Publications / Financial Services

6 Aug 13
AFS licensing regime extended to exempt accountants

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The Government’s new limited Australian Financial Services (AFS) licence regime commenced on 1 July 2013, and will impact those accountants who provide financial services for self-managed superannuation funds (SMSFs), and are currently exempt from the requirement to hold an AFS licence. 

Corporate Advisory Partner, Tim Wiedman, summarises the limited AFS licence regime, and how it will impact ‘exempt’ accountants.

Who will be impacted by the limited AFS licence?

Accountants who currently provide advice on the establishment of SMSFs, and do not hold an AFS licence will be required to obtain a limited AFS licence to continue providing such advice.

The Corporations Act 2001 currently provides an exemption for ‘recognised accountants’, allowing them to provide advice on the establishment of SMSFs without needing an AFS licence.  A 'recognised accountant’ is a person who holds a practising certificate issued by the ICAA, CPA or IPA.

As part of the Future of Financial Advice reforms, the Corporations Regulations were amended, and this exemption will cease to apply on 1 July 2016.  Accountants who wish to continue providing advice on SMSFs to their clients after this date will need to obtain an AFS licence.

To facilitate the transition of accountants to the AFS licensing regime, the Government has introduced the limited AFS licence, a new type of AFS licence.
Therefore, accountants who currently provide advice on SMSFs pursuant to the exemption and wish to continue providing such advice post 1 July 2016 will need to obtain a limited AFS licence (or a ‘full’ AFS licence) prior to that date.

What is a limited AFS licence?

A limited AFS licence is restricted in the scope of authorisations (and therefore financial services) which the licensee may provide.  The holder of a limited AFS licence can be authorised to provide some or all of the following financial services:

A ‘class of product’ advice authorisation will enable the licensee to provide advice only on the classes of financial products specified above, and not on any specific financial products.

For example, a limited AFS licensee who has a ‘class of product’ advice authorisation for basic deposit products can recommend a client invest a proportion of their SMSF assets in a term deposit, but may not make a specific recommendation that the SMSF invest in a term deposit product offered by a particular bank or building society. 

A limited AFS licensee can:

  • provide advice on SMSFs, and advice on a client’s existing superannuation holdings when making a recommendation to establish an SMSF, or on contributions, or pensions, under a superannuation product
  • give class of product advice on the asset classes listed above, and
  • arrange to deal in an SMSF (which will enable the licensee to assist clients establish SMSFs).

If an accountant requires broader authorisations than those available under a limited AFS licence (such as providing advice on specific products or arranging to deal in other financial products), they will need to obtain a ‘full’ AFS licence. 

A licensee cannot hold a limited AFS licence for the authorisations set out above, and hold a ‘full’ AFS licence for other authorisations.

When can a limited AFS licence be applied for?

Accountants have been able to apply for a limited AFS licence since 1 July 2013. 

However, accountants who apply for a limited AFS licence from 1 July 2016 will not have the benefit of the transitional arrangements which apply for ‘recognised accountants’ between 1 July 2013 and 1 July 2016, and will not be able to provide advice to clients about SMSFs, or assist clients establish SMSFs, after 1 July 2016 until they obtain their limited AFS licence (or a ‘full’ AFS licence). 

The limited AFS licence is not restricted to accountants, and any person can apply for a limited AFS licence.  However, only ‘recognised accountants’ have the benefit of the transitional arrangements.

How do you apply for a limited AFS licence?

You can apply for a limited AFS licence electronically via ASIC’s website  The applicant (and, if the limited AFS licence is granted, the licensee) can be an individual, partnership or company. 

The application process involves:

  • completing and lodging the ASIC form FS01 electronically and
  • submitting the following supporting ‘proof’ documents after lodging your FS01:
    • proof A5 business description – provides details about the financial services and products you will provide, who your typical clients will be, and an overview of your business
    • proof B5 financial statements and financial resources – contains a description of the processes you will have for ensuring ongoing compliance with the financial conditions of a limited AFS licence, and requires you to provide a recent statement of income, statement of cash flows, and a balance sheet along with a cash flow projection which demonstrates you meet the cash needs requirements
    • proof B1 organisational competence – details the skills and experience of your nominated responsible managers in providing the financial services which you are seeking to be authorised to provide under your limited AFS licence, and
    • people proofs for each responsible manager, including a statement of personal information, copies of qualifications and professional accreditation certificates, and a national criminal history check and bankruptcy check (which are not more than 12 months old).

When applying for a limited AFS licence, you must nominate ‘responsible managers’ who will be directly responsible for significant day to day decisions about the ongoing provision of financial services under the limited AFS licence.  If the applicant is an individual, the individual will be a ‘responsible manager’.  If the applicant is a company or partnership they can nominate an officer/partner, employee or contractor as a ‘responsible manager’.

Generally, ‘responsible managers’ must meet ASIC’s knowledge and experience requirements by holding relevant qualifications, and having previous experience in providing the financial services for the kinds of financial products which you are seeking to be authorised to provide under your limited AFS licence.

However, if you apply for a limited AFS licence before 1 July 2016, and your responsible manager is a ‘recognised accountant’ then transitional arrangements apply.  Under the transitional arrangements, your ‘responsible managers’ will only have to meet ASIC’s knowledge (i.e. training or qualification) requirements, and will not need to demonstrate previous relevant experience.  It is important to note, that for a period of up to three years after obtaining a limited AFS licence, ASIC can request the licensee demonstrate that it has the competence to provide the financial services covered by the limited AFS licence, and knowledge of its obligations under the Corporations Act and Corporations Regulations as an AFS licensee. 

These knowledge requirements generally require the ‘responsible manager’ to demonstrate it meets relevant industry standards, holds a relevant industry or product specific qualification equivalent to a diploma or higher, or has completed a relevant university degree and a short industry course.

What obligations will apply to a limited AFS licensee?

Limited AFS licensees must comply with the conditions of their AFS licence, and the requirements of the financial services laws.

Complying with limited AFS licence conditions
The holder of a limited AFS licence must meet the conditions of the licence, including:

  • various financial conditions such as:
    • being solvent
    • having assets in excess of liabilities
    • meeting the cash needs requirements by preparing a cash flow forecast covering at least the next three months which demonstrates, based on one of the five options specified by ASIC, the licensee has sufficient resources to meet its anticipated cash flow expenses, and
    • provided the licensee does not hold any client money in connection with the provision of financial advice or other financial services, lodge an annual compliance certificate with ASIC confirming compliance with the financial conditions of its licence (which differs from licensees who hold a ‘full’ AFS licence who are required to undertake an annual audit), and lodge the audit report with ASIC.
  • if the limited AFS licence covers retails clients:
    • hold professional indemnity insurance which meets ASIC’s requirements
    • have in place an internal dispute resolution scheme to deal with complaints by retail clients, and
    • be a member of an external dispute resolution scheme which covers the financial services that the licensee is authorised to provide to retail clients, and
  • ensure its representatives, including employees, who provide advice to clients to meet ASIC’s training requirements.

Complying with the financial services laws
Limited AFS licensees must comply with the financial services laws in providing financial services.  Obligations for limited AFS licensees who provide financial services to retail clients include:

  • giving the client a financial services guide prior to providing financial services to them
  • providing the client a statement of advice when providing personal advice (such as recommending the client establish an SMSF)
  • complying with the best interests duty and related obligations (such as providing appropriate advice and giving priority to client’s interests) when giving personal advice to the client
  • not accepting, or providing, conflicted remuneration, and
  • complying with the disclosure and renewal obligations where you have an ongoing fee arrangement with a client.

How can we assist?

McCullough Robertson has assisted over 100 clients obtain, or vary, an AFS licence.  We can assist you with applying for, and obtaining, a limited AFS licence, and understand your ongoing obligations as an AFS licensee.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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