“No one starts a war—or rather, no one in his sense ought to do so—without first being clear in his mind what he intends to achieve by the war and how he intends to conduct it.”
— Carl Von Clausewitz, AFCA
We’ve frequently been advised to “start with the end in mind”, and this is critical advice to heed before you commit to becoming self-licensed. Self-licensing is not for everyone, and, for some people, it may be more-costly, stressful and time-consuming simply remaining an authorised representative or employee representative.
I don’t necessarily agree, but I do think that becoming self-licensed is a decision that you should make with your eyes wide open.
If you intend to pursue self-licensing, there are a number of steps you should take before you do.
First, assess your capability
Most service providers advise you to start with your Responsible Managers.
These are the people who’ll play a significant role in your business and ensure you comply with the financial services laws and your licence conditions.
It’s critical that you ensure that those you’ll nominate will have the appropriate skill and experience to manage and sustain an AFSL, so it seems an appropriate place to start.
But it’s not.
Before you start down this path, take the time to objectively consider whether, and to what extent, you and your business have the capacity, capability and financial resources to support a licence.
If you do, then it’s appropriate to turn your mind to those people on whom you’ll rely to ensure organisational competency.
Again, as tempting as it might be look to Responsible Managers the reality is that, as a result of the Royal Commission, you need to think more broadly.
Beyond your officers and Responsible Managers, take the time to consider those people in your business on whom you’ll rely to run your business.
Your proposed Responsible Managers, as well as your key managers, must have appropriate qualifications, skill and experience to support the financial services that your business will provide.
Broadly, a Responsible Manager must:
- have worked in financial services in Australia for at least 3 in the past 5 years, or 5 in the past 8 years;
- hold a university degree in a relevant discipline (for example, law, finance, commerce, science or economics);
- be able to demonstrate formal competencies (through industry courses or relevant vocational training);
- provide at least two references confirming their knowledge, skill and good character; and
- not have been banned, bankrupted or convicted, in the last 10 years, of any offence. In practice, this means that they must not:
- have had a licence or registration suspended or cancelled
- be subject to a banning or disqualification order
- have been disqualified from managing corporations.
Identify ‘fit and proper’ people
The Royal Commission has had some immediate impacts.
In fact, a new ‘fit and proper’ test applies to all the people that will be involved in the management of your AFSL; all your officers, your controllers (owners) and Responsible Managers, irrespective of your corporate structure.
It’s a higher standard than the old ‘good fame and character’ test because it includes a formal assessment of an applicant’s competency, character and conflicts.
A ‘fit and proper person’:
- is competent to operate a licensed financial services business (their competency is demonstrated by their knowledge, skill and experience);
- has demonstrated, and continues to demonstrate, good character, diligence, honesty, integrity and judgement;
- is not disqualified, and has not been banned, from providing financial services;
- has not, within the past 10 years, been convicted of an offence;
- has not been linked to a failure or refusal to abide by an AFCA determination; and
- is not conflicted, or not materially conflicted, from properly performing their role in your AFSL.
READ APS 520 ‘Fit and Proper’
In practice, and using Credit Licensing as the model, ASIC will require each relevant person to complete and submit
- a national criminal history check;
- a bankruptcy check; and
- a ‘Statement of Personal Information’
Consider your business and your proposed activities
Your philosophy, your client proposition and the nature, scale and complexity of your business will influence the authorisations you’ll seek from ASIC.
TIP: Start by preparing a Business Plan outlining how you’ll operate once you’re licensed. Try to articulate the ‘nature, scale and complexity’ of your proposed business.
Even presuming that you’re not seeking to provide custodial or depository services, operate a registered scheme, make a market or provide a crowd-funding service, you have a significant number of choices to make.
To be licensed to provide ‘financial advice’ or provide financial planning services, you’ll need to choose between:
- Retail and Wholesale clients
- Deposit and payment products
- General Insurance
- Life Products
- Miscellaneous Financial products
- Managed Investment Schemes (registered or unregistered)
- Margin Lending Facilities
- Carbon Credits.
Money, money, money
To be able to sustain your license, you’ll need enough financial resources to ensure that you:
- Are, and remain, solvent (and can pay all debts as they become due);
- have assets exceeding your liabilities;
- have enough cash (or equivalent financial resources) to cover your liabilities when needed; and
- satisfy your audit requirements.
You need to carefully consider how you’ll satisfy the cash needs requirement but you have two options.
In reality, you’ll likely choose one of the following two options:
- Projection and buffer – This requires you to maintain, on a continuing basis, cash or liquid assets equivalent to 20% of 3 months of expenses. So, cash or equivalent assets for 18 days outgoings based either on your reasonable projection of expenses or last year’s cashflow.
- Contingency-based projections – This forecast requires you to prepare cash-flow projections for (at least) the next three months and demonstrate how you’ll satisfy your liabilities during the term of the projection. You’ll need to document your assumptions and demonstrate that you’ll have enough financial resources to meet your liabilities over the next three months at least.
