Do I Need an AFSL? Demystifying the AFSL Process

Nothing conjures up a sense of mystery and bewilderment like the AFS Licence – in terms of when one is needed and if needed, how one is obtained. Admittedly this topic does lend itself to one of the more complex areas of corporation law and has been on the ASIC radar for a while so people need to get it right.

As a rule of thumb, most who feel their business activities may be encroaching into an area which may require an AFS Licence usually ends up requiring one.

Some broad guidelines follow.

Do I need an AFSL?

An entity is required to hold an AFS Licence if the entity carries on a business involving the provision of a financial service and/or a financial product.

Financial services include:

• Providing financial product advice (personal and/or general)
• Dealing in financial products (includes issuing and/or arranging);
• Making a market in financial products;
• Operating a registered scheme;
• Providing a custodial or depository service.

Financial product is an instrument used to:

• Make a financial investment;
• Manages financial risk; and / or
• Make  non-cash payments.

Types of financial products include:

• Derivatives
• Foreign exchange
• Securities
• Government bonds
• Superannuation
• Basic deposit products

As one would expect with the law, most of these terms then trail off into their own specific definitions and variations.

In addition to all the above,  there is also a distinction between ‘dealing’ or ‘arranging’  and a distinction between offering services to retail customers as opposed to offering services to sophisticated / institutional customers.

Naturally, exemptions also apply for certain activities. It is also possible to become what is called an ‘authorised representative’ for others who already have an AFS Licence. There is even case law in the area.

The simplest way to understand this is to consider the AFS License requirements as a large matrix of options with sub sets of other options – I see it as a mind map so to speak. Then one must consider what activities they wishes to engage in with regards to financial products or financial services. The process then involves matching prospective client activities with the AFS Licence matrix in order to ensure the client ends up with the ‘authorities’ that permit them to undertake their business activities.

Ongoing compliance requirements must also be considered. This may involve a range of ongoing initiatives such as training, governance, reporting, conflict resolution, etc.

Using the word ‘demystifying’ in the heading of this blog is at worst, slightly misleading and at best, ambitious. In my opinion providing financial products or services with the intention of helping others build wealth must be extremely rewarding so if this is your intent, it is worth considering.

In reality, there is no area of service where we at The Financial Writing Company call upon our friends the lawyers to ensure our clients are guided through the AFS Licence process carefully. We do this to ensure their business activities are covered by the appropriate authorities but also every bit of information going to ASIC with the application remains ‘on record’ for the remainder of the client’s life. What is offered should only be what is needed.

We welcome contact from anyone looking at obtaining an AFS Licence for a no obligation chat.

For assistance please contact The Financial Writing Company 1300 477210.