New ASIC powers set to extinguish opportunity for firms to ‘warehouse’ AFS licences
A new piece of legislation is set to expand the powers of the Australian regulator with regard to AFS licenses granting and cancellation.
The Australian Government has earlier today released draft legislation for public comment regarding the powers of the Australian Securities and Investments Commission (ASIC). The draft legislation includes, inter alia, amendments to ASIC’s powers as to the Australian Financial Services (AFS) licensing regime.
Importantly, the new powers will close an existing loophole that allows entities to “warehouse” AFS licenses. ASIC’s existing powers in the AFS licensing regime do not provide for suspension or cancellation if the licensee does not provide the financial services that have been authorised.
This provides an opportunity for entities to ‘warehouse’ and commoditise AFS licences. In practice, an entity is able to apply for a licence without any intention of commencing activities authorised by the licences. The intention is to sell the licences to persons who may not always meet the requirements to hold an AFS or credit licence.
There is also a lack of certainty as to when a licensee should have commenced business after being granted a licence. Under the amendments, ASIC will be given the power to cancel an AFS licence if the licensee does not start to provide the financial services covered by the licence within six months after the licence is granted.
The amendments also clarify ASIC’s power to suspend or cancel a credit licence if the person does not engage, or ceases to engage, in credit activities, to align the amendments to the AFS licensing regime with the credit licensing regime.
Licensees must have commenced providing the relevant services to clients within the 6 month period. It is intended that merely preparatory or auxiliary activities related to the provision of a service or activity will not be sufficient to satisfy this requirement. ASIC will provide further guidance on compliance with this requirement as part of regulatory guidance material.
The power to cancel the licence is discretionary and it will be open to ASIC to work with licensees if there are genuine reasons for not being able to commence its business within the six month timeframe.
Let’s also note the amendments concerning penalties for delayed provision of information to the regulator regarding change of control. Currently, a condition of an AFS or credit licence is that a licensee is required to notify ASIC within 10 business days of becoming aware of a change in control. A breach of this condition is not currently subject to any specific penalty.
The amendments provide that a licensee must notify ASIC of a change in control within 30 business days after an entity starts to control, or stops controlling, a licensee. Failure to do so is a strict liability offence that carries a penalty of 30 penalty units for individuals and 300 penalty units for body corporates.
Responses to this consultation are accepted up until October 9, 2019.