The accountants’ licensing exemption (Regulation 7.1.29A) previously permitted a recognised accountant to recommend the establishment or winding-up of an interest in a SMSF without holding an Australian Financial Services (AFS) licence. This exemption was removed on 1 July 2016.
ASIC has advised that as at 2 July it had issued 317 Limited AFS licenses to accountants during the three year transition period and that a further 582 AFS Limited licence applications were under assessment at that date.
On 2 July 2016, ASIC issued the following warning:
- “the provision of unlicensed or unauthorised financial services in relation to financial products including self-managed superannuation funds is a criminal offence and significant penalties apply. Accountants and other advisers who have not had their application for a limited AFS licence approved by ASIC need to implement contingencies until such time as their applications have been approved by ASIC.”
This warning applies to those 582 licence applications under assessment and also those accountants who did not apply for an AFS Licence and are not authorised as representatives.
If you are one of the 582 applicants yet to have been assessed
If you have not received any correspondence rejecting your application, be patient as ASIC will take some time to work its way through this large workload. It is important to heed ASIC’s warnings about not providing advice on self-managed superannuation funds until the licence has been granted.
ASIC may issue a number of requisitions as part of their assessment of the licence application. It is important to note that ASIC may refuse to grant the application if you do not address the concerns raised in these requisitions.
We would be happy to assist you should you be unsure of the requisitions being raised by ASIC.
If you did not apply for a licence prior to 30 June 2016 – what are your options?
There remain three options available to you. These are business decisions that you will need to make and each will have a different impact on your business.
- Get your own AFS licence
Obtaining an AFS Licence during the three year transition period was the easiest option as ASIC was not required to assess your experience as part of their assessment. You can still apply for an AFS Licence with limited authorisations, but you will need to demonstrate that you have both the experience and qualifications for the authorisations requested. This may be difficult if you have limited experience.
Another option would be to recruit an experienced financial planner to form part of your team who could be nominated as a responsible manager on your licence.
Note that AFS licensees have ongoing responsibilities and are also responsible for the people who provide financial services on their behalf. They are required to appoint an auditor, maintain PI Insurance, be a member of an external dispute resolution scheme and lodge certain documentation with ASIC on an ongoing basis.
- Become an authorised representative
Though authorised representatives have lesser ongoing legal obligations, 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 ascertain the potential risks arising from such arrangements. For example:
• has the licensee had issues with ASIC in the past and if so, how have they dealt with these issues;
• how often does the licensee monitor their authorised representatives and what compliance checks would be carried out;
• how will the licensee ensure that all representatives remain up to date with regulatory changes and internal changes to policies and procedures;
• what sort of compliance, business development and administrative support is offered by the licensee to assist the authorised representative to grow their business;
• what sort of software and platform does the licensee operate or offer.
- Note that the actions of a small number of the licensees’ representatives could have serious implications for the licensee and all of its authorised representatives. It is important that the licensee has a program in place to monitor, train and supervise all of its representatives.
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. How the accounting advice and financial planning advice will be separated and files maintained is also an important consideration.
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 AFS licence?
Note that CPA Australia have obtained an AFS Licence through CPA Australia Advice Pty Ltd (AFSL 482657). This may be an option for accountants who are members of CPA Australia and hold a public practice certificate and have completed RG 146 training.
- Referral arrangement
As the exemptions were 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.
If you wish to apply for an AFS Licence or are experiencing issues with your current Limited AFS Licence application, Know Compliance can assist you through this process so that you can focus on what you do best and broaden your business opportunities.
It is important to understand that ASIC has broad surveillance powers and has a variety of tools to conduct surveillance. ASIC is very likely to undertake some form of surveillance of Licensed and unlicensed accountants in the next 12 months to determine whether:
• accountants who hold an AFS Licence or who are authorised by an AFS Licensee are operating within the Law; and
• accountants who do not hold an AFS Licence or authorisation by an AFS Licensee are not providing SMSF advice.
Therefore, it is important to ensure that, where you are licensed, you have all the tools in place to comply with the Law and your licence and, if you are not licensed or authorised, that you have systems in place to ensure that you do not provide any form of SMSF advice.