Australia: Part I: Current ASIC trends in licensing applications and variations

We've observed quite a few changes in ASIC's approach to licence applications, especially over the past year or two. This blog series considers those changes, as well as the current trends in licence applications and variations.

Some of you reading may already hold a licence issued by ASIC, be it an AFSL, an ACL or both. If you're not looking to set up a new business or expand your current business activities, you may wonder why you should care about changes in the licensing process.

We find that the approach taken to licence applications, often signals changes in ASIC's wider approach to certain industries. For example, the scrutiny applied to licence applications in the OTC derivatives and margin forex space, predated ASIC's publication of action against individual actors in this space.

Additionally, if you want to vary your licence, or (in some cases) change your responsible managers, you will have to deal with the licensing team. Accordingly, it is important to know how the process has changed since you last dealt with ASIC. For those of you that streamlined into the AFSL or ACL regimes, the changes are significant!

Timeframes

The first question usually asked by clients seeking to apply for or vary a licence is "how long will it take?" The answer will vary depending on the complexity of the application. The bad news is that timeframes for applications are increasing significantly across the board. ASIC's current service charter states that it aims to make a decision on 70% of licence applications (either for new licences or variations) within 60 days, and 90% within 120 days. In our current experience, ASIC is not addressing applications within the charter standards – especially AFSL applications.

If you need to vary your licence to add a complicated new product (for example, you wish to commence operating registered managed investment schemes), we suggest allowing at least 6-9 months for the application process. Many applicants forget that it can be a process of several months just to get the application in a state to lodge, let alone the time required by ASIC to assess the application.

Part of the reason for the extended timeframes is that ASIC's resources are currently stretched, with declining budgets and an expanding remit. However, the rise of innovative and fintech businesses means that the applications being considered by the licensing analysts are more complex than 5 years ago, so each application is generally taking much longer than previously.

Licensing accountants

The transition period for accountants is nearing an end, with applicants required to apply before 1 March 2016 to ensure ASIC makes a decision before the end of the current exemption. At the time the amendment to the exemption was proposed, the Government suggested that up to 10,000 accountants would seek AFSLs. At the end of 2015, only 259 applications had been made to ASIC, of which only 87 had been approved.

In our experience, many accountants have not yet made a decision on whether they wish to exit the superannuation space, become an authorised representative of another AFSL or obtain their own licence. If even a small proportion of the original 10,000 accountants intend to apply for a licence prior to the deadline, then the timeframes are likely to be affected even further.

Wider scope of review

If you are looking to vary your licence, be aware that ASIC is unlikely to restrict its assessment purely to the changes to your licence, especially if your licence has remained unchanged for some time. We have had several situations where ASIC has used a variation application as an opportunity to conduct a broader review of the licensee's activities. Such a review could mean ASIC asking further questions about your responsible managers, or delving into the details in your business model.

We have especially noticed this in ASIC's current areas of focus, such as margin forex, CFD and OTC derivatives businesses. We note that the licensing team is now housed within the Assessment and Intelligence department of ASIC, which also means that the analysts appear to have greater access to intelligence gathered throughout the organisation. Do not be surprised if a licensing analyst asks questions about a matter where you dealt with another stakeholder team, or if they bring in staff from other areas to consult on your application.

Wider reviews or consultations can lead ASIC to better understand your business, but they are also likely to increase the time taken for ASIC to make a decision on your application.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.