Accountants and Limited AFSLs – making the right decision before time runs out

The accountants’ licensing exemption (Regulation 7.1.29A) currently permits a recognised accountant to recommend the establishment or winding up of an interest in a SMSF without holding an Australian Financial Services (AFS) licence.

From 1 July 2016, the accountants’ exemption will be removed. This means that if you wish to continue to provide this advice to your clients from 1 July 2016, you must be appropriately licensed under the AFS licensing framework or be authorised as a representative by the holder of an AFS Licence.

We are now coming to the end of the licensing period where recognised accountants can streamline to a limited AFS licence. The transition period of three years ends on 30 June 2016. Although this date is nearly seven months away, ASIC could follow previous practice and refuse to accept applications around three months before then so that they have time to assess applications before the cut-off date. To date very few limited AFS licences have been issued to recognised accountants and ASIC is concerned that there could be a last minute flood of applications.

It is important to determine whether you need to apply for a Limited AFS licence or become an authorised representative of an existing AFS licensee. These are business decisions that you will need to make and each will have a different impact on your business.


    Get your own Limited AFS licence
    AFS licensees have ongoing responsibilities and are also responsible for the people who provide
    financial services on their behalf. They are required to maintain PI Insurance, be a member of an
    external dispute resolution scheme and lodge certain documentation with ASIC on an ongoing basis.
    Limited AFS licensees will also be required to meet certain training requirements to maintain
    Become an authorised representative
    Though authorised representatives have lesser ongoing legal responsibilities to ASIC, they have
    ongoing responsibilities to their clients and to the principal licensee who appoints them.
    Individuals need to conduct their own due diligence on licensees intending to appoint
    them to ensure that they are aware of the potential risks arising from such arrangements.
    For example:
      • has the licensee had issues with ASIC in the past;
      • does the licensee adequately monitor their authorised representatives to ensure that they
      all meet certain operational standards;
      • how do the licensees monitor all of their representatives to ensure that they all are
      operating within regulatory guidelines? (The actions of a small number of the licensees’
      representatives could have serious implications for the licensee and all of its authorised
    In addition, individuals should consider the impact of the relationship on their accounting practice as
    the potential exists for disputes as to who will “own” the clients and remuneration entitlements.
    Lastly, what fees are involved, what is the likelihood of those fees increasing and how do the total
    fees compare to the one –off cost of obtaining, and the ongoing cost of maintaining, your own limited
    AFS licence?
    Do nothing
    As the regulations will be removed from 30 June 2016 you will be limited in what services you can
    provide your clients. Some exemptions remain, such as the regulations for business advice or taxation
    advice, but you will be restricted as to the type of superannuation advice that you can give. An option
    would be to refer all SMSF and financial planning queries to an appropriately licensed financial
    planner or authorised representative.

What type of Licence can I apply for?

Recognised accountants can apply for a limited AFS licence and take advantage of ASIC’s streamlining processes. A recognised accountant is defined by the regulations as a person who:

    • holds a Certificate of Public Practice issued by the Institute of Chartered Accountants in Australia, or
    • holds a Public Practice Certificate issued by:
      o CPA Australia Ltd, or
      o the Institute of Public Accountants.

The regulations enable recognised accountants to apply for a limited AFS licence that enables them to provide broader financial services than they can currently provide under the exemptions in the regulations. You can apply for all or some of the authorisations detailed in the regulations.

ASIC Guidance

ASIC has issued Infosheet 179: Applying for a limited AFS Licence .

Applying for a limited AFS licence

This Infosheet is a useful tool that describes the licence application process and also the ongoing requirements. It explains what types of financial services a limited AFS Licensee can provide and the appointment of responsible managers to demonstrate that you have the competencies to be licensed. It also highlights some of the ongoing obligations when licensed:

    • maintaining PI Insurance (contact your accounting body which is arranging appropriate PI Insurance);
    • maintaining membership of an external dispute resolution scheme;
    • having in place adequate compliance measures and risk management systems;
    • having in place adequate financial resources;
    • ensuring that those providing financial services under the licence are adequately trained and
    supervised; and
    • complying with the disclosure obligations.

ASIC’s assessment of an application for a Limited AFS Licence

ASIC will focus its assessment on whether you hold the appropriate qualifications to be licensed. These are detailed in ASIC Regulatory Guide 105: Licensing Organisational Competence. It is important to ensure that your responsible manager(s) hold all of these qualifications.

Many recognised accountants will attempt to satisfy Option 3 detailed in RG 105.56 – 60 as they will already hold an accounting degree. If relying on Option 3, ASIC will also require applicants to also hold a relevant (and recent) short industry qualification.

The Legislation and also the issued Licence will require a Licensee to comply with minimum financial obligations. These obligations need to be met prior to the granting of a Licence and include the provision of:

    • cash flow projections for the applicant that demonstrates that you have sufficient resources to meet anticipated cash flow expenses; and
    • a statement of financial position that demonstrates that the applicant is solvent.

ASIC will need to be satisfied that the applicant has systems in place to meet these financial requirements and will require an applicant to submit a document that details how this will be monitored and will also review the financial documents.

Common deficiencies with applications (Frank’s views):

From my experience, applications for Limited AFS Licences have not been successful due to the following:

    • Failure to provide all of the supporting documentation required to be assessed by ASIC. ASIC will
    reject an application where applications are inadequate or incomplete. Applicants need to read
    through Infosheet 179 where guidance is given as to the minimum documentation required.

    • Nominated responsible managers have not met the minimum educational requirements detailed in Regulatory Guide 105 (Licensing Organisational Competence):
    o they do not hold a relevant industry qualification to a diploma level where they do not already hold a university degree; or
    o where they do hold a university degree, they have not completed a relevant short industry course.

    • Where responsible managers have completed a short industry course, the course did not cover the broad authorisations being applied for under the licence. For example, a Limited AFS licence applicant applied to be authorised to provide certain classes of advice on securities, however the course completed by the nominated responsible manager did not include that knowledge content.

    • To take advantage of the “streamlining provisions” of the Regulations at least one nominated responsible manager needs to hold a Certificate of Public Practice issued by the Institute of Chartered Accountants in Australia, or hold a Public Practice Certificate issued by CPA Australia Ltd, or the Institute of Public Accountants. Where an applicant does not provide evidence that at least one of the responsible managers holds one of these memberships then the application will not be able to take advantage of this streamlined assessment. ASIC will then require the applicant to demonstrate full competencies under the Law.

    • Providing inadequate financial information. Applicants need to choose the appropriate structure when applying for a licence and then submit cash flow projections and a statement of financial position for that vehicle to support the application. Some financial documents provided were poorly completed or were in the incorrect name. There have also been occasions where the statement of financial position has detailed that the applicant is insolvent! ASIC provides guidance on how to present this information and what is acceptable where they applicant is trading through a trust structure.

Tips from Know Compliance

It is important to apply with sufficient time to ensure that you complete the necessary qualifications and ASIC is able to assess your application. Therefore, it is important to ensure that you complete the minimal qualifications and also decide on the correct structure to apply for your licence. The decision on structure is important as ASIC will be required to review the statement of financial position of the applicant and also cash flow projections during the assessment process.

The accounting bodies have developed some tools and guidance to assist with the decision process to either apply for a licence or become authorised as a representative. We can also provide you further guidance on making your choice. If you wish to apply for a limited AFS Licence, we can provide further assistance so that you can focus on what you do best and broaden your business opportunities.

Happy to discuss this further with you.


Frank Varga