Addressing ASIC's areas of concerns with limited AFSL holders

During last financial year, ASIC visited 20 limited Australian Financial Services (AFS) licensees. The purpose of the program was for ASIC to understand how the new limited AFS licensing regime was operating in practice and to promote compliance with AFS licensee obligations. Each licensee was asked about their business model and provided ASIC with information about how the new limited AFS licensing regime was operating in practice. As a result of this, several areas of concern were identified by ASIC.

This article highlights these areas of concern, and provides insights into how licensees can minimise or, better still, avoid them.

Areas of concern identified by ASIC

1. Uncertainty around ongoing compliance obligations

Licensees were uncertain about the resources required to monitor compliance and what steps were required to comply with their general licensee obligations.

2. Confusion about what information needs to be uploaded to the Financial Adviser Register (FAR)

ASIC found that nearly half the licensees they visited had not updated the FAR with adviser information; and it has announced it will also contact limited AFS licensees who have not yet recorded advisers on the FAR to remind them of their obligations to do so.

3. Uncertainty about what documents need to be provided to clients when giving advice

Where licensees had not yet provided advice about SMSFs, they were uncertain what documents need to be provided to clients, the content of those documents and when they should be provided to clients — this includes the requirements around giving a Statement of Advice (SoA), a key document which must be provided.

How to minimise ASIC's areas of concern

ASIC indicated many licensees were actively seeking training and assistance in a number of aspects of the AFS licence regime. These include:

1. Uncertainty around ongoing compliance obligations

Every AFS licensee is required to have an effective risk management and compliance system in place at all times.

AccountantsIQ recommends the use of an online risk management tool which helps AFS licensees to comply with their general licensee obligations.

2. Confusion about what information needs to be uploaded to the Financial Adviser Register (FAR)

ASIC has advised that AFS licensees who have no advisers recorded on the FAR are likely to be in breach of the law, so it is critical to ensure you are registered.

It is important to note that whilst employee representatives on an AFS licensee do not need to register on the Authorised Representative register, they DO need to register on the FAR.

3. Uncertainty about what documents need to be provided to clients, in particular the Statement of Advice (SoA)

In order to meet ASIC requirements, accountants must ensure their templates — most importantly, their SoA — are specifically tailored to each client and are kept up to date with the ongoing changes to regulatory matters including the recent super reforms.

There is a danger of non-compliance with "cookie cutter" templates that do not compel accountants to actually learn how to execute a compliant SoA. An accountant needs to consider a client's specific objectives and provide relevant strategies in order to execute a compliant SoA, rather than simply deleting pieces of text from a long-winded template. When developing an SoA in the correct manner, and using a 'skeleton' proforma that includes all the regulatory requirements, with technically competent strategy text, the risk of a breach in the document area is minimised.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of professional adviser topics.

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