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

Competence of ACL responsible managers

If you applied for your ACL during or just after the transition period, you may remember that ASIC's benchmark for competence was "two years of relevant, problem-free experience" as outlined in RG 206. While the language in the guidance has not changed, we have noticed significant differences in how ASIC is interpreting the concept of "relevant experience".

During and just after the transition period, ASIC would accept experience as relevant where someone had worked in a business providing credit and had some experience in the provision of the credit. It was unusual for an analyst to question the experience of a potential responsible manager unless it was clear that there was no relevant credit experience, or the experience was not 'problem-free' (such as being disciplined by a professional body).

Over the last year or so, we have noticed analysts asking many more questions about experience. Currently, we do not recommend nominating a responsible manager unless they have at least two years of experience working under another ACL in a substantially similar business.

For example, for credit providers providing consumer leases, ASIC has rejected responsible managers that have been working as mortgage brokers, because a broker (who is only providing services other than as a credit provider) will not have experience in some key areas of the credit provider's business, such as assessing hardship applications.

Justification of international businesses

Many businesses that hold an AFSL do not just operate in Australia, but may service clients across the globe. This model is especially prevalent in models based online, such as online derivatives or forex traders. Following actions over the past year (as previously reported in T-REX), we are seeing increased instances where ASIC will ask an application or licensee to show how they are legally operating in all overseas jurisdictions where the business has clients.

ASIC's view is that a licensee cannot be providing their services efficiently, honestly or fairly if they are operating in an unlicensed or illegal fashion overseas. Therefore, we expect such enquiries to become more common, and we recommend all licensees ensure that they can answer such queries when they arise. This may involve obtaining legal advice from the overseas jurisdictions in which you operate.

Focus on certain business lines

As we alluded to earlier, over the past couple of years ASIC has shown an increased focus on certain types of businesses, and applicants in those businesses can expect a higher level of scrutiny of their applications. For AFSLs, such businesses include money remittance, OTC derivatives products, margin forex products and robo-advice. For ACLs, consumer lease businesses and payday lenders are highly scrutinised.

If your business falls within these categories, even if you are only varying your licence, you should expect a lengthy application process as the analyst is likely to request a lot of information about your business model. If you have any prior instances of breach or non-compliance, expect these instances to be investigated.

Other matters

There are also several reviews and legislative changes that may affect the licensing regime. As we have reported previously, the new crowd-sourced equity funding legislation may be an opportunity for ASIC to reconsider how it assesses responsible managers for AFSL applications.

The implementation of the recommendations in the Murray Report is still in the early stages, and may lead to changes in how ASIC operates. Moving to a user-pays revenue model may assist to alleviate some of the current resourcing constraints to which ASIC currently finds itself subject.

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.