Common Breaches and ASIC’s Enforcement Action

ASIC has taken action to cancel the AFS licence of two Sydney based AFS licensees recently for failure to comply with financial services laws.

We take a look at the common breaches behind ASIC’s enforcement action and what you can do to ensure you don’t make the same mistakes and face cancellation of your AFSL.

Organisational Competence

One of the AFS licensees failed to notify ASIC that its Responsible Manager and Key Person had resigned, therefore failing to maintain its organisational competence to provide financial services. As ASIC noted, maintaining competence is an essential factor in a licensee showing they can provide financial services efficiently, fairly and honestly.


So, what can licensees do to ensure compliance with the organisational competence requirement?

Section C of ASIC’s Regulatory Guide 105 lists the qualifications and experience requirements for Responsible Managers and also outlines the level of involvement in the business which is expected by ASIC. Generally, a key person is appointed on an AFS licence where ASIC considers that the licensee is dependent on a particular Responsible Manager to maintain the capacity, knowledge and skills in order to provide services under the licence.

In the event that a Responsible Manager who is named as a key person on a licence resigns, the licensee must notify ASIC within 5 business days of the actions that will be taken to replace that key person. Further, licensees must notify ASIC of any changes to Responsible Managers not listed as Key Persons within 10 business days of a change occurring. If a licensee is does not meet these deadlines, consideration as to whether the breach should be reported to ASIC should be undertaken by senior management in accordance with the licensee’s breach reporting policy.

Financial Statements and Audit Requirements

Both licensees breached their obligations in relation to financial reporting and audit reports with one licensee failing to lodge its financial statements and auditor’s reports with ASIC for two financial years in a row. ASIC’s primary concern with this type of breach is that the licensee does not understand the obligations relevant to it under the financial services law and the conditions on its licence.

It is important for all licensees to be aware of their obligations regarding financial statements and audit reports and ensure that the process to complete the audit is commenced in a timely fashion after 30 June to ensure all reports are lodged within the required timeframes.

Division 6 of Part 7.8 of the Corporations Act 2001 (“Corporations Act”) contains information on the requirement of Annual Financial Reports and Audits imposed on AFS licensees. ASIC expects AFS licensees to lodge their financial statements to demonstrate their capacity to provide financial services. ASIC has advised that failure to comply with reporting obligations is an indication of a poor compliance culture and a licensee’s inability to comply with its ongoing licence obligations.


One recent licence cancellation related to the licensee’s failure to obtain membership with Australian Financial Complaints Authority (“AFCA”). ASIC has been vocal in relation to the need for licensees who provide services to retail clients to obtain AFCA membership and notify ASIC of their membership details. The deadline for notification was 30 November 2018, with all AFCA members also now required to have updated their disclosure documents to refer to AFCA as the sole external dispute resolution scheme.

ASIC has recently released further details of the enforcement action it has taken to ensure all licence holders have obtained membership with AFCA. ASIC identified 58 AFS licensees and 217 credit licensees who had not obtained AFCA membership within the required timeframe. Whilst the majority of licensees subsequently obtained AFCA membership, ASIC took action to cancel or suspend 4 AFS licensees and 48 credit licensees.

If you haven’t notified ASIC of your AFCA membership details or updated your disclosure documents, the time to do so is now.

Further Reading

For further information on these licence cancellations, please refer to ASIC’s Media Releases:


For further information on the obligations referred to in this blog, please see below:


Sophie Grace is equipped to assist you in complying with your ongoing licence obligations, please contact us directly for further information.

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