The Australian Financial Services Licence or AFSL is the last item you need to become a full-fledged independent insurance broker in Australia, making it a critical part of your insurance career path.
As with the other prerequisite certifications, obtaining an AFSL has its own set of requirements. That’s why in this guide, Insurance Business will show you how to get the licence and help you lay the groundwork for your financial services or insurance broker practice.
The AFSL is a legal requirement. It is a licence issued by the Australian Securities and Investments Commission (ASIC) that serves as a permit for businesses to operate and provide financial services in the country.
The AFSL is legally required for any Australian financial services firm, and they must have it on the very day that business operations begin. No financial service business in Australia can operate without the AFSL, unless they are given a limited licence or exemption with special provisions.
To get this licence, AFSL applicants must meet certain requirements. These include:
Those applying for the AFSL should demonstrate organisational competence, including adequate resources, qualified staff, and measures that can help ensure compliance.
Those wanting to obtain the AFSL for their financial services business must have responsible financial managers onboard. These managers are also obliged to have the necessary experience and skills in the field of finance so their licence application can have better chances of approval.
To hold an AFSL, applicants must also demonstrate that they have enough financial, human, and technological resources to operate their financial services business. These resources should be sufficient to enable them to operate in accordance with industry standards and best practices.
AFSL applicants must show that they have adequate compliance measures and conflict management arrangements in place.
When providing financial services to retail clients, AFSL applicants should have an adequate dispute resolution system as part of their business.
AFSL applicants need to have sufficient risk management systems that are tailor-fit to their financial services business.
Having arrangements or mechanisms designed to compensate clients for losses due to breaches of obligations should be in place. This is a general obligation stipulated by the Corporations Act.
The ASIC must be satisfied that the applicant and their responsible officers have a good reputation and character, i.e., do not have any criminal record.
In general, those operating a business of providing financial services must be Australian Financial Services Licence holders. You can only operate without an AFSL if you are exempt or are authorised to provide those services as a representative of another person who holds the licence. But in many cases, both insurance brokers and insurance agents may need this licence, depending on their business activities.
Insurance brokers – need this licence if they carry out the usual functions of their profession, which is to act as intermediaries between insurance companies and clients. If they don’t apply for their own licence, they can join a general insurance broker network as an authorised representative and operate under that network’s AFSL. If you want to be one, don’t forget to read our guide on how to become an insurance broker in Australia.
Insurance agents – will need an Australian Financial Services Licence if they provide financial product advice or deal in insurance contracts.
There are many activities of a financial nature that require the Australian Financial Services Licence. Businesses or individuals who operate without it can be held liable and pay hefty penalties or face imprisonment. The financial service activities that require this licence include:
To get the Australian Financial Services Licence, you must go through an application process that involves preparation of crucial documents, compliance, review by ASIC, then finally issuance of the licence.
Here are the steps for getting one:
Before you embark on the AFSL application process, be sure to meet the eligibility requirements like having completed senior secondary school. You must also have the Certificate III in Insurance Broking and the Diploma in Insurance Broking. You must also complete at least three years’ worth of relevant work experience in the last five years of working in the Australian insurance industry.
If this is your first time reading about the AFSL, be sure to obtain the Certificate III in Insurance Broking and then obtain the Diploma in Insurance Broking to meet the requirements.
Documents for the AFS license application include:
The next step is to compile essential documents about your business’ responsible managers. You must submit documents for each of them, consisting of:
Note that these documents must not be more than a year old for the ASIC to consider these valid and acceptable for your Australian Financial Services Licence application.
Don’t forget to provide complete information on each “fit and proper person” within your organisation. This includes all the directors, secretaries, and other officers who operate the business, even if they are not responsible managers.
Before you submit your Australian Financial Services Licence application, it would be prudent to first clarify any threshold issues. If there are any threshold issues, the ASIC can pause their review of your application and seek clarification – causing you to lose time and money.
Once you’ve collected all the required documents, also called core proofs, you may lodge an application with ASIC.
Next, give details on your compliance arrangements and other procedures like risk management and procedures to address conflicts of interest. You will also need to draft the compliance procedures to show compliance with the applicable Australian financial services laws.
These compliance arrangements can usually take one to two weeks, but more time may be needed to finalise the procedures, which can be done while ASIC is assessing the application.
Having submitted all the necessary requirements, you will receive confirmation of your application and ASIC will proceed with their review of your application. This process typically takes around 120 days but depending on the application’s complexity and ASIC’s resources, it may take up to eight months.
Note that during the ASIC’s assessment of your application, you may receive requisition letters for more information or to raise specific areas of concern. Responses to these requests must be met within ten business days.
You may likewise receive requests for information on non-core proof documents or questions from an ASIC analyst. You must also submit any of these additional documents within 10 business days from ASIC’s request.
If your application process goes smoothly and all issues raised by the ASIC are addressed, you will be issued a draft AFSL that is subject to certain conditions.
The conditions of this draft licence should be satisfied, depending on the nature of the financial services your business will provide. For instance, responsible entity applicants, their conditions include:
Apart from complying with the conditions of the draft license and with each relevant financial services law, Australian Financial Services Licence holders are required to act honestly, fairly, and efficiently in all dealings with clients.
The AFSL will be issued to applicants only once all the outstanding conditions attached to the draft license are satisfied.
How much does it cost to apply the Australian Financial Services Licence? Knowing this can be crucial for those starting as independent insurance brokers or starting their financial services business. There are different types of costs for obtaining the AFSL, and this can include application fees and professional fees. Make sure to account for these in your starting-up costs.
The main benefit of obtaining the AFSL is that licence holders are legally allowed to offer financial products or services in Australia. But there are other important benefits to having this licence, such as:
Licensees have the freedom to conduct their business as they see fit. They can tailor their services as they deem necessary to meet their clients’ specific needs. This independence allows licensees to offer the exact financial services and products they want.
The AFSL lets licensees have access to a broader range of potential clients. They can service retail clients like individual clients or small businesses, or wholesale clients like large corporations or pension funds, or a mix of both.
Those with the Australian Financial Services Licence can hire other professionals who are not AFSL holders to work for them. In this way, the licence holder can expand their business by authorising others to offer financial services under their licence.
This can generate more profit, since authorised representatives usually pay a fee for the services provided while working under the AFSL holder’s licence. Basically, the AFSL allows you to operate and grow your business without ever running afoul of financial laws and regulations. Expanding your business in this manner may place you among the top insurance brokers in the country.
Does this guide make you consider obtaining the Australian Financial Services Licence? Share with us your thoughts in the comments
