Limited or Full AFS Licence

The existing exemption, under regulation 7.1.29A of the Corporations Regulations 2001,  allows “recognised accountants” (as defined under the regulations) to give SMSF advice without holding an AFS licence.  However,  the exemption will be repealed on 1 July 2016 as part of the Future of Financial Advice (FOFA) reforms.  A new form of AFS licence referred to as the 'limited' AFS licence has been created for recognised accountants. 

Any suitable entity will be able to obtain a limited AFSL but the government has given recognised accountants a three year transitional period,  between 1 July 2013 and 30 June 2016,  where they can take advantage of the transitional arrangements for entry into the AFS licensing system.

Limited AFS licence

Those holding a limited AFSL are not required to lodge an annual auditor's report and can instead lodge an annual compliance certificate.  However,  they must still comply with the relevant requirements in the Corporations Act 2001.  This includes meeting the conduct and disclosure obligations and their licensing conditions. 
 
Regulations 7.6.01BA(3),  7.6.04(3),  7.8.12A(4) and 7.8.14B(3) of the Corporations Regulations 2001,  define limited financial services as the following financial services:

  • financial product advice on SMSFs;
  • financial product advice on superannuation products in relation to a person's existing holding in a superannuation product but only to the extent required for:
    • making a recommendation that the person establish a SMSF;  or
    • providing advice to the person on contributions or pensions under a superannuation product;
  • class of product advice on the following:
    • superannuation products;
    • securities;
    • simple managed investment schemes;
    • general insurance products;
    • life risk insurance products;
    • basic deposit products;
  • arrange to deal in an interest in a SMSF.

What are the limitations?

You should be aware that the authorisations relating to the limited AFS licence do not appear to clearly authorise certain activities.  At this stage,  a number of issues appear to remain unclear.  For example:

  • Paragraph (b) above appears to only allow provision of advice in relation to establishment of SMSF and a client’s contributions to or pensions under a superannuation product.  It does not appear to specifically allow you to advice a client to dispose of their existing retail superannuation fund. 
  • Paragraph (c) means you may only provide generic advice and should not include any specific recommendations.  For example a recommendation to buy "1,000 shares in BHP Billiton" would not appear to be allowed under a limited AFS licence.
  • Paragraph (d) allows you to arrange to deal in an interest in a SMSF.  Whilst this allows you to establish a SMSF,  it does not appear to allow you to assist clients to dispose of non-SMSF funds and consolidate the various superannuation funds into a new SMSF that you have established. 

Transitional Arrangements

During the transitional period,  AFSL applicants whose responsible managers are recognised accountants will benefit from a different organisational competence requirement.  Under regulation 7.6.01BA(2),  recognised accountants are only required to satisfy the knowledge requirements in RG 105 and are not required to demonstrate experience.  However,  licensees who opt to enter into this arrangement will need to comply with an additional condition requiring that,  within three years of the licence being granted,  they may be required to demonstrate to ASIC that they have:

  • knowledge of the licensee's obligations under the Corporations Act and Corporations Regulations;  and
  • the competence to provide the financial services covered by the licence.

Tips

When considering whether to obtain a limited AFS licence or full AFS licence,  you should consider:  

  • If the scope of the limited AFS licence will be sufficient for your business and operations.
  • The benefits of obtaining your limited AFS licence by 30 June 2016 to take advantage of the transitional arrangements.

 

Please see our article in the Taxation in Australia Journal

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