One key consideration that is almost always relevant to Australian FinTechs is licencing. Primarily, this concerns whether they need to hold an Australian Credit Licence (ACL), an Australian Financial Services Licence (AFSL) or even a banking licence.
When do I need an ACL?
Under the credit regime, a person needs an ACL if they are engaging in a ‘credit activity’, which includes being a credit provider in the course of a credit business or providing credit assistance.
When do I need an AFSL?
Generally, an AFSL is required if (as part of your business) you:
- provide advice on financial products to clients
- deal in a financial product
- make a market for a financial product
- operate a registered scheme
- provide a custodial or depository service
- provide traditional trustee company services.
How do I get an ACL or AFSL?
The most common way to get an ACL or AFSL is to apply to ASIC for your own licence. It is also possible to become a representative of another person who has an appropriate licence and, in some cases, it may be possible to outsource the licenced activities to a person with a licence.
ASIC also offers a ‘sandbox’ arrangement to approved FinTechs to help them trial a minimum viable product, or MVP, with a limited test base.
What is involved in applying for an ACL or an AFSL?
Applying for a licence involves having ‘Responsible Managers’ (RMs). RMs are people who have had experience and are skilled in the precise type of credit or financial services as those you are seeking a licence for. RMs need two years’ experience in the last five years in the case of a credit service, and usually five years out of the last eight years in financial services (although five experience tests are available to AFSL RMs).
Your application must include information about your RMs, your business plan, national criminal history checks and insolvency checks for any fit and proper person, membership with an ASIC-approved external dispute resolution scheme and certain other supporting information (such as financial information) in the case of an AFSL. Depending on the authorisations requested, financial conditions, such as cash holdings, may be imposed.
The licencing process can take three to six months, or even longer for an AFSL.
Are there ongoing obligations?
When a licence is issued, ASIC will impose licence conditions. These may be general conditions, or conditions could be specific to your business.
A common obligation is the ‘key person requirement’, where ASIC requires you to notify them within a short time if your key person ceases to be involved with the business. It is also usually not acceptable to have RMs in a foreign country rather than having day-to-day involvement with the business.
After a licence is issued, licensees must comply with ‘general conduct’ obligations. These are in section 47(1) of the National Consumer Credit Protection Act 2009 (Cth) (for credit licensees) and in section 912A of the Corporations Act 2001 (Cth) (for financial service licensees).
To assist licensees, ASIC has issued a series of guidance notes called ‘Regulatory Guides’, which describe the law in relation to a particular topic and how ASIC expects licensees to comply with the law. ASIC’s Regulatory Guides are available on the ASIC website.
Author: Jonathan Gordon, Partner and Phil Trinca, Partner.
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This article was first published in the "Entrepreneur's Guide: Startup | Scaleup | IPO"
You can download the entire publication at smeguide.org
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