This week the Australian Government released draft legislation for public comment as a follow up to its response to the ASIC Enforcement Review Taskforce Report. The response was released by the Government in April 2018. The draft legislation, amongst other things, seeks to grant ASIC new powers in relation to the cancellation of AFSLs and ACLs.
The Exposure Draft Explanatory Materials (Explanatory Materials) explains that the ASIC Enforcement Review Taskforce (Taskforce) found many businesses were applying for AFSL and ACLs as a means to “warehouse or commoditise” licences, with no intention of ever commencing operations. Further, the Taskforce found that many applicants were seeking to obtain AFSLs and ACLs to then on sell the licence once obtained to business or individuals who would not necessarily have the requisite knowledge or experience to obtain their own licence in the first place.
The draft legislation allows for ASIC to cancel an AFSL or ACL where a business does not utilise the authorisations which it has been granted. Under the new powers, businesses must commence providing services utilising all authorisations granted by ASIC within six (6) months of receipt of its licence. Where the business does not commence providing services, ASIC will have the power to cancel the licence.
The Explanatory Materials indicate that activities in relation to the preparation of the provision of services will not be sufficient to satisfy the new requirements. It is expected that ASIC will provide further guidance on this at a later stage.
It is important to note that the Taskforce has also recommended that licensees be able to obtain an extension of time from ASIC in the relation to the six (6) month commencement period, should they be unable to comply. The granting of an extension will be at ASIC’s discretion and will only be available to licensees that are able to demonstrate “genuine reasons” for the lack of compliance.
Key Points from the Draft Legislation
The following items are also included in the draft legislation:
- Notifications regarding a change of control of licensees
Under the draft legislation, licensees will be required to notify ASIC within thirty (30) business days after an entity commences or ceases controlling a licensee (rather than the current ten (10) business day requirement of the licensee becoming aware of a change in control). Under the current notification regime licensees do not face penalties for failing to notify ASIC within the requisite timeframe. The draft legislation seeks to impose a penalty by way of a strict liability offence that carries 300 penalty units for body corporates.
- Suspension or cancellation of a licence where ASIC is no longer satisfied the fit and proper people test is being complied with
The draft legislation seeks to expand the scope of ASIC’s suspension and cancellation powers to cover the fit and proper people test in relation to both AFSL and ACL holders (Note: the fit and proper people test currently applies to ACL holders only, with AFSL holders required to comply with the good fame or character test). The expansion of powers will allow ASIC to ensure licensees, its controllers and officers are fit and proper to provide or control the financial or credit services as authorised by the licence on an ongoing basis (rather than just at the time an application for a licence is made). To allow ASIC to assess a licensee’s compliance with the fit and proper people test, ASIC will have the power to request relevant information from the licensee in relation to its controllers and officers.
- Fit and proper people test – variation applications
The draft legislation will impose the fit and proper people test on all applicants applying to ASIC for a variation of their licence regardless of whether they are a financial services or credit provider. When assessing a licence variation application, ASIC must have no reason to believe the licensee and the controllers are not fit and proper. To allow ASIC to assess a licensee’s compliance with the fit and proper people test, ASIC will have the power to request information from controllers. ASIC will also seek to confirm that the licensee has not made any material changes to information provided by the licensee prior to the variation application being granted. ASIC will also have the power to refuse a variation application where requested information is not provided by a licensee.
When undertaking its review, the Taskforce found that there was widespread uncertainty regarding the obligations of when a licensee must commence providing financial or credit services under its licence once granted by ASIC. The Taskforce found that this uncertainty was being capitalised on by players within the financial services and credit industries by applying for licences which remained dormant. The new powers seek to eradicate such behaviour to ensure that licences granted by ASIC will be used for the purposes which they are intended.
The current AFSL regime allows ASIC to suspend or cancel a licence if the licensee ceases carrying on a financial services business. Importantly, ASIC does not currently have the power to suspend or cancel a licence if the licensee never commences its financial services business or does not provide financial services in relation to all products or services for which it is authorised.
The current ACL regime allows ASIC to suspend or cancel a licence if the licensee does not engage or ceases to engage in credit activities. The proposed powers will align the financial services and credit licensing regimes. If you would like to speak to us about how the proposed legislation could affect your licence application, please contact us.
Sarah works with the Compliance Team with a particular focus on compliance and legal services. Sarah works with the Legal Team providing ongoing assistance in drafting and reviewing documentation as well as legal research. Sarah assists clients with AFSL and ACL applications, variations and also assists in the implementation of compliance reviews. She provides ongoing compliance support in the form of compliance program implementation and reviews.