Five Things to Consider Before Applying for an AFSL

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Table of Contents

• What Counts as a Financial Service?
• Five Considerations When Applying for an AFSL Application
• Key Takeaways
• Frequently Asked Questions 

The law requires businesses providing certain financial services in Australia to obtain an Australian Financial Services Licence (AFSL). This article outlines five things you should consider before applying for an AFSL. These are:

• the role of the Australian Securities and Investment Commission (ASIC);
• the application process for an AFSL;
• the general obligations of an AFSL holder; 
• the penalties for not having an AFSL and engaging in financial services; and
• exceptions to requiring an AFSL. 

What Counts as a Financial Service?

The law broadly defines financial services, capturing several services that involve finance and financial products, including:

• providing financial advice;
• activities like issuing or distributing financial products;
• establishing a market for a financial product; 
• providing crowdfunding services; and
• providing superannuation trustee service.

You should check whether your specific business type classifies as financial services. There are some businesses that may face certain exceptions, such as if you are a credit provider.

Five Considerations When Applying for an AFSL Application

1. The Role of ASIC

ASIC is an Australian regulator that regulates all AFSL holders.

ASIC assesses your suitability when applying for an AFSL. It will grant you an AFSL if it is satisfied that you will not breach certain obligations and conditions. 

Even after an AFSL is granted, ASIC retains the power to cancel or suspend the AFSL or impose additional conditions on the AFSL if it deems such action to be necessary. This includes if the AFSL holder breaches any obligations or conditions of the AFSL. To this extent, ASIC may complete audits on the AFSL holder’s business. Accordingly, if an AFSL holder thinks it has or will likely breach an obligation or condition of the AFSL, it should inform ASIC immediately.

2. Applying for an AFSL

An AFSL application is usually completed online using ASIC’s e-Licensing system. The information in the application must be accurate and complete. You should provide any supporting documents promptly after submitting the initial application. If the application is incomplete, ASIC may refuse the application or request additional information. 

ASIC will consider whether you: 

• are competent to carry out the proposed financial service business;
• have the necessary financial resources; and 
• meet the other obligations associated with the AFSL. 

These other obligations include: 

• training any representatives or employees; 
• having adequate insurance policies in place; and
• setting up a dispute resolution mechanism to deal with any disputes. 

A successful application will show that the applicant can comply with the conditions and obligations associated with an AFSL.

3. Obligations of an AFSL Holder

If you obtain an AFSL, you must always remain compliant with any conditions under your AFSL. In addition, you must comply with the general obligation of an AFSL holder prescribed by law, including:

• providing financial services efficiently, honestly, and fairly; 
• managing conflicts of interest arising from the financial services effectively and adequately; 
• complying with all the conditions on the licence and with any relevant financial services law; and 
• maintaining the competence to provide those financial services and ensuring all representatives and employees are adequately trained. 

An AFSL holder must also monitor the representatives’ and employees’ competency to offer financial services. 

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4. Penalty 

There are civil and criminal penalties for not complying with the conditions and obligations under or associated with an AFSL. The law distinguishes between the types of breaches that will result in civil or criminal penalties. The penalty also varies depending on whether the AFSL holder is an individual or a company. 

For example, suppose you are an individual in breach of an obligation under the AFSL. Where the breach is subject to a civil penalty, you may be liable to pay fines:

• up to $1.1 million (from 1 July 2020); 
• three times the benefit you have obtained; or
• or the detriment avoided from the breach. 

In the case of companies in breach of an obligation liable to a civil penalty, you may be liable to pay fines up to:

• $11.1 million (from 1 July 2020);
• three times the benefit obtained or detriment avoided from the breach; or
• 10% of the annual turnover for the 12-month period ending at the end of the month when the breach occurred or began. However, the fine may not exceed $55.5 million of the annual income. 

5. Exceptions

Perhaps the most crucial consideration is whether you must hold an AFSL for your financial service business. Even though it may appear as you do, a competent lawyer can advise whether you need one. For instance, if you represent a person who holds an AFSL, you may be covered under that AFSL, and you may not need a separate licence. There are also other exceptions.  

Key Takeaways

Any person wanting to engage in any business connected to financial services may need an Australian Financial Service Licence or an AFSL. However, before making an application, you should consider how ASIC will regulate you, the application process, the general obligations of an AFSL holder, the penalties of not having an AFSL and if you are exempted from needing an AFSL. 

Frequently Asked Questions