Frequently Asked Questions
Answer:
In short, ASIC will disregard any overseas experience, as the definition of experienced provider does not allow for it.
Experienced provider is defined in section 1684 of the Corporations Act 2001 as:
(a) An individual
(b) On a day within the period 1 Jan 2007 and 31 December 2021, the person was:
(i) A Financial Services Licensee
(ii) An authorised representative of a financial services licensee
(iii) Employee or director of a financial services licensee; or
(iv) Employee of director of a related body corporate of a financial services licensee.
(c) On that day, the person was authorised to provide personal advice to retail clients in relation to relevant products;
(d) Satisfies (b) and (c) for a cumulative period of 10 years
(e) …. [not relevant to the question]
As (d) states, the person must have been working for, or authorised by a ‘financial services licensee’ for a 10 year period between 1 Jan 2007 and 31 December 2021.
The term ‘financial services licensee’ is defined in section 761A of the Act as ‘a person who holds an Australian financial services licence’.
Given that AFSL holders carry on financial services businesses in Australia, and (nowadays) are discouraged from providing financial advice to overseas clients, unless the person was authorised by an AFS licensee (which is unlikely if they were working overseas), then that experience won’t count.
Further, the requirements relating to being registered on the Financial Advisers Register (not to be confused with the new additional requirement to register financial advisers, by 1 February 2024), have been around since about 2017. (These are contained in Subdivision B of Division 9 of Part 7.6 of the Corporations Act 2001.) An adviser could only have been authorised to provide personal advice to retail clients in relation to relevant financial products if they were listed on the FAR, which would be very unlikely for someone providing financial advice overseas.
Answer:
If you are an item 54 provider (and you do not provide any other designated services), you are exempt from complying with some of the AML/CTF obligations, as follows:
- You are not required to have a 'Standard' AML/CTF Program which includes Parts A and B, which is the requirement for providers of other designated services.
- Subject to our comments below, the general position is that item 54-only providers are required to create and implement a 'Special' AML/CTF Program, which only includes Part B. (Note: Part A sets out all of the general AML/CTF obligations that the entity must comply with, as set out in the AML/CTF legislation , and Part B sets out the entity’s customer identification and verification procedures.)
- You do not need to appoint an AML/CTF compliance officer, or have in place appropriate management oversight procedures.
- You do not need to lodge an Annual Compliance Report with AUSTRAC.
- You are not required to ensure that Part A of your Program is independently reviewed on a regular basis.
- You do not need to conduct ongoing customer due diligence.
The primary purpose of a Special AML/CTF Program is to set out your customer identification and verification procedures (also referred to as the Know Your Customer or KYC procedures).
However, AUSTRAC considers that it is good practice for item 54-only providers to also have in place an oversight structure which is based on the nature, size and complexity of your business, and includes the appointment of an AML/CTF compliance officer.
Accordingly, although the AML/CTF legislation states that a Special AML/CTF Program only includes Part B, we recommend that the Board of an item 54-only provider maintains ongoing oversight of the Special Program, and, in addition to the Know Your Customer section, in order to comply with your AML/CTF obligations, the Special AML/CTF Program should include the following procedures:
- Management oversight and governance procedures, which ensure that the financial planner complies with their AML/CTF obligations;
- Record keeping procedures;
- ML/TF risk assessment procedure, and an assessment of the type of ML/TF risks you might face;
- Risk-based systems and controls for determining whether any additional customer identification information must be collected and verified (including a customer ML/TF risk assessment procedure);
- Employee due diligence procedures, as well as appropriate control mechanisms to ensure that employees and authorised representatives are complying with the Program;
- AML/CTF training for employees and authorised representatives; and
- Suspicious matter reporting procedures.
Holley Nethercote Lawyers hase created a template Special AML/CTF Program, which is appropriate for financial advisers who hold an AFSL, and only provide item 54 designated services.
However, it is important to note that if you are providing an item 54 designated service, and you are also providing another designated service (i.e. doing more than simply arranging for a person to receive another designated service), then you will be required to have in place a standard Part A and Part B Program. For example, if you act as an agent for a client in acquiring or disposing of a security or a derivative (item 33), then in addition to item 54, you are also providing an item 33 service, and thus you will not be able rely on the exemption, and must create and implement a Standard AML/CTF Program.
Answer:
AUSTRAC explains that 'making arrangements' has a broader meaning under the AML/CTF Act than the definition of 'arranging' under section 766C of the Corporations Act 2001 (the Corporations Act).
According to AUSTRAC, 'making an arrangement' includes a scheme, plan, proposal, action, course of action or course of conduct to enable a customer to receive a designated service.
General indicators of 'a course of action or conduct' that is likely to amount to ‘making arrangement'” include:
- The financial planner is integral to introducing and completing the provision of the designated service (which is a financial service under the Corporations Act) to the customer and the provision of that designated service may not have occurred without that person’s involvement.
- The financial planner negotiated the terms and conditions between the product issuer and the customer involved in the transaction.
- The financial planner helped the customer complete a product issuer document (e.g. PDS), including:
- explaining the meaning of questions and suggesting answers to complete the product issuer’s documentation
- collecting and transmitting the customer’s funds to the product issuer to facilitate completing the designated service
- assisting and providing guidance on completing the product issuer’s documentation.
Answer:
If a business or entity provides one or more designated services (listed in section 6 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 ('the AML/CTF Act') and is geographically linked to Australia, it will be required to comply with the obligations set out in the AML/CTF Act, as a 'reporting entity'.
Section 6, Table 1 of the AML/CTF Act lists the designated services.
Item 54 of Table 1 is a relevant designated service for most financial advisers. It is a service provided by an AFSL holder (in their capacity as licensee), which involves making arrangements for a person to receive another designated service in Table 1.
If the entity is a financial adviser and operates as an authorised representative of an AFSL holder (and is not an AFS licensee), it is not typically providing an item 54 designated service. In this situation, it is not caught by the AML/CTF regime, unless it is providing another designated service which is listed in Table 1 (e.g. acting as an agent for a customer in acquiring or disposing of a security or a derivative (item 33)).
AUSTRAC has provided the following examples of financial advisers (it calls them financial planners) (who hold AFSLs) providing a customer with an item 54 designated service:
- A financial planner implements the advice given to a customer to invest in a share through a broker.
- A financial planner arranges for a customer to take out a life investment policy with ABC Life Ltd.
- A financial planner advises their client to obtain an interest in a product through an investor directed portfolio service, and the financial planner undertakes transactions to realise this.
- A financial planner transfers money, with the written and signed consent of the client, from their client’s investor directed portfolio cash account to the client’s bank account.
Answer:
Yes – both the 60-day period to give an FDS and the 120-day renewal period run concurrently from the anniversary day, regardless of when the FDS is given within that period.
For example, if the anniversary day is 1 January:
- the FDS needs to be given by 1 March (60 days from 1 January);
- the election to renew needs to be received by 30 April (120 days from 1 January).
The 120-day time period that dictates the date by which the licensee must receive the election to renew will not change, regardless of whether the FDS was provided on 1 January, 10 January, 20 February, etc.
Answer:
A distinction must be made between the ongoing fee arrangement (OFA), which is the arrangement agreed to between a retail client and the adviser for the provision of personal advice where an ongoing fee will be paid; and an SOA, which is an advice document triggered by the giving of personal advice to a retail client.
A new OFA does not trigger the need for an SOA, only the giving of personal advice does that.
Answer:
If you give the FDS on 30 July 2021, this is your transition date and will become your anniversary date for the giving of future FDSs.
The regulations currently require the FDS to be for 12 months up to the period immediately before the transition day for the arrangement.
However, Treasury has announced that it will make amendments to alleviate the burden this will cause and allow fee recipients to disclose a reasonable estimate of the fees paid for the last two months of the previous years. The transition date (which becomes the anniversary day) is the date that you actually give the FDS to the client. So, in the above example, this date will be 30 July each year.
Answer:
Full question: If you have an existing client who had a Disclosure or Renewal date under the old regime that necessitated the provision of an FDS or Opt-In prior to 1 July 2021 (i.e. did not get caught under the Transition Period) – does the advice provider still get the option to select ANY date for the next FDS (under the new regime)?
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Yes. The transition day will be the date that the first enhanced FDS is provided to the client (that is, an FDS that complies with the new laws). This applies to all clients, regardless of when they would have been due to receive an FDS under the old rules or when they last opted in.
So, from 1 July 2021, the advice provider can select any date for the next FDS to be given (that is, select any transition day), provided it is within the transition period (that is, before 1 July 2022).
Example: Opt-In was issued to the client 30 April 2021. The Opt-In was signed by the client 5 May 2021. Can the adviser select the Transition Date for the next FDS or does it have to be provided on 5 May 2022? My understanding is that for ALL existing clients, you can select ANY date for the Transition Day.
Answer:
‘Disclosure day’ is the concept currently used in the law to calculate when an FDS must be given. Currently, this is 60 days from the anniversary day.
Under the new law, the concept of a ‘disclosure day’ is not used. The timing for giving the FDS, for receiving the client’s election to renew the OFA, and the date of termination in the absence of the client electing to renew the OFA, will be based on the anniversary day (AD):
- Re the FDS: AD + 60 days
- Re renewal: AD + 120 days
- Re termination: AD + 150 days
For your existing client base, the day you provide them with an FDS during the transition period will become the 'anniversary day'. For all new clients that sign up to an OFA after 1 July 2021, the 'anniversary day' will be the day that the OFA is entered into.
Answer:
The 'anniversary day' is defined in the legislation (section 962G(3) of the Corporations Act) as 'the anniversary of the day on which the arrangement was entered into'.
The date an arrangement is entered into will be the date that the client agrees to the ongoing fee arrangement (OFA).
It will generally be when the offer you make to the client to provide the services for a fee for a period of more than 12 months, is accepted by the client. An ongoing fee arrangement can be oral.
So, it’s a question of fact that depends on the evidence. For this reason, we recommend that you record your OFA in writing, that it specifies the date it commenced, and that it be signed. The anniversary date will be one year after that date.
In ASIC’s FAQ 7, it gives the example where the client signs an Authority to Proceed to enter into an ongoing fee arrangement on 15 August 2021, and states that the anniversary day for that arrangement will be 15 August for all future years.
Answer:
The obligation is to include information about the amount of each ongoing fee to be paid by your client, and the services that your client will be entitled to receive.
How you choose to present this information is up to you. So, services which will definitely be provided, and others that may be provided depending on the circumstances, can be separated. Ensure that the client’s entitlement to each service, and the fee that will or may be payable, is clear.
If you include ‘optional’ or ‘reactive’ services, you will still need to specify the service and a reasonable estimate of the fee if the actual fee is not known. Importantly, the client should not be charged a fee for a service that the client does not take up or receive.
We also note that services can be provided to a client on an ad hoc basis that fall outside the scope of the OFA and can be charged separately.
Answer:
Full question: When estimating fees for the year ahead, can we have some standard wording to the effect of “based on your current balance of X and fee of Y%, your fees are estimated at $Z”, or “based on your current balance of X, plus contributions of $W and fee of Y%, your fees are estimated at $Z”? Should we be including any anticipated SG or other contributions?
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It is not enough to base the estimates for the next 12 months on the client’s current balance if you are aware that additional contributions will be made.
A reasonable estimate must be based on all of the relevant information available to you at the time of the estimate, and be as accurate as possible. Accordingly, you should factor in all of the information known to you when you calculate the estimate, including (for example) employer contributions expected to be made into a client’s superannuation fund, additional investments that may be made by a client based on the advice provided, and any known large withdrawals, such as a planned expense or an asset-based fee that the client is being charged.
Reference: see paragraph 1.33 of Explanatory Memorandum.
Answer:
If an SMSF has multiple trustees, each trustee will need to provide their written consent.
If an SMSF has a corporate trustee, whether one or all of the directors must provide the written consent will depend on the wording of the SMSF’s constitution.
Answer:
Each of the joint account holders will need to give their written consent. The ASIC Corporations (Consent to Deductions—Ongoing Fee Arrangements) Instrument states that the written consent may only be given by an account holder by signing or agreeing in writing (including electronically) to the terms of the written consent.
If you are requiring clients:
- to sign the consent – each account holder must sign the consent; or
- to provide their consent by responding via an electronic link – you must obtain the written response from each account holder.
Answer:
The consent must be in writing, but there is no requirement for that written consent to be signed or in ‘hard copy’. You can definitely use technology to facilitate the process. Note that the fee recipient must provide a copy of the consent to the account provider (if the account is provided by a separate entity), and that there are record keeping obligations. So, whatever form of written consent you choose, will need to be a form that can be shared with third parties and can be documented. You should also check to see whether the account provider will have any specific requirements regarding consents to allow deductions for ongoing fees to be made from client accounts.
The recent ASIC legislative instrument ASIC Superannuation (Consent to Pass on Costs of Providing Advice) Instrument 2021/126 also contains specific content requirements for client consents.
Answer:
A conflict of interest is a circumstance where the interests of a client are inconsistent with, or diverge from, your interests or the interests of the licensee. It also includes conflicts between your interests and the licensee’s.
A conflict of interest can be an actual, potential or perceived conflict, i.e. a conflict which might appear to influence the performance of your duties.
To decide whether a conflict of interest exists, ask yourself:
- Would I have made the recommendation if I didn’t have another interest?
- Would I be comfortable if this was on the front page of the newspaper?
- Would a regulator think I did the right thing by my client?
If your answer is ‘no’ or ‘uncertain’ to any of these questions, there may be a conflict of interest. You must notify your Responsible Manager/Compliance Manager immediately of any actual, potential or perceived conflict of interest.
Answer:
No. As long as the client receives the latest application form and personal statement, the insurer copy is sufficient.
Answer:
Where you are providing gearing advice, you must provide insurance advice regardless of the client’s request (or refer appropriately if you aren’t authorised).
Insurance is an important component of the contingency plan, and in the absence of an insurance recommendation, we may be unable to demonstrate that gearing is in the client’s best interests.
Where you believe insurance is not in the client’s best interest, or the client is uninsurable, you may apply to your Compliance Manager for an exception. If the client is not eligible for insurance based on their age, occupation or any other reason, you must address this in the advice document and as part of the contingency plan, provided approval is granted to recommend the gearing strategy.
Where you are not providing gearing advice, you should note clearly in the SOA that the client has requested that you not review their insurance as part of your advice, but that you recommend the client review their insurance needs at the earliest opportunity.
Answer:
Some information must be provided to clients, as required by the privacy laws, and some information should not be provided to clients for commercial or legal reasons.
On receiving a request from a client, contact the Compliance Manager who will manage all requests to access a client’s file.
Answer:
All copies of signed documents, information collected from or given to the client, comprehensive file notes of all meetings and telephone discussions
Also, all relevant disclosure documents, including the versions and dates provided, as well as all other relevant correspondence with the client, or a third party, or licensee in relation to the client.
Answer:
No. There is no requirement to keep hard copy client files providing the files are stored electronically. Individual licensee policies may require certain files to be maintained in hard copy.
Answer:
Plan preparation, strategy implementation and execution-only fees are generally not considered to be sufficiently linked to earning income to be tax deductible. However, the expense may qualify as a capital cost for the acquisition of the assets for CGT purposes. Where the fee relates to a number of assets/transactions, then an appropriate breakdown is required to determine what proportion of the fee is deductible.
Ongoing advice and product administration fees are generally tax deductible to the extent they relate to producing assessable income by the entity that incurs the expense. Where a part of the advice/service does not relate to producing assessable income, the fee associated with this part will generally not be deductible, e.g. insurance advice.
Management Expense Ratios (MERs)/Indirect Cost Ratios (ICRs) are deductible at the fund/trust level; the income distributions are net of the MER/ICR and are, therefore, not deductible to the investor. The net distribution is assessable income.
Fees for advice to a superannuation fund, including SMSFs, are only deductible to the super fund and only if the fund has paid for the advice and it is an allowable deduction.
Superannuation funds (excluding SMSFs) can claim a reduced input tax credit (RITC) equal to 55% of the GST paid on tax and audit fees. In a platform structure, the trustee claims from the ATO. The benefit of the RITC is usually passed onto the client. This generally has the financial effect of reducing the net cost of expenses subject to GST by 55% of the GST paid.
Clients should confirm tax treatment of fees with their tax agent.
Answer:
No approval is required, however, please be aware that in some circumstances no Professional Indemnity (PI) cover may be available for these transactions.
Answer:
If you have an AFSL
ASIC has a webpage the covers lodging a cancellation request.
There is no ASIC form for the cancellation, so the licensee would need to complete a request that explains in detail the reasons that they require cancellation of the licence, and which includes all licensee contact details (postal address, email address, telephone number).
The licensee should also complete a covering letter and, to speed up the process, email the request for cancellation and the covering letter to Licensing.AFSLproofs@asic.gov.au. ASIC will send an invoice for the fee, so this should then be paid immediately so as to keep the process moving.
Note that ASIC states that before you request a cancellation, you must lodge the FS70 and 71 'for any financial year that ends before the date the licence is cancelled'. It also advises the following, which is a risk where cancellation requests are made close to the end of the financial year: 'if your cancellation request is received towards the end of a financial year, the request may not be finalised until the next financial year, and you will need to lodge financial statements and an auditor’s report for a further financial year.'
If you have an ACL
There is an online form and the process can be followed via the instructions on the webpage.
Answer:
Yes. Provided that you are satisfied that the SMSF is controlled by a person that is themselves a wholesale client.
Answer:
You need to consider the wholesale client status of the trustee(s) of the SMSFs.
Theoretically, the trustee(s) can be eligible to be treated as wholesale like any other client.
However, note that an SMSF is a trust and that it is difficult for trustees to qualify under the Individual Wealth tests.
Answer:
A professional investor is defined to include an entity who is:
(a) a financial services licensee; or
(b) a body regulated by APRA, other than a trustee of a superannuation fund, an approved deposit fund, a pooled superannuation trust, or a public sector superannuation scheme; or
(c) a body registered under the Financial Corporations Act 1974; or
(d) a trustee of a superannuation fund, an approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme which has net assets of at least $10 million; or
(e) has or controls gross assets of at least $10 million (including any amount held by an associate or under a trust managed by them); or
(f) is a listed entity or a related body corporate of a listed entity, or
(g) an exempt public authority; or
(h) a body corporate or an unincorporated body that carries on a business of investment in financial products, interests in land or other investments, and for those purposes invest funds received following an offer or invitation to the public, the terms of which provided for funds subscribed to be invested for those purposes; or
(i) a related body corporate of any body corporate that is a wholesale client; or
(j) a foreign entity which, if established or incorporated, would be covered by one of the foregoing.
It is usually relatively easy to determine if a client meets one of these tests based on publicly accessible business registers.
With the $10M test, you might need to sight a copy of the client’s financial statements.
Answer:
The minimum documents required are:
- Trust Deed – ensure it allows a ‘contract for insurance’ to be entered into by the SMSF trustee(s)
- Investment Strategy – ensure that the cover is consistent with the insurance strategy adopted by the trustee(s)
These are required to ensure the insurance recommendation does not place the SMSF in breach of the regulated obligations.
Answer:
As long as the transaction falls within the bounds of the MDA Contract and the underlying Investment Program, there is no need to provide a PDS or a Prospectus for an underlying investment.
Answer:
Only if the transaction fits within the client’s Investment Program under the MDA service, then it may be entered into.
Answer:
This is a trust subject to regulatory oversight – being all superannuation funds (including an SMSF) and most publicly offered managed investment schemes.
Most trusts that you encounter will be unregulated, e.g. family, charitable, estate.
Answer:
Yes. You should identify the impact of any lost benefits (for example, insurance) when exiting the existing fund, and consider whether these benefits need to be replaced.
You should also consider whether the client has access to a pension product through their existing fund. Where they do have access, you should complete a comparison between this product and your recommended product. The same rule applies if your client is transitioning from accumulation phase to pension phase within the same superannuation fund – as this is treated as the issuing of a new financial product.
Answer:
Product replacement advice isn’t required if they are not entering a new product; but you should consider the lost benefits (for example, insurance) and ensure they are considered when switching to a new fund. You should also ensure your SOA clearly states the basis for your advice.
Answer:
If they can retain their existing account, you should compare the options of rolling over to a new fund and retaining their existing fund. Your SOA should clearly state that the existing fund will not accept further contributions.
Answer:
Yes. It’s important to understand why your client isn’t happy with their existing fund.
Firstly, it may be that they don’t understand their existing product (or superannuation in general) and there is not actually a problem with the existing fund. Secondly, you need to be aware of any problems with the existing fund to ensure the fund you recommend will address those problems.
Answer:
No. Australian-complying superannuation funds, including SMSFs, are exempt from FATCA and CRS requirements.
Answer:
Opt–in is not required.
The opt-in requirements only apply to retail clients.
Answer:
Yes. The best interests duty requires the adviser to identify the objectives, financial circumstances and needs of the client, and this would extend to assessment of their investment risk tolerance.
Answer:
A fund manager is providing financial product advice to the trustee of the investment scheme and needs to either hold an AFSL or be authorised to provide financial product advice by another AFSL holder.
However, the trustee of the investment scheme will typically be a wholesale client, and most of the disclosure and conduct rules under the financial services laws would not apply to the advice provided by the fund manager.
Answer:
We don’t recommend being on more than one licence if you are a Responsible Manager. The days of being on 3-4 licences are over for new Responsible Managers. Being a Responsible Manager for more than one AFS licensee may be very difficult to undertake due to concerns about:
- any potential conflicts of interests that may arise in being engaged by two AFS licensees; and
- the availability of the Responsible Manager to fulfill their responsibilities for more than one AFS licence.
If you are a named as a key person on an AFS licence, you would find it difficult to undertake duties as a Responsible Manager on another licence.
You would also need to consider the nature, scale and complexities of the AFS licensees concerned to determine whether you will have sufficient time to act as a Responsible Manager on more than one AFS licence (i.e. a Responsible Entity or a Market Maker in FX or Derivatives).
Answer:
Yes. The means by which the advice is given is irrelevant. If you provide a recommendation or express an opinion, intended to influence a person in making a decision in relation to a financial product or a class of financial products, and you have considered one or more of their objectives, financial situation or needs, or a reasonable person would expect you to have done so, then it will be personal advice.
Answer:
'I recommend that you apply for $1.5m term life cover.'
This is personal advice because it is a recommendation intended to influence a person in making a decision about a class of financial product (term life insurance). It is personal because to arrive at the figure, the adviser has considered the client’s circumstances.
In RG 175, ASIC states that they will take into account all circumstances when considering whether advice is personal advice or general advice (RG 175.49). The following factors will be considered when determining whether advice is General or Personal:
- Did you offer to provide personal advice (e.g. in any material given to the client before the advice was provided)?
- Do you have an existing relationship with the client where personal advice is regularly provided to the client?
- Did the client request personal advice (including requesting advice as to what decision they should make)?
- Did you request information about the client’s relevant personal circumstances? For example, did you complete a Financial Planning Questionnaire or otherwise ask about their personal circumstances?
- Was the advice directed towards a named client or readily identifiable client?
- Does the advice contain, or was it accompanied by, a general advice warning?
- Does the advice appear on its face to be tailored to the client’s relevant personal circumstances (e.g. does it refer to information or assumptions specific to the client)?
Answer:
No. Regardless of whether or not you intended to provide personal advice, ‘financial product advice’ is deemed to be personal advice when you have taken into consideration at least one aspect of the person’s personal circumstances, needs/objectives, or it is reasonable for a person to believe you have taken into consideration at least one of those aspects (regardless of whether you did or did not).
Answer:
If an Ongoing Fee Arrangement exists, you must deliver the services as agreed with the client.
If an Ongoing Fee Arrangement doesn’t exist, you do not have a legal obligation to provide further advice/services.
Answer:
You do not require a licence to act as an executor.
Section 911A(2)(f)(viii) states that a person is exempt from the requirements to hold a licence if they are acting ‘as a personal representative of a deceased person….’. Accordingly, if the accountant is acting as a personal representative of the deceased (for example, acting as an executor), a licence is not required.
Before you agree to act as an executor, check your professional indemnity insurance policy to ensure the activities are covered.
Answer:
Identifying, classifying, and keeping up-to-date records of exactly who your clients are, will assist you with the ongoing operations of your business and compliance with your licensing conditions, more than you would initially imagine.
AFS licensees can have authorisations for retail clients, wholesale clients, or both.
Retail client authorisations add a number of additional obligations as a licensee – PI insurance, internal dispute resolution, EDRS membership, conflicted remuneration prohibitions and disclosure document requirements. When personal advice is provided to retail clients, Professional Standards and other obligations, including best interests obligations, apply. It is important to know how this affects your business, licence conditions, and the additional requirements at the application stage.
Answer:
A PI insurance policy must have an adequate amount of cover overall. To be adequate, the limit of indemnity should cover a reasonable estimate of retail client’s potential losses.
As a minimum, ASIC considers a limit of $2 million is adequate. This minimum should increase in line with revenue from retail clients, up to a maximum of $20 million. While this is a minimum, it is for the licensee to determine adequate cover.
PI cover may need to increase if it is required to cover wholesale claims as well. PI cover may also need to increase if the products recommended are higher risk products which may generate higher volumes of claims.
Certain groups of licensees are required to hold specific PI insurance as a condition of their AFS licence. These include:
- responsible entities of managed investment schemes (ASIC Pro Forma 209);
- investor directed portfolio service operators (Regulatory Guide 148);
- managed discretionary account service operators (ASIC Corporations (Managed Discretionary Account Services) Instrument 2016/968 and Regulatory Guide 179);
- licensees who are market participants will need to consider the market integrity rules (Regulatory Guide 214 and 215).
Contractual requirements
If you have entered contracts with third parties, including clients, these could specify what amounts of PI insurance you must hold.
Professional Associations
If you are a member of a professional association, you should review your association’s rules and standards for any recommended or required minimum PI insurance. Some associations also provide a limited liability scheme which may allow a lower level of PI insurance to be held by individual firms or practices.
Answer:
Nominated Responsible Managers will need to have the appropriate education and experience to expand the scope of an existing licence (both for Limited and full licences). Any application to expand the scope of your licence may require additional education and experience requirements in line with ASIC’s options 1-5, as set out in Regulatory Guide 105.
If you are relying on one Responsible Manager (RM) to have the education and experience required for the new authorisations, ASIC may require the RM to be listed as a key person on your licence. This will oblige you to have a plan in place to address the possibility of the key person leaving the business. You may also be required to reflect the relevant requirements of the RM in their employment contract.
Your staff or sub-authorised representatives who are authorised to provide financial product advice will need to have appropriate training (as set out in ASIC Regulatory Guide 146) to be able to advise on the new product types under the expanded licence.
Certain authorisations, such as the ability to provide a Managed Discretionary Account (MDA) service. will impose significant additional obligations. You will need to have procedures in place to meet these, at the time you apply to expand your licence.
You should consider whether your existing PI insurance will cover the expanded products, and if an increase in the amount of cover is required.
Depending on the additional authorisations sought, the licensed entity may have additional financial obligations, including liquidity and capital requirements.
Answer:
No. Licensees are generally required to keep records and documents for up to 7 years. It does not matter whether the records relate to wholesale or retail clients.
ASIC has clearly stated that records may be kept electronically. For example, ASIC pro forma PF 209 states that copies of FSGs, SOAs and material relating to personal advice must be kept in material, electronic or other form.
Answer:
Before you even think of starting the application process, you need to be 100% sure that the authorisations you seek on your AFSL cover all of the business activities you will undertake that fall under ASIC’s licensing regime.
Your AFSL application will also require suitable Responsible Managers who can demonstrate that they have the required level of skills and experience in the authorisations requested on the AFSL, to demonstrate that your company is competent in providing those financial services under an AFSL.
If you have all of the above, you may be ready to commence the application process for an AFSL. However, the tricky part isn’t over yet!
You will need to collate the material required to lodge an application with ASIC (core proof documents) and have them prepared, ready for lodgement. This includes the following:
- If you are applying using a company, a document detailing the fit and proper persons of the company and also its controlling entity along with police and bankruptcy checks and statement of personal information from:
- each responsible manager, director and secretary and senior manager of the applicant; and
- each director, secretary and senior manager controlling entity of the applicant.
- Business Description: This is a detailed overview of your business, including the types of financial services and products your will provide, anticipated growth, your sources of business income, typical client types, service delivery location and models, and organisational chart.
TIP: a detailed transaction example will bring together this whole proof document, resulting in an easier assessment for ASIC.
- Table of Organisational Expertise: This is a critical document that details the relevant knowledge, experience and skills of each of your nominated responsible managers.
- Supporting Documents for Each Responsible Manager: These documents substantiate the competence and good fame and character of each Responsible Manager and includes:
- a statement of personal information;
- copies of qualifications;
- two relevant business references attesting to the financial services experience of the Responsible Manager (less than 12 months old); and
- copies of a national criminal history check and a bankruptcy check also less than 12 months old.
- Financial Resources Proof: A description of your processes for ensuring ongoing compliance with the financial requirements. Financial statements that include a statement of financial position and financial performance; and cash flow projections that demonstrate your ability to meet the cash needs requirement.
- Depending on the authorisations being applied for, additional non-core proofs need to be prepared (eg Compliance Arrangements, Program for Monitoring, Supervision and Training of Representatives and Risk Management System Statement where you intend to be a financial planner).
ASIC’s online application process is continually being updated as you respond to questions. Note that many questions are worded as statements asking you if systems, documents or processes are in place. There is a sample of the online AFSL application that is quite useful to help you understand how the process works, and to get a sense of some of the questions being asked.
Once you lodge your AFSL application and submit the required documents to ASIC, you will need to allow for somewhere in the vicinity of 5 to 8 months for the whole process to reach a conclusion.
But this time is not wasted. There will always be something for you to do!
As part of the assessment process, you will receive requests for additional information to be provided. Generally, these requests are in the form of further documents called non-core proof documents, or questions from an ASIC analyst looking to gain a deeper understanding of your business, processes, procedures, activities, etc.
Other things for you to think of which you will need to obtain before a final AFSL is issued (if you seek a retail client authorisation) include, but are not limited to:
Further items of note to put on your ever-growing list include:
- making sure your retail client disclosure documents, if required, are accurate, up-to-date, and compliant;
- maintaining the adequacy of your financial, technological and human resources; and
- having processes and procedures in place for compliance, managing conflicts of interest, risk management, and training and competence of your representatives and authorised representatives.
Have a read of a more comprehensive guide as to how you will need to meet the general obligations for holding an AFSL here.