Can a Business Provide Financial Services Without an AFSL?

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Table of Contents

• What are Financial Services? 
• Ways to Provide Financial Services Without an AFSL
• Key Takeaways

Any business wanting to provide financial services in Australia must obtain an Australian Financial Service Licence (AFSL). However, there are narrow circumstances where a business that engages in financial services is exempt from holding an AFSL. This article discusses four circumstances where a person providing financial services does not need an AFSL. 

What are Financial Services? 

You provide a financial service if your business provides services that include selling, dealing with or providing financial advice in connection with financial products. For example, this might look like:

• recommending people to invest and acquire a particular financial product;
• making a market for a financial product; and 
• providing certain services, like crowdfunding, superannuation trustee, and insurance services.

Financial products can be instruments issued by financial institutions (e.g. banks), which a person acquires for several reasons. Reasons can include to:

• make a financial investment; 
• manage financial risks; 
• borrow money; and 
• save money. 

Ways to Provide Financial Services Without an AFSL

1. Be an Authorised Representative of an AFS Licensee

An authorised representative of an AFS licensee does not need its own AFSL. Instead, it can rely on the principal’s AFSL to provide financial services. However, a person must refrain from using the exemption to avoid obtaining an AFSL. Likewise, the exemption only applies where the unlicensed business acts as a representative of the AFS licensee and does not engage in certain actions, such as issuing or disposing of financial products. Only a principal can exercise these kinds of activities.

The principal should also understand that it has the legal obligation to monitor and supervise the authorised representative. It must ensure the latter only provides the services it is authorised to and otherwise stays compliant with its legal obligations. Legal obligations of an authorised representative include:

• additional product disclosure obligations when dealing with financial products that are securities; 
• refraining from engaging in market misconduct and other prohibited conducts; and
• complying with specific consumer protection laws, including not engaging in misleading and deceptive conduct. 

2. Foreign Businesses Providing Financial Services

A foreign business that offers financial services in Australia may not need its own AFSL where:

• the financial services are targeted at wholesale clients; and 
• the Australian Securities and Investment Commission decides that foreign law that regulates the foreign business is ‘substantially equivalent’ to Australian law. 

These exemptions are currently available to foreign businesses regulated by certain regulators in certain countries like the US, Singapore, Hong Kong, Germany, and the UK. However, this exemption is likely to transition from 31 March 2023, where foreign businesses wanting to provide financial services to wholesale clients in Australia must apply for a ‘foreign AFSL.’

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3. Run a Financial Counselling Agency

If you are a financial counselling agency, you are generally exempt from needing an AFSL. A financial counselling agency provides counselling or advocacy service to assist individuals or small businesses in financial difficulty. To be exempt, a financial counselling agency must:

• not charge a client for its services;
• ensure any persons within the agency that gives financial counselling are members of or are eligible to be members of a financial counselling association; 
• ensure those counsellors receive adequate training before they engage with the client; and 
• not be providing any other financial services outside of the counselling. 

4. A Business That Acts as a Supplier of Technology

Generally, an AFSL is not required for certain activities if the sole purpose of that activity does not involve providing a financial service business. Therefore, any business that does not directly offer financial services to customers but provides technology-based services to another financial service business may not need an AFSL. 

Whether the business requires an AFSL will depend on the specific services they offer and its agreement with the financial service business. 

Key Takeaways

Any business that provides financial services in Australia must hold an AFSL. However, in certain limited circumstances, a business engaging in financial services may not be required to hold an AFSL. This includes where the business is an authorised representative of an entity that holds an AFSL, the business is a foreign business regulated by foreign law substantially similar to Australian law, the business is a financial counselling agency or a business that acts as a supplier of technology.