AFS Licensees – Why You Must Maintain Adequate Financial Resources

Australian Financial Services Licensees must comply with Section 912A(1)(d) Corporations Act – Financial Resources Requirements

Holders of Australian financial services (AFS) licences must have sufficient financial resources at all times to provide their licensed financial services and to be able to carry out operational and regulatory compliance checking, monitoring and reporting.

Section 912A(1)(d) states that a financial services licensee must…. “have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements…..”.

To demonstrate that a licensee has sufficient financial resources, ASIC requires a licensee to regularly prepare a balance sheet and cashflow projections, in order to monitor the licensee’s ongoing compliance with the financial conditions applicable to its financial services business.

The frequency of such calculations will depend on the type of business and the relative stability of the cashflow or the likelihood that the financial resources may fluctuate. At the very least, monthly calculations should be prepared and signed off by senior management.

Different types of financial business operations entail different financial conditions. The various financial conditions are explained in ASIC Regulatory Guide 166, the licensee’s certificate and relevant class orders/ legal instruments.

If a licensee fails to, or cannot demonstrate, that it has sufficient financial resources, ASIC may suspend or cancel its licence. It is an easy win for ASIC to cancel a licence if a licensee fails to lodge its annual financial statements and auditor’s reports for a few consecutive years.

In ASIC’s view, failure to lodge this information is an indication of lack of financial resources and poor compliance.

Know Compliance

Should you be in any doubt as to the financial requirements of AFS Licences, Know Compliance is available to give you advice.