the authorisations in your AFS licence may include one or more of the combinations set out in Table 1.
# We may place a condition on your AFS licence limiting the financial services you provide in relation to derivatives over one or more types of emissions units unless we are satisfied that you have the organisational competence to provide financial services in a broader range of derivatives.
^ See RG 236.102–RG 236.119 for examples of how certain carbon projects or arrangements related to emissions units may be a managed investment scheme.
* An authorisation to operate a ‘named’ registered managed investment scheme is an authorisation for that specific scheme, holding specific kinds of assets. An authorisation to operate a ‘scheme of a particular kind’ is a broader authorisation that will not require you to apply to vary your licence every time you want to register a scheme of that kind. However, you will need to demonstrate sufficient organisational competence for a ‘scheme of a particular kind’ authorisation. This generally requires that you have been operating two or more registered schemes for at least the past two years: see Regulatory Guide 105 AFS licensing: Organisational competence (RG 105) at RG 105.101.
If a responsible entity is seeking to hold ACCUs or EIEUs as an investment without themselves generating them as part of the scheme, only a financial assets authorisation is required.
If you operate the business and conduct the affairs of a corporate collective investment vehicle (CCIV) in relation to regulated emissions units, your AFS licence must authorise you to provide that service. You should also consider being authorised to advise and deal in securities to complement the operation of the business and conduct the affairs of a CCIV. See Corporate collective investment vehicles and Regulatory Guides 1-3 for further information.
Applying for a new AFS licence
You can apply for an AFS licence using our Regulatory Portal, which individually tailors the application to your business. If you do not currently hold an AFS licence, and you will be providing financial services in relation to regulated emissions units, you must apply for a new AFS licence with one or more of the authorisations set out in Table 1.
What information must be submitted in your application?
Depending on the authorisations that you apply for, additional questions will be asked in the application. These questions seek specific additional information for specific financial services and products.
Applying to vary an existing AFS licence
If you currently hold an AFS licence with authorisations for services and products other than regulated emissions units, you must apply to vary your AFS licence to include the new services and/or the additional products that you wish to add.
You should note:
you will need to add one or more of the financial products of ACCUs or EIEUs
if you already hold an authorisation for derivatives that is not restricted to certain types of derivatives, you do not need to apply to add derivatives over ACCUs or EIEUs
if you already hold an authorisation to provide custodial or depository services, you do not need to vary your custodial or depository services authorisation to cover ACCUs or EIEUs because this authorisation is already applicable to all types of financial products, and
unless you already hold an authorisation to operate a registered managed investment scheme in relation to financial assets, you will need to apply to add a financial assets registered scheme so that the scheme(s) may invest in ACCUs or EIEUs or associated financial products.
What information must be submitted in your application?
An application to vary an existing AFS licence is made using the Regulatory Portal.
Notify change of responsible manager details of an Australian financial services licence if you need one or more responsible managers to cover your new authorisations.
When answering questions in the form, you should focus on the new financial services and products you are applying to add to your AFS licence and how this links to your existing financial services and products.
Steps in the application process
Follow the steps below to apply for a new AFS licence or make a variation to an existing AFS licence.
Our regulatory guides, pro forma licence conditions and samples of online applications will help you comply with the application requirements:
Regulatory Guide 1 Applying for and varying an AFS licence (RG 1)
Information Sheet 240 AFS licence applications: Providing information for fit and proper people and certain authorisations (INFO 240)
Regulatory Guide 236 Do I need an AFS licence to participate in carbon markets? (RG 236)
For additional regulatory guides about meeting your licensing, conduct and disclosure obligations, go to Regulatory Guides.
Select the authorisations that relate to the types of financial services you will be providing in regulated emission units and associated derivatives. In order to do this, you will need to:
identify which financial services you will provide (e.g. ‘Provide financial product advice’, ‘Deal in a financial product’), and
identify each financial product those financial services may cover (e.g. ACCUs, EIEUs, managed investment schemes, derivatives).
See Table 1 for a list of possible authorisations.
You will need to ensure that you select the authorisations relevant to the financial services and products that you intend to provide, otherwise you may be providing unlicensed financial services.
Your authorisations will also affect your obligations as a licensee.
See RG 1 for more information about authorisations.
You must nominate responsible managers who have the relevant knowledge, experience and skills necessary to be directly responsible for significant day-to-day decisions about the ongoing provision of your financial services in regulated emissions units and any associated derivatives or other products. See How we assess your organisational competence.
If you provide financial services to retail clients, you must ensure that you have in place adequate compensation and dispute resolution arrangements: see Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104). This means:
holding professional indemnity insurance that meets the requirements of Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126), and covers all the financial services in all the financial products that you will provide, unless ASIC approves alternative arrangements
having an internal dispute resolution system that meets the requirements set out in Regulatory Guide 271 Internal dispute resolution (RG 271), and
joining and maintaining membership of the Australian Financial Complaints Authority (AFCA), the external dispute resolution scheme for financial complaints in Australia.
You can apply online for an AFS licence with an authorisation to provide financial services in relation to emissions units.
How we assess your organisational competence
If you are an AFS licensee, you must maintain the competence to provide the financial services covered by your AFS licence: s912A(1)(e) of the Corporations Act. We refer to this obligation as the ‘organisational competence obligation’, because it requires you to be competent at the organisational level.
How we assess your compliance with the organisational competence obligation is described in RG 105. We look at the knowledge and skills of the people who manage your financial services business. We refer to these people as your ‘responsible managers’.
We will apply the policy principles set out in RG 105 when assessing your responsible managers. Key aspects of our policy are that:
your responsible managers are directly responsible for significant day-to-day decisions about the ongoing provision of your financial services
together, your responsible managers should have appropriate knowledge and skills for all of your financial services and products, and
your responsible managers are fit and proper.
In RG 105, we explain that responsible managers need to be:
organisationally close to the provision of financial services, and
able to undertake the time commitment to exercise their responsibility.
In practice, your nominated responsible managers are less likely to be able to undertake their role successfully the further removed they are from the point of delivery of financial services, or the more licensees they act for. In some cases, you may need to provide us with more details about how your nominated responsible managers will be in a position to be directly responsible for significant day-to-day decisions.
Responsible managers must have the appropriate knowledge and skills for their role in your business. For regulated emissions units, this will include:
knowledge about the units and the features of the carbon markets in which they are traded
relevant experience in the ACCU Scheme, Safeguard Mechanism, other Australian environmental markets or overseas carbon markets
experience in the types of financial services that are to be provided
if services will be provided to retail clients, previous experience in working with retail clients, and
general competence in the responsibilities of a responsible manager (e.g. an understanding of AFS licensee obligations).
We do not necessarily expect an individual responsible manager to have expertise in all the above areas. You may nominate more than one responsible manager in your application, who collectively can demonstrate the required knowledge and skills relevant to your business: see RG 105.36–RG 105.37.
If we are satisfied with your organisational competence, but think you are heavily dependent on the knowledge and skills of one or two responsible managers, we will generally impose a ‘key person condition’ on your AFS licence. The key person condition will name those responsible managers whose competence we think you depend on heavily, and you will need to inform us if any of those key people leave the business: see RG 105.112–RG 105.114.
In RG 105, at Section C, we have provided five options for responsible managers to demonstrate they have appropriate knowledge and skills, generally involving various combinations of experience and qualifications or training (Options 1–4), or a written submission demonstrating that your nominated responsible managers have the appropriate experience and skills (Option 5).
For many applicants seeking to demonstrate appropriate knowledge and skills in regulated emissions units, Option 5 may be the most appropriate option (see RG 105.78–RG105.81).
If applying using Option 3 or 4, completion of courses relevant to carbon products and/or the operation of Australian carbon markets may be appropriate (see also RG 105.66–RG105.77).
If your nominated responsible managers have knowledge or skills that are relevant to emissions units and carbon markets, but none of them have any direct Australian financial services experience, before we will approve your AFS licence, we may ask them to supplement their knowledge and skills by completing a short industry course specifically designed for those intending to be responsible managers.
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.
Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.
