In most cases, a financial services business that is required to be licensed under the Australian Financial Services (AFS) licensing regime will become a Corporate Authorised Representative (CAR) when they first start their business due to the process being simpler and quicker than getting an Australian Financial Services Licence (AFSL). However, every financial services business must ask themselves two key questions when determining whether they should remain a CAR under an AFSL or obtain their own AFSL including:

1. As a CAR under an AFSL, when is it an appropriate time to obtain my own AFSL?; and

2. What is more worth it, obtaining my own AFSL or remaining a CAR under an AFSL?

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Each financial services business is subject to different circumstances at various points in time which impacts the decision of whether it should obtain its own AFSL or remain a CAR under an AFSL.

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Australian Financial Services Licence (AFSL)

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A financial services business is required to obtain an Australian Financial Services Licence to provide its clients with ‘financial services’ as defined under the Corporations Act 2001 (Cth) (Corporations Act) unless an exemption applies. The most common exemption that exists to obtaining an AFSL is to be a CAR under an AFSL. As an AFS Licensee, there are a wide range of obligations that must be adhered to, including but not limited to, general conduct obligations, capital requirements, organisational competence and reporting requirements with most obligations varying depending on whether an Australian Financial Services Licence contains a wholesale only authorisation or a retail authorisation.

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Advantages of being an Australian Financial Services Licensee

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There are various key advantages of being an AFS licensee including:

1. You ultimately “own” your business as it provides you with the flexibility to carry on your business in your own manner and you are not subject to restrictions or approval requirements that may apply to a CAR and are not required to report to another AFS licensee;

2. You are able to provide whichever financial services for whichever financial products you are authorised to provide and are not limited to the financial services that another AFS licensee may authorise you to provide;

3. You obtain the opportunity to authorise other financial services businesses under your Financial Service Licence which generates an additional revenue stream to your primary business revenue as you can charge a fee for each Authorised Representative under your Australian Financial Services Licence;

4. Depending on the fee that you may pay as a CAR, it may be cheaper long-term to obtain your own AFSL; and

5. You can implement more efficient and effective compliance program to govern your Australian Financial Services Licence compared to a compliance program that may be imposed on a CAR under an AFSL. It also allows you tailor a certain compliance program for your business operations rather than relying on a generic compliance program set out by other AFS licensees.

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Advantages of being a Corporate Authorised Representative

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There are also various key advantages of being a CAR under an AFSL including:

1. Your liability is limited due to an AFS Licensee being ultimately responsible for meeting all obligations and requirements under the AFSL, rather than a CAR, resulting in minimised legal risk;

2. You are provided a compliance program by the AFS Licensee rather than having to build and implement your own compliance program along with relevant templates, training and research.

3. The AFS Licensee incurs all relevant costs in maintaining its Australian Financial Services Licence, and typically, the CAR pays a fee to the AFS Licensee. It may be more beneficial to remain a CAR where the fee that is paid to the AFS Licensee is more affordable compared to the costs in maintaining an Australian Financial Services Licence; and

4. In the case that you do not have the relevant experience and competence to obtain your own Australian Financial Services Licence, you can use utilise the opportunity of being a CAR under an AFSL to gain industry experience and competence.

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How to Decide

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It is important to weigh up the pros and cons when contemplating a decision to either obtain your own AFSL or become/remain a CAR under an AFSL and is ultimately dependent on the circumstances of your business operations at the current point in time. Obtaining your own AFSL means there will be a significant initial cost but a potential long-term benefit, however, becoming/remaining a CAR is a simpler and quicker process but may mean you are subject to restrictions and approval requirements meaning your financial services may not operate with full flexibility.

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How We Can Help

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Adria Law are experts in assisting financial services businesses with their licensing requirements under financial services laws and can advise you on determining whether obtaining an Australian Financial Services Licence or becoming/remaining a CAR would be more beneficial for your business depending on your operational circumstances. We can further assist you in obtaining appropriate licensing with ASIC and collaborate closely with you through the preparation stage of an AFSL or FAFSL application and post-application stages regarding any liaison with ASIC. We can also assist you with preparing or reviewing a CAR Agreement where you intend on becoming a CAR under an AFSL. Our licensing services are charged at a fixed fee rate and we implement an operational approach to our services so that they are tailored to your business goals.

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Whether you currently operate a financial services business or are in the process of opening a financial services business, contact our experienced lawyers today for a free consultation.