Limited AFS licensees: Complying with your licensing obligations
As a limited Australian financial services (AFS) licensee, you must comply with a number of ongoing licensing obligations. This information sheet (INFO 229) sets out the licensing obligations that apply to a limited AFS licensee.
- General licensing obligations
- Stay within scope of your limited AFS licence authorisations
- Training, education and ethics
- Financial advisers register
- Dispute resolution
- Compensation and insurance arrangements
- Breach reporting
- Financial requirements
- Ongoing financial reporting
- Advertising financial services
As a limited AFS licensee, you must comply with most of the same general licensing obligations as other AFS licensees. The only exceptions are the transitional competence requirements that apply for some limited AFS licensees and the exemption from the obligation to lodge audited accounts explained below: see ongoing financial reporting.
The general obligations included in the list below are set out in section 912A(1) of the Corporations Act 2001 (Corporations Act) and require you to:
- do all things necessary to ensure that the financial services covered by your limited AFS licence are provided efficiently, honestly and fairly (see section 912A(1)(a))
- have adequate arrangements in place for managing conflicts of interest (see section 912A(1)(aa))
- comply with the conditions on your limited AFS licence (see section 912A(1)(b))
- comply with the financial services laws (this includes all of the laws summarised in this information sheet, among others) (see section 912A(1)(c))
- take reasonable steps to ensure that your representatives comply with the financial services laws (see section 912A(1)(ca))
- have adequate financial, technological and human resources to provide the financial services covered by your limited AFS licence and to carry out supervisory arrangements (see section 912A(1)(d))
- ensure that your representatives are adequately trained and competent to provide the financial services covered by your limited AFS licence (see section 912A(1)(f))
- have a dispute resolution system if you provide financial services to retail clients (see section 912A(1)(g))
- establish and maintain adequate risk management systems (see section 912A(1)(h))
- meet the knowledge and competence standards set out in Table 1 below (see section 912A(1)(e)).
While you would have demonstrated that you are able to comply with these obligations when you applied for your limited AFS licence, you must also ensure that you comply with them on an ongoing basis.
Table 1: Knowledge and competence standards for limited AFS licensees
Type of limited AFS licensee
You applied for a limited AFS licence between 1 July 2013 and 30 June 2016 and you are:
You applied for a limited AFS licence after 30 June 2016
You must maintain the competence to provide the financial services covered by your licence from the time your limited AFS licence is granted: see section 912A(1)(e).
For a description of what we look for when we assess compliance with the general licensing obligations, see Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104).
It is your responsibility to ensure that you only provide those financial services that are within the scope of your limited AFS licence.
The scope of your limited AFS licence depends on the type of:
- financial services you may provide (e.g. financial product advice on specific products versus class of product advice, and personal advice versus general advice)
- financial product(s) for which you may provide the financial service (e.g. self-managed superannuation funds (SMSFs), life insurance or simple managed investment schemes)
- clients you may provide those services to (i.e. retail or wholesale clients).
See Information Sheet 227 What can limited AFS licensees do? (INFO 227) for more detailed guidance on the scope and possible authorisations under a limited AFS licence.
You can refer your clients to other AFS licensees who are authorised to provide broader kinds of advice that you may be unable to give. In this case, you should take all of the following steps (see regulations 7.6.01(e)–(ea) of the Corporations Regulations 2001):
- let your client know that the AFS licensee or representative can provide the type of financial service or services they require
- give your client the contact details of the AFS licensee or representative (rather than arranging for contact to occur yourself)
- unless the AFS licensee or representative is related to you (e.g. it is a related company or you are its representative), disclose any benefits or commissions that you or your associates might receive as a result of the referral or any subsequent services provided to the client.
Information Sheet 216 AFS licensing requirements for accountants who provide SMSF services (INFO 216) explains in more detail how you can refer clients to other AFS licensees.
The Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 commenced on 15 March 2017. It introduced several measures in the Corporations Act to raise the education, training and ethical standards of financial advisers.
As part of these reforms, professional standards now apply to financial advisers (relevant providers) who provide personal advice on relevant financial products to retail clients. See Professional standards for financial advisers for more information.
In the case of a limited AFS licensee, these products are superannuation (including SMSFs), securities, simple managed investment schemes and life insurance.
The timeline for limited AFS licensees and financial advisers to comply with the professional standards is set in the Corporations Act. See Timeline for the reforms for more information.
You must ensure that all individuals who give personal advice to retail clients on relevant financial products under your limited AFS licence meet the training and competence requirements that are set out in these standards.
If you are an individual who holds a limited AFS licence and you provide personal advice to retail clients on relevant financial products, you must also meet the training and competence requirements set out in these standards.
Ensuring these standards are met will help you comply with your general licensing obligations to:
- maintain the competence to provide the financial services covered by your licence, and
- ensure that your financial advisers are adequately trained and competent to provide those financial services.
Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146) will continue to apply to existing providers until the new requirements apply.
The Financial Advisers Register is a public record of financial advisers who provide personal advice on complex financial products to consumers.
For a financial adviser authorised under a limited AFS licensee, these products are superannuation (including SMSFs), securities, simple managed investment schemes and life insurance.
The Financial Advisers Register contains details about each financial adviser, including work history, qualifications, training, and what products they can advise on. While ASIC manages the Financial Advisers Register, it is each limited AFS licensee’s obligation to add and update information on the Register.
You must ensure that all financial advisers under your limited AFS licence are on the Register within 30 business days of being authorised. If you are an individual who holds a limited AFS licence and you provide personal advice to retail clients on relevant financial products, you must also add yourself to the Register.
For detailed information about the Register, including how to appoint a financial adviser to your limited AFS licence and update the Register, see Financial Advisers Register.
Additional information required from 15 November 2019
To comply with the professional standards for financial advisers, limited AFS licensees must provide additional information for financial advisers they appoint to the Financial Advisers Register from 15 November 2019. For more details and compliance dates, see Timeline for the reforms.
If you provide financial services to retail clients, you must have a dispute resolution system in place that consists of:
- internal dispute resolution (IDR) procedures that meet certain prescribed standards
- membership of the Australian Financial Complaints Authority (AFCA) (see subsections 912A(1)(g) and 912A(2)).
If these requirements apply, you would have had to certify that your IDR procedures comply with ASIC’s requirements and that you are a member of AFCA when you applied for your limited AFS licence. All licensees were either required to notify ASIC of their AFCA membership details by 30 November 2018 or to provide the details with their application.
Your IDR procedures and AFCA membership must be maintained on an ongoing basis.
If you provide financial services to retail clients, you must have arrangements in place to compensate those clients for any losses they suffer as a result of you or your representatives breaching the obligations in Chapter 7 of the Corporations Act. Generally, these compensation arrangements will take the form of professional indemnity (PI) insurance.
When you applied for your limited AFS licence, you would have confirmed that you had adequate PI insurance or a process to ensure that you would have that insurance by the time your limited AFS licence took effect. You must ensure that you maintain this PI insurance on an ongoing basis.
For more information on our expectations regarding compensation and insurance arrangements, see Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126).
As a limited AFS licensee, you must notify us in writing of any ‘significant’ breach (or likely breach) of:
- your general licensing obligations (see section 912A)
- the requirements regarding compensation and insurance arrangements (see section 912B)
- the financial services laws (this includes all of the obligations summarised in this information sheet, among others) (see section 912D).
You must notify us in writing as soon as practicable (and within 10 business days of becoming aware of the breach or likely breach). You should lodge your breach report with us via our Regulatory Portal at https://regulatoryportal.asic.gov.au/.
For more information on your obligations to report breaches, including guidance on which types of breaches must be reported and how to assess whether a breach is ‘significant’, see Regulatory Guide 78 Breach reporting by AFS licensees (RG 78).
As a limited AFS licensee, we impose financial requirements on you to ensure that:
- you have sufficient financial resources to conduct your financial services business in compliance with the Corporations Act (including carrying out supervisory arrangements)
- there is a financial buffer that decreases the risk of a disorderly or non-compliant wind-up if the business fails
- there are incentives for your owners to comply through risk of financial loss.
Assuming you do not hold client money or property and do not transact with your clients as principal, you will need to meet the ‘base level financial requirements’ set out in Regulatory Guide 166 Licensing: Financial requirements (RG 166). This means that you must:
- be solvent at all times
- have sufficient resources to meet your anticipated cash flow expenses.
For more information on these financial requirements, see RG 166.
As a limited AFS licensee, your ongoing financial reporting obligations depend on whether you handle client money in connection with financial product advice or services, as illustrated in Table 3 below.
Table 3: Ongoing financial reporting requirements
If you do not handle any client money
If you do handle client money
You must not make false or misleading statements or engage in misleading or deceptive conduct when offering or providing your financial services. For example, any advertisements for your financial advice services (including your website) should not create unrealistic expectations about what the service can achieve.
For more information on how we expect you to comply with your legal obligations when promoting your financial services, see Regulatory Guide 234 Advertising financial products and advice services (including credit): Good practice guidance (RG 234).
Where can I get more information?
- Limited AFS licensees – check whether you are a limited AFS licensee or a representative of a limited AFS licensee
- RG 78 Breach reporting by AFS licensees
- RG 104 Licensing: Meeting the general obligations
- RG 126 Compensation and insurance arrangements for AFS licensees
- RG 146 Licensing: Training of financial product advisers
- RG 165 Licensing: Internal and external dispute resolution
- RG 166 Licensing: Financial requirements
- RG 175 Licensing: Financial product advisers—Conduct and disclosure
- RG 234 Advertising financial products and advice services (including credit): Good practice guidance
- INFO 205 Advice on self-managed superannuation funds: Disclosure of risks
- INFO 206 Advice on self-managed superannuation funds: Disclosure of costs
- INFO 216 AFS licensing requirements for accountants who provide SMSF services
- INFO 227 What can limited AFS licensees do?, which explains the scope of the activities you can carry out under your limited AFS licence
- INFO 228 Limited AFS licensees: Advice conduct and disclosure obligations, which explains what you need to do when you provide advice to retail clients (especially advice about SMSFs)
- Limited AFS licensees: Quick guide – download a ‘quick guide’, which highlights some of the main obligations that apply when giving advice to retail clients under a limited AFS licence
Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice.
You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.
This is Information Sheet 229 (INFO 229), reissued in March 2020. Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.