Financial Services Business - No Licence

Generally an Australian Financial Services Licence (AFSL) is required to “carry on a financial services business in Australia”. Anyone who carries on a financial services business in Australia without an AFSL is guilty of an offence. The financial services industry of products, services and providers is governed by Chapter 7 of the Corporations Act 2001.

“Carry on a financial services business in Australia”

The Australian Securities and Investments Commission (ASIC) defines carrying on a business in Australia as:

• having a place of business in Australia;
• establishing or using an office in Australia for share registration or transfer;
• administering, managing or otherwise dealing with property situated in Australia as an agent, legal representative or trustee, whether by employees, agents or otherwise.

Case law shows that an AFSL is likely to be needed if the activity connected with Australia is “systematic, repetitious or continuous”. A licence may be needed for a one-off, significant financial services transaction connected with Australia.

Section 913B of the Act states an applicant for an AFSL must meet certain educational requirements and be deemed a fit and proper person before a licence will be granted by ASIC. ASIC can also impose additional conditions on a licence.

AFSL Exemptions

Individuals or companies can be exempted from the licensing requirement. In certain circumstances, exemptions are available:

• for foreign financial services providers;
• for business with a party that holds an AFSL;
• for financial services that involve only the financial services provider;
• when the financial service is subject to alternative regulation;
• when financial services is not the sole or principal purpose of the business;
• for foreign collective investment schemes.

AFSL cancellation or suspension

Section 915B of the Act states ASIC can suspend or cancel a person’s AFSL if the person:

• stops carrying on a financial services business;
• does not provide a financial service within 6 months of the licence being granted.
• becomes insolvent;
• if convicted of serious fraud;
• becomes incapable of managing their affairs due to mental or physical incapacity;
• applies to ASIC for this to be done;
• owes a payment to ASIC that is more than 12 months overdue.

Similar rules apply if the licence is held by a partnership or business.

The offence of carrying on a business without an AFSL

Under section 911A of the Act, a person who carries on a financial services business must hold an AFSL covering provision of those services. Failure to comply is an offence that carries a maximum penalty of five years imprisonment and/or a fine of up to $126,000 (or $1,260,000 for a corporation)

Further, under section 911C of the Act, a person must not hold out:

• that they hold an AFSL; or
• that the financial service provided does not require an AFSL; or
• that they are providing a financial service on behalf of someone else; or
• that their conduct is within the scope of their AFSL;

if this is not the case.

ASIC has the power to issue a banning order against a person if the agency suspends or cancels the AFSL held by the person or if the person does not comply with their AFSL obligations. A banning order prohibits a person from providing any or specified financial services, as well as controlling or working in a financial services business, for a specified period.

What the prosecution must prove

To find a person guilty of this offence, the court must be satisfied that:

• the accused carried on the business of providing financial product advice;
• the accused did not hold an AFSL covering the provision of that financial advice.

Common ways this offence occurs

Examples of ways that a person or company may find themselves facing this charge include:

• A person’s or company’s work has gradually expanded from matters that do not require an AFSL, such as accounting, to matters which do, such as insurance broking or financial advice.

• A person has begun to work for themselves after working for someone else under their AFSL and has neglected to obtain a licence of their own.

For advice or representation in any legal matter, please contact Armstrong Legal.