Frequently Asked Questions

AFSL House was founded by Peter Hagias in 2020 with the mission of providing specialised legal and consulting services to AFSL holders which will stand the test of time and scrutiny from ASIC and any other regulator.

Peter is a senior financial services and regulatory lawyer who has extensive legal, regulatory and compliance experience.

Peter acts for various local and overseas clients, which include:

• fintech companies
• payment platforms
• cryptocurrency providers and an exchange
• fund managers
• financial planners and accountants

Peter is often engaged as a consultant or in an advisory role and is currently a director and compliance committee chair for several leading financial services companies.

Our clients are supported by a team of talented financial services lawyers who share our mission and continue to provide industry leading services and support.

We are retained in various capacities and do not have a fixed approach on charging.

We usually charge on a monthly retainer or fixed fee basis for ongoing compliance and legal support. However we will usually charge on an hourly rate basis where our services are provided on a one-off or ad-hoc basis.

Our point of difference is simple. We only work with financial services companies.

We have an intimate understanding of the issues they face and how leading companies in their industry are dealing with them, which allows us to marry best practice processes with legally compliant solutions.

Our expertise lies in determining the appropriate solution to a problem. Traditionally law firms will tackle the problem through the lens of a lawyer – and likewise with a compliance provider. However this is often too narrow or qualified and misses the bigger picture.

We apply a different perspective to the issues faced by our clients and advise on the appropriate resources and services required to make them a better and more compliant business.

We have lodged over 100 AFSL applications and have a 100% success rate.

We put this down to 2 key factors.

The first relates to our expertise and deep knowledge of the AFSL application process, ASIC’s requirements and preferences.

The second is that we stress-test each AFSL application to determine its prospects of success before submitting with ASIC, and where required, recommend improvements to increase the likelihood of approval. This may include changes to the responsible managers proposed or providing additional detail on the financial services to be provided and addressing any regulatory concerns ASIC may have in relation to those activities.

The general test is that you need an AFSL if you carry on a financial services business.

The first step is determining whether you are providing a financial service. The most common financial services are:

• providing financial advice (personal or general) on a financial product
• dealing in a financial product (issuing a product or dealing in it on behalf of another)
• providing a custodial service (i.e. holding a product on behalf of clients)
• operating a crowd-funding platform
• operating a registered managed investment scheme

Financial services are only provided in relation to financial products.

What is a financial product? A financial product includes shares, options, superannuation products (including SMSFs), insurance products, units in a unit trust, derivatives and foreign exchange products.

What isn’t a financial product? Direct real property and bullion are not financial products and can be held and dealt with without an AFSL. However these assets are often purchased or funded in ways which renders the underlying structure a financial product (i.e. through a unit trust).

If you are providing financial services in respect of financial products, the next step requires an analysis of the financial services provided and whether they are exempt from the AFSL regime.

If you are providing a financial service which is not exempt, then you need an AFSL to engage in that activity. Depending on the financial services provided, you may alternatively be able to provide the activity as an authorised representative of another AFSL holder instead of holding your own AFSL.

In most cases, you have the option of holding your own AFSL or becoming an Authorised Representative of another AFSL holder.

Is holding an AFSL better than being an Authorised Representative? The answer – it ultimately depends as there are pros and cons of each option.

Holding an AFSL

• The AFSL holder has ultimate flexibility on all aspects of the business and is not subject to any restrictions or approval requirements that may apply to an Authorised Representative.
• The AFSL holder is subject to a higher compliance burden given it is ultimately responsible for complying with the AFSL regime.
• Obtaining an AFSL takes approximately 6 months. If getting to market as soon as possible is a priority, then becoming an Authorised Representative may be preferable given no regulatory approvals are required.

Becoming an AR

• An Authorised Representative is subject to the directions and restrictions of the AFSL holder. These restrictions are defined in the AR Agreement, but can extend to both significant matters (i.e. ownership of clients, engaging third parties, business practices) as well as day-to-day activities (i.e. marketing material, billing clients, appointing representatives) which require the AFSL holder’s approval.
• An Authorised Representative is usually subject to a reduced compliance load given they follow the policies and procedures which are prescribed by the AFSL holder.
• An AR fee is payable for being an Authorised Representative. This is usually a fixed fee, but can vary and be pegged to other benchmarks such as funds under management or asset management fees.

Legal costs to prepare the AFSL application vary depending on the financial services sought. Legal fees usually range from $10,000 – $30,000.

ASIC charge a fee to assess the AFSL application. The fee charged depends on the authorisations required. However, the fees typically range from $2,500 – $7,500.

The standard time frame is 6 months from the date the AFSL application is lodged with ASIC. However, more complicated business models (such as crypto or fintech) will usually take longer to assess so we advise clients to lodge the AFSL application as soon as possible.

A responsible manager is an individual who is responsible for the financial services provided by an AFSL holder.

Not everyone can qualify as a responsible manager. They must meet certain education standards and have practical experience in providing the financial services which are sought by the business.

For example – a financial planner would have experience in providing personal advice on certain products, but would not have experience in operating a wholesale property fund.

There is no limit on the number. However, at a minimum, an AFSL holder must have enough responsible managers:

• who collectively have sufficient experience in each financial service sought by the business; and
• who collectively can supervise the financial services undertaken by the AFSL holder. The size, complexity and nature of the business (i.e. whether it operates from multiple locations) should be considered when determining how many responsible managers are required.

No.

Responsible managers can be external consultants. However, they must have the time capacity to appropriately supervise activities undertaken by the licensee and the appropriate authority to make decisions in respect of the financial services provided.

A responsible manager (RM) is not personally liable for any compliance or regulatory breaches that are committed by the AFSL holder. However ASIC has the power to impose banning orders on the responsible manager where he/she has materially failed to comply the obligations that apply to responsible managers. A banning order may be limited to a ban on providing financial services or from managing any financial services business. Such bans may be for life or a period of time.

An AFSL application often represents a defining moment for a business which either needs an AFSL to commence operations or scale beyond what is currently possible under an authorised representative arrangement.

Applicants only have 1 chance to get an AFSL application right. Getting it wrong (or not in the form preferred by ASIC) will usually result in the application being rejected or its assessment delayed.

There are 3 key steps which are critical to maximising the chances of an AFSL application being approved. We have set these out below.

1. AFSL Authorisations

A business is permitted to provide the types of financial services covered by the authorisations contained in its AFSL. The type of AFSL authorisations required will differ for each company and depends on the activities and operations of the business. This requires a consideration of:

• the type of financial products the business will work with.
• the type of financial services the business will provide to clients (i.e. advice, dealing, custody).
• whether the financial service will be provided to retail or wholesale clients.

We advise clients on the authorisations required to operate their business and whether any amendments to the business are required to avoid or mitigate any additional legal and compliance obligations that would otherwise arise.

2. Choosing Responsible Managers

An applicant must nominate at least 1 Responsible Manager when submitting an AFSL application. A Responsible Manager is responsible for the financial services provided by the AFSL holder and must have appropriate skills and experience in the authorisations sought in the AFSL application.

For example – the Responsible Manager would need to have appropriate experience in both the financial service and underlying financial products that comprise the authorisations sought under the AFSL application.

We vet Responsible Managers to determine whether they are appropriate and will be accepted by ASIC and have a large network of ‘RMs for hire’ who provide their services to companies on a consultancy basis.

3. Draft AFSL Application Proofs

In addition to the AFSL Application Form (FS01), applicants are required to submit ‘core proof’ documents which are the documents that ASIC considers as part of its assessment of whether to grant an AFSL.

The core proof documents required will depend on the AFSL authorisations sought. However the following core proof documents will need to be prepared at a minimum:

• Business Description Proof (A5), which sets out details of the proposed business.
• Organisational Competence Proof (B1), which sets out each Responsible Manager’s skills and experience and highlights how they are relevant to the authorisations sought.
• Financial Resources Proof (B5), which documents the financial position and performance of the business and evidences how it satisfies the financial resource requirements that apply to the applicant.

We prepare core and additional proofs to ensure they are in the form preferred by ASIC and maximise the chances of obtaining an AFSL in the shortest period of time.

There’s no legal requirement to outsource the AFSL compliance function so it can be undertaken internally. However, it requires considerable time and adequate resourcing to be performed well. The extent of such commitment depends on the complexity of the business operated.

While compliance can be outsourced, the responsibility for it cannot. The AFSL holder remains responsible for compliance services provided by an external consultant, and so, while the AFSL holder can outsource the task, it cannot outsource responsibility and must have appropriate oversight and supervision measures in place.

AFSL compliance policies and procedures are more than words on a paper and should represent the risk and compliance framework that the AFSL holder has implemented to ensure it complies with its legal and compliance obligations.

ASIC has warned against the use of template policies and procedures because they are rarely implemented into the AFSL holder’s day-to-day activities.

We regularly audit AFSL policies and procedures to determine:

• whether they are current and comply with all laws and regulation
• whether the AFSL holder is actually complying with the policies and procedures
• how the policies and procedures could be better embedded in the business so that compliant outcomes are achieved automatically

AFSL policies and procedures should be reviewed on an ongoing basis as part of the AFSL holder’s overall compliance and risk framework. However, as a rule of thumb, they should be reviewed at least annually or more frequently if there has been a material change in the nature or activities of the business or an event has occurred (i.e. significant breach) which indicates that there may be deficiencies in the current framework.

Yes. It’s our view that AFSL holders should appoint an external member on their board and AFSL compliance committee to provide an independent and objective view on existing compliance arrangements and areas of improvement. External compliance providers are not sufficiently disconnected from the business (and often would be conflicted) to provide an independent view on such matters and so we don’t recommend that they be used as a substitute to independent members.

An Information Memorandum is not required by the law. However it is often used in connection with wholesale offers of financial products (i.e. managed funds and debentures).

While not required by law, an Information Memorandum can be useful in disclosing the key terms, features, benefits, costs and risks of the wholesale offer. It can also serve as a useful risk management tool to clarify the terms of the offer and remove ambiguity which may arise if the offer is made verbally or in multiple (conflicting) documents.

Even though an Information Memorandum is not a regulated document, the content must nevertheless be complete and accurate because the issuer can be found to have misled or deceived investors where information in the Information Memorandum is inaccurate (express or by omission) or incomplete.

Lawyers and advisers are often engaged to verify an Information Memorandum to determine whether any information or representations misleading or deceptive. Verification usually involves matching statements and representations against other external source documents (i.e. reports, contracts etc.) to confirm their truth and accuracy and whether any qualifications or disclaimers are required to clarify the statements and representations made.

It ultimately depends on the issuer, but common issues which arise are:

• the Information Memorandum contains forward-looking statements or representations (i.e. budgets or predictions on future events) which are not based on reasonable assumptions
• the Information Memorandum contains statements or representations which cannot be independently verified
• the Information Memorandum does not include information, or quality of information, that would otherwise be provided to investors in similar offers
• the Information Memorandum only considers the initial offer and capital raise and does not build in useful investor relations and governance procedures to govern the ongoing relationship between the issuer and investors

While it depends on the product or service, its complexity and whether its clients are retail or wholesale investors, the general rule of thumb is that disclosure documents (i.e. FSG, PDS, IM) should be reviewed at least annually and more regularly where there have been material changes to the business, its arrangements or the structure of the product.

We’re regularly asked whether a client can buy an AFSL instead of applying for a new AFSL.

While it is possible to buy a company which holds an AFSL – whether you should and the associated implications are more complex which need to be explained.

Can you buy an AFSL?

An AFSL is not a separate asset and cannot be transferred to another company or person.

Buying an entity that holds an AFSL

While you can’t buy an AFSL, you can purchase the entity that holds the AFSL. Like with any purchase of a business, there are risks associated in acquiring a business and appropriate due diligence should be undertaken.

Issues when purchasing an entity with an AFSL

In addition to the ordinary legal and commercial issues associated with purchasing a business, there are specific AFSL issues that clients should consider when negotiating the purchase terms. These include:

• AFSL authorisations. Does the entity hold the AFSL authorisations the client requires to operate its intended business?
• AFSL conditions. Does the AFSL have conditions that may affect the purchase structure or negotiations? For example – is a key person condition imposed on the existing responsible managers of the entity?
• Who are the responsible managers post purchase? The AFSL entity must have responsible managers with appropriate skills and experience in all of the financial services it is authorised to provide. If the AFSL includes a key person condition – it may be necessary to negotiate for the existing responsible managers to remain with the entity post settlement for a period of time.

Post purchase obligations 

Post settlement, the AFSL entity will need to notify ASIC of the following changes:

• Changes to the responsible managers.
• Changes to the trading names, addresses, contact details and auditor of the entity.
• If the entity is a company, notification of a change in control.
• If the AFSL is subject to a key person condition and there is a change in the responsible managers, an AFSL variation will be required which proposes new responsible managers in lieu of those who will no longer act for the entity.

Does ASIC review the transaction?

Responsible manager appointments need to be notified to ASIC. ASIC will review the responsible manager mix to determine whether the AFSL entity continues to have the organisational competence to undertake the financial services authorised on the licence.

Where the AFSL contains a key person condition and responsible managers subject to the condition will no longer act, ASIC will review the AFSL variation and alternative responsible managers submitted to determine whether the AFSL entity has the appropriate organisational competence to appropriately carry out its activities.

ASIC will assess any change of control to determine whether those associated with the AFSL entity, including the new parent entity are fit and proper.

It depends on the structure of the fund (i.e. unit trust), how it receives investment and makes decisions on behalf of investors. However, if the fund is established as a unit trust (which is a common structure), then the trustee of the trust and investment manager would usually be providing a range of financial services and will require an AFSL.

There are several structures which are commonly used. Where the trustee and manager are related parties, they would commonly operate under the same AFSL which would be held by the trustee, manager or another related entity.

Given the structure of the fund will determine the entity that holds the AFSL and authorisations that are required, we recommend obtaining structuring advice prior to applying for an AFSL.

Simple – it is infinitely better for an AFSL holder to identify and address issues before ASIC does!

Risk audits vary in scope, but they all have the same goal of making the business more robust from a compliance perspective, which is often achieved through identifying process flaws and risks which are not managed appropriately.

For a financial planning business, this will usually focus on the current advice process used by the business and an analysis of whether the process is being followed, or where it is being followed, whether the output from the process is compliant and represents best practice.

For wholesale funds, it may focus on the content of the IM and whether it is misleading or deceptive, how the business manages its AML obligations, investor relationships or arrangements with its custodian, trustee and other third-party providers.

We’ve dealt with ASIC, AUSTRAC and the TPB on various investigations.

ASIC investigations include responding to ASIC on:

• why a business does not hold an AFSL
• significant breach reports lodged
• random reviews and targeted investigations undertaken on businesses

AUSTRAC investigations include responding to AUSTRAC on suspicious matter reports and random reviews and targeted investigations.

TPB matters are based on accountants alleged to have breached the TPB’s Code of Conduct.

We think there are many, but at its core, we’re enabling other law firms to access our expertise without having to build that capability internally and referring the work to other law firms who may seek to poach the client.

We’re not interested in providing broader legal or consulting services to clients and are willing to sign a restraint to that effect if required.

It’s simple. We can either help you service your client or provide services directly to the client under your banner. Your client continues to engage your firm, but you engage us in the background to undertake the relevant legal/consulting services on your behalf.

Legal services. Given state and territory laws prohibit legal services from being provided by a person who is not a lawyer, legal services can only be white labelled to law firms. However, our consulting services are not restricted to law firms and can be white labelled by other professional firms.

Some firms would rather refer clients to us rather than operate under a white label arrangement.

That is totally fine. We often act for clients who are referred to us by other professional firms and extend standard courtesies to our referrers, such as informing them of the progress of the matter and referring any non-financial services related work back to the referrer.