A new limited accountants' AFSL: will many bother; still too many unknowns?

In late November 2012, the Government released draft regulations that would replace the accountants' exemption with a new form of limited licence - a limited Australian Financial Services Licence (AFSL). The intention is that the proposed new licence would mean that licensed practitioners would "advise on a wider range of alternatives, rather that limiting their advice to the establishment of a self-managed super fund [SMSF]". The draft regulations and draft explanatory statement are on the Future of Financial Advice website and comments on them closed on 21 December 2012.

New form AFSL

Under the proposed new arrangements, "recognised accountants" (that is, a person who holds a Certificate of Public Practice issued by The Institute of Chartered Accountants Australia or holds a Public Practice Certificate issued by CPA Australia Ltd or the Institute of Public Accountants) will be able to access a new form of limited licence from 1 July 2013 which will enable them to discuss a range of financial products with their clients.

The range of products includes:

• SMSFs;
• Superannuation;
• Securities;
• simple managed investment schemes;
• general insurance;
• life risk insurance; and
• basic deposit products.

Apart from SMSFs, holders of this licence will only be able to talk about these products at a class of product level, meaning they cannot recommend specific products to their clients. For example, a financial services licensee would be able to give a general recommendation about term deposit products but would not be able to make a specific recommendation that a person deposit their money into a term deposit product offered by a particular bank or building society. Holders of this licence will also be able to lodge an annual compliance certificate rather than an auditor's report.

Cleardocs offers a Limited AFS Licence Application package that simplifies the process of applying for this type of licence.

Other proposed changes

Specifically, the amendments to the regulations would:

• repeal the current accountants' licensing exemption^[1] from 1 July 2016. Members of particular accounting bodies who provide advice about the establishment, operation, structuring and valuation of SMSF (including recommendations that a person acquire an interest in an SMSF) are presently exempt from the obligation to hold a financial services licence.
• provide that recognised accountants, partnerships or corporations who apply for a limited AFSL between 1 July 2013 and 1 July 2016, and only provide particular advice services, do not have to have experience for the purposes of the organisational competence requirement^[2].
• provide that licensees who receive an AFSL under this streamlined process must complete a knowledge update review within 3 years of the date on which the licence is granted. That is, it would be a condition of the licence that, within 3 years from the date on which the licence is granted, particular persons associated with the licence must demonstrate, to ASIC's satisfaction, they have knowledge and experience providing financial services. Specifically, if the licensee is an individual, that individual would have to demonstrate they have:
  • knowledge of the licensee's obligations under the Corporations legislation; and
  • the competence to provide the financial services covered by the licence.
  If the licensee is a partnership or corporation, it is each recognised accountant who would be responsible for, and supervises, the provision of the financial services by the licensee who would have to demonstrate those things.
• 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 audit report.

Will many bother? Issues to consider

The Government says it expects to see up to 10,000 accountants become licensed under the limited licence regime, but that claim may be overstated. Some in the financial services sector well experienced in the machinations of AFSLs suggest that many accountants will not apply for the limited AFSL, but will simply join an existing AFSL licence holder, perhaps as an Authorised Representative.

Cost Another issue to consider is the cost. When the FoFA legislation was being debated (in its draft and final form), Treasury estimates suggested that it could cost around $10,000 to $20,000 to operate an accountants' AFSL. That's no small sum!

Although the limited licence would presumably cost less, the details of that cost are not yet known; nor is it yet known how ASIC will administer the new limited exemption. At a more basic level, there are also no details yet on the hoops that accountants would have to jump through to apply for a limited licence.

Financial Services Package There may be other ways. For example, the IPA has what it calls a Financial Services Package that has partnered with AXA and MLC to provide licensing solutions to its members. As accountants who seek the limited AFSL licence will still not be able to advise on specific financial product solutions, it would be advantageous to have an arrangement with a financial planner who can provide such services to accountants' clients.

The IPA also has a financial services referral service to provide such a solution. The service is for IPA members who are not interested in becoming qualified themselves to provide financial services but who still wish to offer financial services to their clients. The service pairs members with financial planners in their vicinity and who fit their client base and practice size.

Public Practice Certificate Also, SPAA has recently announced that it will make available a Public Practice Certificate (PPC) to its SMSF Specialist Advisors and Auditors who are accountants. While the new arrangements are subject to the SPAA PPC being accepted by the Government for the purposes of the new limited licence regime, it may be worth investigating.

SPAA CEO Andrea Slattery said if the Government accepts the PPC as part of the limited licensing regime, accountants who secure it and apply for a financial services licence between 1 July 2013 and 30 June 2016 will be able to offer advice relating to: superannuation products; securities; simple managed investment schemes as defined in the Corporations Regulations 2001; general and life insurance products; basic deposit products.

Training requirements The proposed knowledge update review for limited AFSL holders referred to above could also be problematic. Will accountants who have a limited licence be required to adhere to RG 146-style training requirements? If so, do they understand what that means?

On ASIC's radar Another imponderable for accountants is that if they choose the limited licence route, that will place them under the gaze of ASIC as the regulator. They may be used to dealing with that other great regulator, the ATO, but what do they know of how ASIC operates?

Looking ahead The draft explanatory notes to the changes are very brief, so there is still much detail unknown. Perhaps the lodgment of submissions will elicit some extra detail. 1 July 2013 is not far away.

There is no doubt all the accounting bodies are keen to assist their members with the new limited licence regime. The wash-up for many accountants could still be that it would be simpler and more cost effective to join an existing AFSL holder. The finalisation of the draft regulations in a timely manner before the 1 July 2013 kick-off date will be important.

Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please:

• see http://www.thomsonreuters.com.au/catalogue/productdetails.asp?id=1429 ; or
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