AFSL Regulatory Entity
AFSL, the Australian Financial Services License, is a legal license issued by ASIC, the Australian Securities and Investments Commission, to regulate activities and operations in the financial services sectors. The Australian financial services businesses have to authorize them by obtaining AFSL or a limited AFSL that contains special provisions for conducting financial services under the Corporation Act of section 911A.
ASIC introduced the Australian Financial Services License under Chapter 7 of the Corporation Act in 2001. It is also the regulatory entity for the supervision of the Australian financial services market. The financial service institutions must submit an application to ASIC for assessment and the supporting documents and details.
Licensees, the financial services institutions that ASIC licenses are required to provide transparent, honest, and efficient financial services under the legislation of their Corporation Act 2001 and AFSL.
The firms that cannot follow the rules and policies set under AFSL and Corporation Act will charge financial penalties against the operations.
Table of contents
AFSL, Australian Financial Services License, is issued to the financial services businesses for conducting financial services in the industry. So FSA administrates the licensees for the following activities:
- Providing financial product advice to the customer.
- Dealing with the financial product.
- Developing a market for the financial product.
- Operating a registered regulatory framework.
- Providing depository or custodial service.
- Providing the services of a traditional trustee company.
However, the consumer ensures that the licensing assesses the financial services institution, not its owner or employees. Therefore, an AFS license does not assure the quality and purity of the licensee’s services. In addition, an AFSL is issued only to businesses that meet specific requirements and standards, including dispute resolution, training, insurance, and compliance. And the licensees are only responsible for the maintenance of these standards.
Obligation of licensees
The licensees under the Corporation Act and AFSL have to follow a set of regulated standards and guidelines. If a licensee cannot fulfil the standards and breached the regulatory standards, it should contact the ASIC; otherwise, it would charge financial penalties. In addition, a set of obligations are required from the licensees. These obligations are following:
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In general obligations of AFSL, the financial services businesses have to ensure transparency, efficiency, and fairness in their financial services.
In the compliance obligations, licensees have to regulate their financial services compliance with the AFSL and financial services law.
The financial obligations vary for each financial services business according to their business product and services. To follow these obligations, the firms have to monitor the availability of the resources needed to conduct regulatory activities and services listed in their financial services law and AFSL.
The financial services businesses required an efficient risk management system to fulfil the risk obligation.
Conflict of interest obligations
The licensees have a dispute resolution system where the financial services provided to the retail clients in compliance with the Corporation Law 2001 of Chapter 7 could fulfil this obligation.
For this obligation, the licensees required a trainee who can encourage competence in the workforce to provide financial services.
Requirements of licensees
The financial services businesses which have AFSL issued from the ASIC imposed some legal requirements to ensure that these licensees have adhered to AFSL and corporation law of 2001. The legal requirements include solvency and audit and assets requirements to make sure the maintenance of available financial resources for conducting financial services efficiently and effectively regularly.
However, if the licensed financial services businesses failed to fulfil the requirements and do not inform the regulators about the breached activities or have a weak dispute resolution system, the AFSL provided to them will be cancelled by ASIC.
The financial firms having ASF licenses should have to update their financial services information on their financial Advisors Register shared with ASIC within 30 days. This will allow the consumers to research the financial services of the licensee and ensure the protection of the licensee from unfair business activities.
Varying and cancelling AFSL
If the licensee’s situation and requirements changed, the licensees have to cancel or vary their AFSL.
The firms may have to vary the conditions and authorization of their AFS license if:
- Change in a condition of a firm’s license: This means if the firm has a “key person” condition on its AFSL and that person leaves the firm. The financial services business must vary its license.
- Change like a firm’s business: The variation in the AFS license is needed when the firm wants to conduct different financial services and cover different financial products.
The financial services businesses have to cancel their ASFL if:
- Firms no longer providing financial services
- Firms intended to become a regulatory authority and the financial services it will provide are the same covered by the firm’s AFSL.
Limited AFSL licensee
The limited AFSL licensee represents the corporations, individuals, and other firms that have the power to regulate only one or more financial services such as advising about the financial product that is self-managed superannuation funds (SMSFS) and advice about the class of product including securities, general insurance products, basic deposit products, superannuation products, and life risk insurance products.
However, the AFSL registered to provide financial services other than the above-mentioned financial services is not considered a limited licensee.
The regulatory framework for providing the Australian Financial Services license to the firms covers regulating a wide range of financial products and services, including margin lending, derivatives, general and life insurance, means of payment facilities, superannuation, carbon units, and deposit accounts.
AFSL imposes obligations and provides guidance about the regulation of financial services and monitors and regulates the efficiency and integrity of financial services businesses in compliance with the ongoing government reviews. And maintain the financial standards of the financial services industry.
To provide AFSL to the firms, ASIC establishes a single licensing regime for financial sales, dealing, and advice regarding financial services. In addition, it develops a comparable and consistent financial product disclosure and authorization procedure for the settlement facilities and financial exchanges.
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