Australian financial services licence (AFSL)
A person who carries on a financial services business in Australia must hold an AFSL or otherwise be exempt from the requirement to be licensed.
The Corporations Act 2001 (Cth) (Corporations Act), which is administered by ASIC, provides that a financial services business is taken to be carried on in Australia where, in the course of carrying on a business, a person engages in conduct that is intended to, or likely to, induce people in Australia to use the financial services they provide, whether or not the conduct is intended.
Broadly, financial services include providing financial product advice, dealing in financial products (as principal or agent), making a market for financial products, operating registered schemes, providing custodial or depository services, traditional trustee company services, or crowdfunding services.
A financial product is a facility through which, or through the acquisition of which, a person makes a financial investment, manages financial risk or makes non-cash payments. Examples of financial products include securities (eg, shares and debentures), interests in managed investment schemes (eg, units in a widely held unit trust), payment products (eg, deposit products and non-cash payment facilities), derivatives, superannuation interests, margin lending facilities and foreign exchange contracts.
The definitions of financial products and services under the Corporations Act are very broad and will often capture investment and advisory activities, wealth management products and services, market making, financial markets and crowdfunding services. Effecting or arranging dealings in financial products (as principal or agent) may also trigger the requirement to hold an AFSL if such activities are conducted in the course of carrying on a financial services business in Australia.
A financial services provider must be granted an AFSL by ASIC prior to providing financial services in Australia. AFSLs are granted after a detailed assessment by ASIC of the provider’s business in relation to the financial services it intends to provide, its ability to meet financial and organisational competence requirements and its overall ability to comply with financial services laws.
Australian credit licence (ACL)
The ACL regime applies to persons who engage in consumer credit activities in Australia, such as providing credit under a credit contract or consumer lease. Any person engaging in consumer credit activities must hold an ACL, or otherwise be exempt from the requirement to hold an ACL. Consumer credit activity is regulated by ASIC under the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) and associated regulations.
The credit licensing process involves ASIC assessing the types of credit activities proposed to be engaged in under the licence, the ability to comply with National Credit Act obligations and representatives of the licensee for the purpose of it conducting credit activities.
An entity that conducts any ‘banking business’ such as taking deposits (other than as part-payment for identified goods or services) or making advances of money must be authorised as an ADI. APRA is responsible for the authorisation process and granting of ADI licences (as well as ongoing prudential supervision). Recently, APRA released the Restricted ADI framework, which is designed to assist new businesses to enter the banking industry. Eligible entities can seek a Restricted ADI licence, allowing them to conduct a limited range of business activities for two years while they build their capabilities and resources. After such time, they must either transition to a full ADI licence or exit the industry.
Australian market licence (AML)
Financial services providers may also need to hold an AML where they operate a facility through which offers to buy and sell financial products are regularly made and accepted (eg, an exchange). ASIC will only grant an exemption from the requirement to hold an AML if they consider the regulatory outcomes of market licensing are not relevant to the market venue, can be achieved without regulation under the AML regime or impose costs that significantly outweigh the benefits of those outcomes.
There is currently a two-tier licence system in place in relation to financial markets:
- Tier 1 is designed to facilitate oversight of traditional market models and significant non-exchanges. These include market venues that are, or are expected to become, significant to the Australian economy or to the efficiency, integrity and investor confidence in the financial system.
- Tier 2 applies to most other licensed market venues. This second tier of licences is specifically targeted at specialised and emerging market venues, and designed to facilitate reduced regulatory oversight and a reduced regulatory burden for lower risk financial markets.
Clearing and settlement (CS) facility
A person who operates a facility that clears and settles transactions in financial products will require a CS facility licence or be exempt from holding one. Both ASIC and the RBA are responsible for the supervision of operators of CS facilities and their participants.
Registerable superannuation entity (RSE) licence
Under the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), if an entity intends to operate as an RSE, they must hold an RSE licence issued by APRA. RSEs do not include exempt public sector superannuation schemes or self-managed superannuation funds regulated by the Australian Taxation Office. There are four classes of RSE licence: public offer entity licence, non-public offer entity licence, extended public offer entity licence and acting trustee licence.
RSE licensees must comply with a number of ongoing non-exhaustive requirements under the SIS Act. These obligations include complying with the RSE licensing obligations, notifying APRA of any significant breaches, or likely breaches, of a prudential requirement within 10 days of becoming aware of the breach, and registering each superannuation entity for which it intends to be an RSE licensee. APRA may cancel an RSE licence if it has reason to believe the licensee will breach a licence condition.
General insurance licence
Under the Insurance Act 1973 (Cth) (Insurance Act), it is an offence for an entity to conduct insurance business in Australia without obtaining a general insurance licence from APRA. The Insurance Act defines ‘insurance business’ as the business of undertaking liability by way of insurance (including reinsurance) in respect of any loss or damage. The liability is contingent upon the occurrence of a specified event, and any business incidental to insurance business.
The Insurance Act only allows corporations or underwriters to carry out insurance business in Australia, which means APRA will not consider applications from partnerships or unincorporated entities. Additionally, certain insurance business activities do not come within the definition of ‘insurance business’, such as life insurance, health insurance or the provisions of benefits for funeral services.
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