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 almost half way through the licensing period where recognised accountants can streamline to an AFS Licence. To date ASIC has granted few limited AFS Licences to recognised accountants. The transition period of three years ends on 30 June 2016.

    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.
    Become Licensed
    AFS Licensees have ongoing responsibilities and are also responsible for the people who provide financial services on their behalf. They are also 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 competencies.
    Authorised representative
    Though authorised representatives have lesser ongoing legal responsibilities to ASIC, authorised representatives have ongoing responsibilities to their clients and to the principal licensee who appoints them. Individuals also 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, have there been issues with ASIC in the past, do the licensees monitor their authorised representatives to ensure that all representatives meet certain standards in their operations and how do the licensees ensure that all of their representatives are operating within regulatory guidelines? In addition, individuals should review the impact of the relationship on their accounting practice as there may be potential disputes as to who will own the clients and remuneration entitlements.
    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 what they currently can do 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 . 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 what some of the ongoing obligations are when licensed:

    • maintain PI Insurance (contact you accounting body who are arranging appropriate PI Insurance );
    • maintain membership of an external dispute resolution scheme;
    • have in place adequate compliance measures and risk management systems;
    • have in place adequate financial resources;
    • ensure that those providing financial services under the licence are adequately trained and supervised; and
    • comply with the disclosure obligations

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.

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.