Navigating the complex world of financial regulations can be challenging for Australian businesses. Many businesses wonder whether they need an Australian Financial Services Licence (AFSL) to operate. There are different ways your business can obtain an AFSL, including renting. This article explores the licensing requirements under the Australian financial services regulatory framework for credit providers.
When Do You Need an AFSL?
In Australia, businesses providing financial services generally require an AFSL. Obtaining an AFSL demonstrates to consumers that your business meets specific competency and compliance standards.
The Corporations Act 2001 (Cth) defines a financial service as activities including:
- providing advice on a financial product;
- dealing in financial products;
- making a market for a financial product; and
- operating a managed investment scheme.
The law does not classify credit facilities themselves as financial products. Therefore, simply providing a credit facility, such as a loan, does not necessarily trigger the need for an AFSL.
Do Other Financial Regulatory Laws Apply?
Even if an AFSL is not required, credit providers may still be subject to other financial regulations. The table below provides an overview of some other financial regulatory laws that may apply.
| Other Regulations | Description |
| Australian Credit Licence (ACL) | The National Consumer Credit Protection Act 2009 (Cth) establishes a licensing regime for credit providers. An ACL is generally required if your business engages in credit activities, such as providing consumer credit contracts or consumer leases. |
| Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) | The ASIC Act has a broader application and may capture some credit-related activities even if you do not need an ACL or AFSL. For example, if your credit offering involves misleading or deceptive conduct, unconscionable conduct or unfair contract terms, you may be breaching the ASIC Act. |
| Anti-Money Laundering and Counter-Terrorism Financing Act 2007 (Cth) (AML/CTF Act) | The AML/CTF Act aims to prevent money laundering and terrorism financing. Businesses dealing with cash transactions above certain thresholds or providing designated services (such as money lending) may have AML/CTF compliance obligations. |
| Australian Prudential Regulation Authority (APRA) | APRA regulates institutions like banks, credit unions, and insurance companies. If your credit-providing activities become so substantial that you are deemed a deposit-taking institution, you may fall under APRA’s regulatory scope. |
When Should I Be on the Lookout?
The financial regulatory landscape is notorious for being difficult to navigate. Notably, each of the laws above has its own definitions of “credit”, “credit facility” or “loans”. However, you should be on the lookout if your business involves any of the following:
- providing credit for any period (with or without an agreement);
- requiring a guarantee of obligations under a credit contract;
- providing a mortgage that secures obligations under a credit contract;
- entering into a contract, arrangement or understanding under which a person’s obligation to pay debt to you is deferred; or
- providing any form of financial accommodation.
Businesses in the credit space that are likely to be covered by some financial regulatory laws are those providing:
- loans;
- hire purchase arrangements;
- credit provided for the purchase of goods or services;
- credit cards;
- invoice financing arrangements;
- working capital facilities or loans;
- credit for pawnbroking services; and
- buy-now-pay-later services.
Some Examples
Let us explore some specific scenarios to illustrate the application of these regulations.
| Business | AFSL | ACL | ASIC Act | AML/CTF Act |
| Provides short-term loans to businesses | Unlikely | Unlikely | Likely | Likely |
| Offers crypto-backed loans to consumers | Unlikely | Likely | Likely | Likely |
| Provides hire-purchase arrangements to businesses | Unlikely | Unlikely | Likely | Unlikely |
| Offers buy-now-pay-later products to consumers | Unlikely | Unlikely (until new laws override this) | Likely | Unlikely |
| Offers loans to assist customers invest in an investment scheme | Likely (due to investment scheme, not loan element) | Likely | Likely | Likely |
It is important to note that these are just examples. The specific regulatory requirements will depend on the individual circumstances of your business.
The Australian Government is changing the law to protect consumer privacy after a series of high-profile data breaches and to bring the law into line with the safer and more protective laws in other regions. This fact sheet outlines what is expected in 2024.
Key Takeaways
Understanding the legal framework surrounding credit provision is crucial for businesses. If you are unsure about your specific licensing or compliance obligations, our experienced FinTech lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to help you navigate the regulatory landscape and ensure your business operates within the financial regulatory framework. Call us today on 1300 544 755 or visit our membership page.
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