If you are intending on starting a business or currently operate an existing business in the finance sector, it is essential to determine whether your business requires an Australian Financial Services Licence (AFSL). The Corporations Act 2001 (Cth) (Corporations Act) stipulates that you require an AFSL if you are a ‘person’ who carries on a ‘financial services’ business in Australia unless an exemption applies. An AFSL allows you and any of your authorised representatives to provide financial services to clients and is issued by the Australian Securities & Investments Commission (ASIC). AFSLs are subject to a range of obligations, including but not limited to, general conduct obligations, capital requirements, organisational competence and reporting requirements with most obligations varying depending on whether an AFSL contains a wholesale only authorisation or a retail authorisation.

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What is a Financial Service?

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The Corporations Act specifically outlines what a ‘financial service’ is and includes:

1. providing financial product advice – including both general and personal financial advice;

2. dealing in a financial product – including applying for, issuing, varying or disposing of a financial product.

3. providing a custodial or depository service – including where you operate primarily as a custodian or whether you hold client’s assets incidentally.

4. making a market in a financial product;

5. operating a managed investment scheme;

6. operating the business and conducting the affairs of a Corporate Collective Investment Vehicle (CCIV);

7. providing a crowd-funding service;

8. providing a claims handling and settling service; and

9. providing a superannuation trustee service.

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You will require an AFSL if you provide any of the above services for any financial product, subject to any applicable exemption. The most common exemption that exists to obtaining an AFSL is to be an authorised representative of an AFSL.

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What is a Financial Product?

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A ‘financial product’ is defined as a facility through which, or through the acquisition of which, a person:

1. makes a financial investment;

2. manages financial risk; or

3. makes non-cash payments.

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An AFSL specifically lists the types of financial products for which you are authorised to provide a financial service including, but not limited to, securities, derivatives, foreign exchange contracts and interests in managed investment schemes.

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Types of Financial Service Businesses

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In practice, there are a wide range of different types of businesses in the financial services sector that, in most cases, are required to be licensed including:

1. Funds Management (e.g. Fund Managers, Responsible Entities and Custodians).

2. Financial Advisory (e.g. Financial Planners, Wealth Managers and Corporate Advisors).

3. Financial Institutions (e.g. commercial and investment banks).

4. Managed Discretionary Account Providers (e.g. MDA Operators and MDA Advisers).

5. Traders (e.g. foreign exchange, derivatives, securities and ACCUs/EIEUs).

6. Brokerage Providers (e.g. insurance and securities).

7. Payment Service Providers (e.g. non-cash payments).

8. Remittance Providers.

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Foreign Financial Services Providers

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A Foreign Financial Services Provider (FFSP) is considered a financial services business in another jurisdiction that intends to provide financial services in Australia to wholesale clients. An FFSP is required to be licensed in Australia to provide financial services and, at this current point in time, can rely on an exemption or obtain a Foreign Australian Financial Services Licence (FAFSL).

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The exemptions that apply to FFSPs includes:

1. ‘Limited connection’ exemption – where an FFSP engages in conduct intended to induce Australian wholesale clients; and

2. ‘Sufficient equivalence’ exemption – where an FFSP is regulated in a jurisdiction with a regulatory regime deemed by ASIC to be ‘sufficiently equivalent’ to Australia’s regime. These jurisdictions include the United Kingdom, United States, Singapore, Hong Kong, Germany, Luxembourg, Denmark, Sweden, France and Canada and may be subject to specific financial authorisations.

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To rely on these exemptions, an FFSP will need to submit an application with ASIC to be granted relief. These exemptions will continue to apply to FFSPs until 31 March 2025 for which then FFSPs will be required to obtain a FAFSL or rely on a new proposed ‘funds management’ exemption.

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The FAFSL regime was introduced on 1 April 2020 and is designed to be more streamlined than the AFSL application process. To apply for a FAFSL, FFSPs must be regulated in a foreign jurisdiction by a ‘sufficiently equivalent’ regime as listed above. FFSPs from another foreign jurisdiction not deemed to be a ‘sufficiently equivalent’ regime can apply to ASIC to extend the FAFSL regime to other regulatory regimes.

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How We Can Help

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Adria Law are experts in assisting financial services businesses, both domestic and foreign, in obtaining appropriate licensing with ASIC and collaborate closely with you through the preparation stage of an AFSL or FAFSL application and post-application stages regarding any liaison with ASIC.

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Whether you currently operate a finance services business or are in the process of opening a financial services business, contact our experienced lawyers today for a free consultation.