Getting (and then varying) your licence by alendar


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									                                                              7. have been issued a stop order from
   Getting (and then varying)                                    ASIC for operating an unlicensed
                                                                 financial services business; or
   your licence                                               8. advise in property investment but
   Did you know that if you laid out every                       want an AFSL for good “marketing”.
   FSR-related Corporations Act and
   Regulations amendment, ASIC Regulatory                 Can you relate to any of these? After
   Guide, Class Order, Information Release,               discussing the pros and cons of obtaining a
   FS Form, Licensing Kit, Guide, Refinement              licence, including the threshold issues
   Proposal and Information Statement, you                required (see step 1 in diagram), we find
   would have a paper-trail long enough to                that about two thirds of inquirers don’t
   reach the moon and back five times?                    proceed immediately. They either seek an
                                                          alternative to obtaining their licence (eg.
   I can’t substantiate that claim, but I don’t           become an authorised representative),
   think I’m far off. Regardless, I know first-           complete further training, or try to find
   hand that advisers hesitate before getting             someone who would be more likely to meet
   or varying an Australian Financial Services            the organisational competency
   Licence (AFSL). Information overload,                  requirements. “Organisational competency”
   combined with potentially increased legal              refers to the skills and qualifications of your
   risk and uncertainty makes obtaining (and              proposed responsible mangers, and really
   varying) an AFSL seem daunting.                        means “Responsible Managers
                                                          competency”. Responsible managers are
   Drawing from our experience in                         the people who are appointed as being
   successfully obtaining numerous AFSLs                  responsible for overseeing the provision of
   and AFSL-variations, this article attempts             the organisation’s financial services. This
   to provide you with some practical tips to             will be discussed in more detail throughout
   help you understand and navigate your                  this article.
   way through the quagmire of FSR. I’ve
   tried not to just regurgitate ASIC guidelines          Pros
   (which can be found on,               The advantages of holding an AFSL are
   but to offer useful tips and suggestions.              more obvious than the disadvantages. You
                                                          are your own boss. You have a licence
   Getting your licence                                   that sets out exactly the ambit of your
                                                          business’ authority. You can authorise
   Why get your own licence?                              others (usually for a fee) to come under
   We receive lots of different reasons from              your banner. You can apply to vary your
   potential applicants who:                              licence to include any type of financial
      1. are unhappy paying licensee fees                 service that is listed under the Corporations
          for the privilege of being authorised;          Act and Regulations, as long as you can
      2. although running their own                       show organisational competency. You can
          corporate authorised                            operate your business anywhere in
          representative, want to be “their               Australia, and be “ready for anything” if you
          own boss” in a more true sense;                 want to apply for licenses in other
      3. are tax or business specialists, who             countries, such as Singapore, the UK and
          sit on the fringes of FSR and have              the US. You’ll also be on the front foot to
          some big deals that they want to get            tackle the money laundering legislation
          involved in, but know that an AFSL              procedures which will apply to most
          would be needed;                                licensees, because there’s slight overlap
      4. want to set up a new dealer group;               between the requirements of the proposed
      5. want to set up in competition with               legislation and FSR.
          their authorising licensee (subject to
          any restraint of trade, of course);             Cons
      6. are multi-national companies                     The cost of compliance is the main barrier
          wanting to set up in Australia;                 to entering the land of the AFSL. If

Address: Level 1, 224 Queen Street        Phone: (03) 9670 8200                Email:
Melbourne VIC 3000                        Fax: (03) 9670 5499                  Web:
Mail: GPO Box 3045 Melbourne VIC 3001
Holley Nethercote Commercial Lawyers                                                         2

outsourced, the cost of obtaining a licence         assessment, after you’ve spent time
can easily exceed $10,000.00. The                   and money getting to that stage. In any
ongoing costs are much higher. Annual               application, ASIC will make its own
compliance reviews (usually around $5,000           assessment as to: whether you actually
- $25,000), adviser reviews, annual                 need the licence for what you propose
financial audits (usually around $10,000),          to do; whether you’re asking for the
monitoring, supervising and training                right authorisations; whether you or
representatives (including authorised               other proposed Responsible Managers
representatives), external dispute                  have the competency required; and
resolution scheme membership, legal                 whether there are any other issues that
costs, insurance costs and minimum funds            merit further questioning. Also, ASIC
requirements are factors that must be               has in-house lawyers who might review
considered by potential licensees. Some of          your submissions, depending on the
the obligations listed above are waived if          authorisations you’re choosing.
you’re only applying to provide financial
services to wholesale clients, and others        2. Consider the cost: What is your time
are waived if you don’t provide financial           worth to you? You’ll have to balance
advice.                                             the cost of outsourcing the application
                                                    or doing it yourself. If you outsource it,
Uncertainty about whether you will even             you’ll still be quite involved in the
succeed in your application to obtain a             process. If you do it yourself, you’ll
licence is another consideration, as some           need to create everything from scratch.
aspects of assessment by ASIC are                   Your business procedures will need to
subjective. However, uncertainty can be             meet the requirements of your
minimised by dealing carefully with the             proposed licence conditions, the
threshold issues (see step 1 of the                 Corporations Act and Regulations,
diagram). The biggest threshold issue is            ASIC’s RG 104 and RG 105 and about
organisational competency. Organisational           half a dozen other regulatory guides,
competency is only a disadvantage if you            although this varies if you’re only going
don’t have someone in your organisation             to have wholesale clients. Some
who meets one of the 5 alternatives in RG           potential applicants, when they’re faced
105. For example, is there someone with             with the costs, decide that it isn’t viable
at least 3 years experience in overseeing           to proceed as planned, and look at their
the provision of (or providing) the exact           other alternatives (eg. remaining an
financial services that you’re applying for,        authorised representative). This is
plus a directly relevant degree, plus a             particularly the case with 1 or 2-person
relevant ASIC-registered relevant short             businesses.
course? See RG 105 for your other
options.                                         3. Prepare the documentation: There
                                                    are three categories of documentation:
If ASIC decides to reject your application, it      (a) the online form; (b) supporting
then goes to a delegate and you get to              proofs; and (3) underlying procedures.
attend an informal hearing to put your case         ASIC’s Licensing Kit walks you through
before it’s formally denied.                        the questions in the online form (but is
                                                    a bit sketchy). The supporting proofs
                                                    include a business description, a
The process (see diagram)                           description of your financial resources
The process of getting your AFSL can be             and a description of your proposed
explained as a 7 step process:                      Responsible Managers. After they’re
                                                    submitted to ASIC (see step 5), ASIC
1. Clarify threshold issues: The                    may ask for more proofs (up to 12
   threshold issues, discussed above,               more). If you’re preparing the
   must be clarified before you proceed. If         application yourself, make sure you
   you don’t do this initially, ASIC will ask       follow the requirements of ASIC’s kit to
   you to clarify these issues during               the letter. We would suggest adopting
Holley Nethercote Commercial Lawyers                                                           3

   their requirements as headings, and          The disadvantage of varying your licence is
   going from there.                            that it is very similar to, and almost as
                                                onerous as, applying for a new licence.
4. Finalise the issues that require             However, you won’t be required to provide
   external input: We’ve had applications       as many supporting documents as with the
   being held up for months because             original application.
   accountants, insurers or banks have
   been slow in getting the required            You’ll still need to go through the seven
   documentation into our hands, for            steps outlined above. In particular, you’ll
   submission to ASIC. If you’re aware of       most likely need to appoint another
   the possibility, take action early.          Responsible Manager who has the
                                                requisite competence to oversee the
5. Submit the application: The online           provision of the new financial services that
   application is submitted electronically      you’re planning to do.
   (no surprises there). The proofs must
   be sent in to ASIC within 20 business        Don’t be caught out! Some licensees treat
   days of submitting the online                a variation with contempt and don’t devote
   application. We usually do it all on the     adequate resources or attention to the
   same day.                                    detail associated with the variation. This
                                                can lead to a number of problems,
6. Liaise with ASIC: If you’re applying for     including the rejection of the application, at
   a miscellaneous financial product            great cost to the licensee.
   authorisation, be prepared for a very
   long wait (sometimes months) before
   getting a response from ASIC. If not,        Top ten tips
   you’ve got plenty of directly relevant
                                                   1. Organisational competency will
   experience and have prepared
                                                      make or break your application.
   thoroughly, the assessment stage could
                                                   2. Get good legal advice on the need
   take as little as two weeks until
                                                      for a licence, and what types of
   completion. ASIC’s response time will
                                                      authorisations you’ll need.
   also be longer if you have a complex or
                                                   3. It may be possible to get a licence
   unusual business model.
                                                      even if you’ve been a little bit
7. AFSL obtained: ASIC will give you a
                                                   4. Financial proof documentation
   draft licence. If you’re happy with it, it
                                                      takes forever to prepare.
   will issue you a final licence. Be aware
                                                   5. If you have overseas experience
   that if you’re issued an AFSL in May or
                                                      and you’re applying to be a
   June, you’ll still be required to have a
                                                      Responsible Manager, make sure
   proper financial audit done of your
                                                      you can show knowledge of the
   business (because it is a requirement
                                                      Australian regulatory environment
   that you have this done each financial
                                                      (this might require you doing a short
   year that you hold your licence – even if
   it’s only a couple of weeks until 30
                                                   6. Decide whether or not to outsource
   June). This assumes your financial
                                                      the application or variation early! If
   year ends on 30 June.
                                                      you don’t have time to do it
                                                      properly, outsource it.
                                                   7. Balance up the ongoing costs
Varying                                               before proceeding – is it worth it?
Licensees often want to vary their licenses        8. Give yourself plenty of time to get
to branch out into other sectors of the               your licence.
financial services market. One advantage           9. Have one or two backup
of holding an AFSL is that you don’t need             Responsible Managers, in the event
to apply for another one – you just add to            that ASIC doesn’t think your
the one you have.                                     number one applicant/s is/are
Holley Nethercote Commercial Lawyers                                                      4

       competent under RG 105 during          Often it’s a combination of many of these
       assessment.                            factors. I hope, however, that after reading
   10. Don’t cut corners!                     this article, you’ll be able to make an
                                              educated assessment about whether you’d
                                              like to go ahead with that application or
What not to do                                variation.
People often come to us after
                                              When you’ve made that decision, good
unsuccessfully obtaining or varying their
licence themselves. Common mistakes
    • assuming that their many years of       The law is current as at November 2007.
        experience will satisfy ASIC’s
        organisational competency             Please note that this paper is a summary of
        requirements as set out in RG 105;    the law only and is not a substitute for legal
                                              advice. Holley Nethercote is able to assist
    • ignoring ASIC’s Licensing Kit;
                                              companies in meeting their obligations in
    • thinking “close enough is good
                                              this area by providing practical and prompt
                                              legal advice. Licensing, training and
    • providing insufficient information      creation of compliance programs are also
        describing their business;
                                              available via an associated business,
    • submitting too few “Responsible         Compact- Compliance and Corporate
        Managers” for complex business        Training – www.compliance-
    • providing unlicensed financial
        services in any shape or form; and    We invite you to contact us:
    • not ascertaining the correct types of   Telephone: (03) 9670 8200
        authorisations for their proposed     Facsimile: (03) 9870 3640
        business model.                       Email:
                   Address: Level 1, 224 Queen Street                  Phone: (03) 9670 8200                    Email:
                   Melbourne VIC 3000 224 Queen Street
                      Address: Level 1,                                Fax: (03) 9670 5499 8200
                                                                          Phone: (03) 9670                      Web:
                   Mail: GPO Box 3045 Melbourne VIC 3001
                      Melbourne VIC 3000 224 Queen Street                 Fax: (03) 9670 5499 8200                Web:
                          Address: Level 1,                                   Phone: (03) 9670                      Email:
                      Mail: GPO Box 3045 Melbourne VIC 3001
                          Melbourne VIC 3000 224 Queen Street                 Fax: (03) 9670 5499 8200              Web:
                             Address: Level 1,                                   Phone: (03) 9670                      Email:
                          Mail: GPO Box 3045 Melbourne VIC 3001
                             Melbourne VIC 3000 224 Queen Street                 Fax: (03) 9670 5499 8200               Web:
                                 Address: Level 1,                                   Phone: (03) 9670                     Email:
                             Mail: GPO Box 3045 Melbourne VIC 3001
                                 Melbourne VIC 3000 224 Queen Street                 Fax: (03) 9670 5499 8200             Web:
                                    Address: Level 1,                                   Phone: (03) 9670                     Email:
                                 Mail: GPO Box 3045 Melbourne VIC 3001
                                    Melbourne VIC 3000                                  Fax: (03) 9670 5499                   Web:
                                   Mail: GPO Box 3045 Melbourne VIC 3001

Address: Level 1, 224 Queen Street Melbourne VIC 3000                      Phone: (03) 9670 8200                                     Email:
Mail: GPO Box 3045 Melbourne VIC 3001                                      Fax: (03) 9670 5499                                       Web:

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