5 REASONS ASIC WILL REJECT YOUR LICENCE APPLICATION.

ASIC rejects 30% of AFS licence applications and 24% of credit licence applications. In this article, we explain why it rejects applications and give you tips on how to avoid becoming a statistic.

In 2017/2018, ASIC approved just 40% of all Australian financial services licence (AFSL) applications and 49% of credit licence applications. Many licence applications could have avoided rejection with a little extra preparation.

When applying for a licence, ASIC performs a key role as a gatekeeper. It may grant a licence if:

• The application is made in the prescribed format and all the supporting documents are provided;
• It has no reason to believe the applicant is likely to contravene the general obligations applicable to all licensees. These obligations are outlined in the Corporations Act and the National Consumer Credit Protection Act (NCCP Act); and
• Anyone responsible for performing duties under the licence are of good fame and character. This includes responsible managers, partners and trustees.

Why ASIC may reject your licence application

There are 5 common reasons why ASIC may reject a licence application.

1. The application did not include all the information

When ASIC receives a licence application, the first thing it does is make sure it’s complete. If the application is incomplete it will be rejected and you will need to reapply.

To submit a complete application it must include:

• All core proofs and supporting documents outlined in ASIC’s Regulatory Guide 2 or 204 (whichever is applicable); and
• Any other information required for ASIC to conduct a detailed assessment.

You must include all the information in the format prescribed in the guide. When putting the information together, remember it’s your chance to make a good first impression on ASIC, so make it count.

2. It’s not clear what services you intend on providing

You need to be crystal clear about what products and services you will provide and how they are regulated. When reviewing your application, ASIC needs to be reasonably satisfied that you will comply with your obligations under the Corporations Act or the NCCP Act. So you need to show ASIC that you understand the law and what it means to your business.

For example, if you intend on advising on warrants, your application must be clear about what type of warrants and how they’re legally categorised. This is because warrants can legally be securities, derivatives or managed investment schemes. If it looks like you have misunderstood the regulated nature of your products or services, you will not inspire faith in ASIC.

3. Your responsible managers are unsuitable

Your responsible managers have direct responsibility for significant day-to-day decisions about your financial services. They must be able to collectively demonstrate that they have the relevant qualifications and experience for all the product authorisations you’re seeking a licence for. If they can’t, then they’re not the right people to be your responsible managers.

4. You can’t show how you will meet your statutory obligations

ASIC wants to know how you’re going to manage your business and embed your compliance arrangements. They may want to see that your processes and policies are well documented. For example, ASIC may ask to see procedures that document how you will manage representatives, training, compliance, risk, disputes and your compensation arrangements.

They may also ask to see documents that show your product research or demonstrate that you have adequate resources. For example, in a recent AAT decision one of the reasons a licence application was rejected was because the applicant couldn’t adequately demonstrate how they would manage their financial resources i.e. they had no documented policies and procedures for managing their financial resources.

If you’re applying to be a lender, ASIC may also ask to see your responsible lending and financial hardship policies.

5. You don’t respond to ASIC’s questions in a timely and adequate manner

If ASIC asks you for information, you’re expected to respond in a timely and adequate manner. For example, applicants usually have 10 business days to supply additional proofs. If you don’t provide the information or ask for an extension, your licence application may be rejected.

ASIC will look at how you communicate and conduct yourself during the process when assessing your licence application. If you don’t provide some information, it may be enough to satisfy ASIC that you can’t ensure that the “financial services covered by the licence are provided efficiently, honestly and fairly”.

By following these tips you can maximise your chances of getting your licence approved on your first attempt.

New factors will also affect licence applications soon

Recommendations from the ASIC Enforcement Review Taskforce will also impact the future assessment of licence applications. If these are adopted, ASIC may be able to:

• Refuse a licence application (or, for existing licensees, take licensing action) if it’s not satisfied that the entities or persons controlling the licensee are fit and proper;
• Cancel a licence if the licensee fails to commence business within six months;
• Refuse a licence application if it’s false or misleading in a material way;
• Require applicants to explicitly confirm that there have been no material changes to the information they gave in their application before their licence is granted;
• Align the assessment requirements for AFS and credit licence applications so that the highest standard applies; or
• Align the consequences for making false or misleading statements in documents it’s provided with.

If you’re preparing or resubmitting your licence application, we suggest having it reviewed before you submit it to ASIC. This includes ensuring you have all the core, complex product and additional proofs you require and that your responsible managers meet ASIC’s requirements.

If you need support putting together the required compliance documents and policies, we have a range of templates that you can use. We can also help you put together or review your licence application and liaise with ASIC.

Sónia Cruz

July 2019