Limited AFS licence, including for accountants: regulations updated

Thomson Reuters and Maddocks have been tracking the progress of the limited Australian financial services (AFS) licence for accountants. There have now been two important developments:

• firstly, the relevant regulations have been finalised: this article summarises the final form of those regulations; and
• secondly, ASIC has released its guidance to accountants who intend to apply for the limited licence: you can view a separate ClearLaw article on this topic here.

Why should accountants consider the limited AFS licence?

These developments are important for accountants who currently rely on specific exemptions available under financial services laws from the need to hold an AFS licence. The exemption which we expect is most commonly relied on by many accountants, allowing them to advise clients about acquiring or disposing of an interest in a SMSF, will not be available after 1 July 2016.

If an accountant or accounting firm considers that advising on SMSFs:

• is core business for them – or will likely be in the near future; or
• is an important ancillary service, but one which is central to maintaining the business, trust and confidence of its clientele,

then those accountants or firms should seriously consider their strategy for meeting client needs beyond 1 July 2016.

ASIC's guidance provides good reason for accountants to bring forward those considerations. During the transitional period from 1 July 2013 to 30 June 2016, the licensing application process for 'recognised accountants'[1] will be simplified by the need to demonstrate only 'knowledge' (which can be demonstrated by holding certain qualifications) rather than knowledge and experience.

You can read more about ASIC's transitional arrangements in a separate ClearLaw article.

What is the relevant legislation?

The Corporations Amendment Regulation 2013 (No 3) (Cth) was registered on 4 June 2013. It amends the Corporations Regulations 2001 (Cth) to create a new limited licensing regime from 1 July 2013 which allows accountants (and others) to provide a broader range of financial product advice than currently allowed for under the existing accountants' exemption.

The amendments remove the current exemption which allows accountants to provide financial advice on self-managed superannuation funds (SMSFs) without an AFS licence from 1 July 2016 and provides alternative licensing arrangements from 1 July 2013. This will provide a 3-year transition period for accountants utilising the existing exemption to transition to the new regime.

What are the specific legislative measures?

Specifically, the amendments to the Corporations Regulations:

• remove the accountants' licensing exemption in regulation 7.1.29A from 1 July 2016;
• provide that recognised accountants, partnerships or corporations who apply for an AFS licence between 1 July 2013 and 30 June 2016 and only provide particular advice services (a "limited licensee") do not have to demonstrate that they meet the experience required for the purposes of the organisational competence requirement in section 912A(1)(e) of the Corporations Act;
• provide that licensees who receive an AFS licence under this streamlined process must within 3 years of being granted the licence, if requested in writing by ASIC, demonstrate to ASIC they have the requisite knowledge and the competence to provide the financial services covered by their licence; and
• provide that any licensee who only provides particular advice services and does not handle client-money can lodge an annual compliance certificate instead of an auditor's report.

A "limited licensee" is defined as a financial services licensee that:

• is: (i) a recognised accountant; or (ii) if the licensee is a corporation or partnership – a licensee that has a recognised accountant or accountants who are responsible for, and supervise, the provision of the financial services covered by its licence; and
• applied for the AFS licence between 1 July 2013 and 30 June 2016; and
• is only licensed to provide one or more of the following financial services (that is, "limited financial services"):
  • financial product advice on SMSFs including, but not limited to, advice to acquire (or not to acquire) or dispose of a SMSF;
  • financial product advice on superannuation products in relation to a person's existing holding in a superannuation product but only to the extent required for: (i) making a recommendation that the person establish a SMSF; or (ii) providing advice to the person on contributions or pensions under a superannuation product. Pensions include any payment under a superannuation product where the payment is made in the "pensions phase" of the superannuation product. These payments could include a payment which constitutes a payment that is considered to be a lump sum or a stream of payments that the recipient considers to be an annuity;
  • class of product advice on the following: superannuation products; securities; simple managed investment schemes; general insurance products; life risk insurance products; basic deposit products;
  • arrange to deal in an interest in a SMSF.

ASIC's review and assessment powers

New regulation 7.6.04(1)(k) provides ASIC with the ability to conduct a knowledge review of a limited licensee who has taken advantage of the streamlining arrangements. ASIC will also use its existing criteria for making assessments of training and education competency set out in its regulatory guides such as Regulatory Guide 146 Licensing: Training of financial product advisers and Regulatory Guide 105 Licensing: Organisational competence.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier Clearlaw articles concerning companies here.

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